Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act Yes ý No o

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No ý

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 ý No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes ý No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or a smaller reporting company. See definition of "accelerated filer," "large accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one).

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No ý

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant's most recently completed second fiscal quarter. $1,139,661,827

As of March 28, 2014 the registrant had 35,136,602 shares of its Common Stock issued and outstanding.

The information called for by Part III of the Form 10-K is incorporated by reference from the registrant's definitive proxy statement or amendment hereto which will be filed not later than 120 days after the end of the fiscal year covered by this report.

The goal of Hanger, Inc. ("Hanger" or the "Company") is to be the world's premier provider of services and products that enhance human physical capabilities. Built on the legacy of James Edward Hanger, the first amputee of the American Civil War, Hanger is steeped in 150 years of clinical excellence and innovation. We provide orthotic and prosthetic (O&P) patient care services, distribute O&P devices and components, manage O&P networks and provide therapeutic solutions to the broader post-acute market. We have two operating segments—Patient Care and Products & Services.

Our Products & Services segment is comprised of our distribution business, one of the largest distributors of O&P products in the United States, and our rehabilitative solutions business. Our distribution facilities in California, Florida, Georgia, Illinois, Pennsylvania and Texas allow us to deliver products to the vast majority of our distribution customers in the United States within two business days. Our rehabilitative solutions business develops specialized rehabilitation technologies and is a leading provider of evidence-based clinical programs for post-acute rehabilitation, serving more than 4,200 long-term care facilities and other sub-acute rehabilitation providers throughout the United States. This segment also develops neuromuscular technologies through independent research.

For the years ended December 31, 2013, 2012 and 2011, our net sales were $1,046.4 million, $974.4 million, and $907.8 million, respectively. We recorded net income of $63.6 million, $63.7 million and $54.5 million, for the years ended December 31, 2013, 2012 and 2011, respectively.

We have two operating segments—Patient Care and Products & Services. The following table summarizes the percentage of Net sales derived from each segment:

See Note O to our Consolidated Financial Statements contained herein elsewhere in this Annual Report on Form 10-K for financial information about our segments.

We estimate that approximately $4.3 billion is spent in the United States each year for orthotic and prosthetic products and services. Our Patient Care segment currently captures approximately 20% of that market by providing a comprehensive portfolio of orthotic, prosthetic and post-operative solutions to patients in the acute, post-acute and clinic settings.

The traditional O&P patient care industry is highly fragmented and is characterized by local, independent O&P businesses, with the majority of these businesses generally having a single facility

with annual revenues of less than $1.0 million. We do not believe that any single competitor accounts for more than 2% of the country's total estimated O&P patient care clinic revenues.

The industry is characterized by stable, recurring revenues, primarily resulting from a growing patient population and the need for periodic replacement and modification of existing O&P devices. We believe, the average replacement time for orthotic devices is one to three years, while the average replacement time for prosthetic devices is three to five years. We expect the demand for O&P services to continue to grow as a result of several key trends, including the aging of the U.S. population, resulting in an increase in the prevalence of disease associated disability, and the demand for new and advanced devices.

We estimate that approximately $2.1 billion is spent in the United States each year, principally by care providers for O&P products, components, devices and supplies. Our Products & Services segment distributes O&P products, components, devices and supplies to independent customers and to our patient care clinics. Our distribution sales account for approximately 5% of the market outside of the Company.

We estimate the market for rehabilitation technologies, integrated clinical programs and therapist training in skilled nursing facilities (SNF) to be approximately $240 million annually. We currently provide these products and services to approximately 27% of the estimated 15,700 SNFs located in the U.S. We estimate the market for rehabilitation technologies, clinical programs and training within the broader post-acute rehabilitation markets to be approximately $600 million.

Our goal is to be the partner of choice for services and products that enhance human physical capabilities. Our strategy is to pursue the creation of an integrated rehabilitative solutions model that will have a strong focus on O&P and immediately adjacent categories in order to provide our patients and customers a spectrum of related services that cater to their specific needs. In order to deliver superior long-term returns to our shareholders, we will focus on growth initiatives aligned with the changing healthcare environment, risk reduction strategies centered on product and customer diversification and cost reduction strategies aimed at protecting and enhancing our margins.

Significant changes to the business environment over the next five years, driven primarily by healthcare reform, will focus on lowering healthcare costs while improving patient outcomes and satisfaction. As a result, Hanger will focus on lowering product and service costs, efficiently managing increased patient volume, increasing partnerships with a variety of healthcare providers and investing in process and technologies to measure and report patient outcomes and satisfaction. Aging demographics and chronic disease prevalence will continue to drive demand for both O&P and rehabilitative services.

Our Patient Care segment is comprised of Hanger Clinic, Cares, Dosteon, other related O&P businesses and our contracting network management business. Through this segment, we (i) are the largest owner and operator of orthotic and prosthetic patient care clinics in the United States and (ii) manage an O&P provider network of approximately 1,150 clinics that coordinates all aspects of O&P patient care for insurance companies. As of December 31, 2013, Hanger Clinic provided O&P patient care services through over 740 patient care clinics and approximately 1,300 clinicians in 45 states and the District of Columbia. Substantially all of our clinicians are certified, or are candidates for formal certification, by the O&P industry certifying boards. A clinician manages each of our patient care clinics. Our patient care clinics also employ highly trained technical personnel who assist in the provision of services to patients and who fabricate various O&P devices, as well as office administrators who schedule patient visits, obtain approvals from payors and bill and collect for services rendered.

In our orthotics business, we design, fabricate, fit and maintain a wide range of custom-made braces and other devices (such as spinal, knee and sports-medicine braces) that provide external support to patients suffering from musculoskeletal disorders, such as ailments of the back, extremities or joints and injuries from sports or other activities. In our prosthetics business, we design, fabricate, fit and maintain custom-made artificial limbs for patients who are without limbs as a result of traumatic injuries, vascular diseases, diabetes, cancer or congenital disorders. O&P devices are increasingly technologically advanced and are custom-designed to add functionality and comfort to patients' lives, shorten the rehabilitation process and lower the cost of rehabilitation. Patients are typically referred to Hanger Clinic by an attending physician who determines a patient's treatment and writes a prescription. Our clinicians then consult with both the referring physician and the patient with a view toward assisting in the design of an orthotic or prosthetic device to meet the patient's needs.

The fitting process often involves several stages to successfully achieve desired functional and cosmetic results. Custom devices are fabricated and fitted by our skilled technicians using plaster castings, measurements and designs made by our clinicians. Frequently, our proprietary Insignia scanning system is used to measure and design devices. The Insignia system scans the patient and produces a very accurate computer generated image of the patient's residual limb, resulting in a faster turnaround for the patient's device and a more professional overall experience. In order to provide timely service to our patients, we employ technical personnel and maintain laboratories at many of our patient care clinics. We have earned a strong reputation within the O&P industry for the development and use of innovative technology in our products, which has increased patient comfort and capability and can significantly enhance the rehabilitation process.

Government reimbursement, comprised of Medicare, Medicaid and the U.S. Department of Veterans Affairs, in the aggregate, accounted for approximately 40.0%, 40.4%, and 40.0% of our net sales in 2013, 2012, and 2011, respectively. These payors have set maximum reimbursement levels for O&P services and products. Medicare prices are adjusted each year based on the Consumer Price Index-Urban ("CPIU") unless Congress acts to change or eliminate the adjustment. The CPIU is adjusted further by an efficiency factor ("the Productivity Adjustment" or "the MFP Adjustment") in order to determine the final rate adjustment each year. The Medicare price increases/(decreases) for 2014, 2013, 2012, 2011, and 2010 were 1.0%, 0.8%, 2.4%, (0.1%), and 0.0%, respectively. There can be no assurance that future changes will not reduce reimbursements for O&P services and products from these sources.

We enter into contracts with third-party payors that allow us to perform O&P services for a referred patient and be paid under the contract with the third-party payor. These contracts typically have a stated term of one to three years. These contracts generally may be terminated without cause by either party on 60 to 90 days' notice or on 30 days' notice if we have not complied with certain licensing, certification, program standards, Medicare or Medicaid requirements or other regulatory requirements. Reimbursement for services is typically based on a fee schedule negotiated with the third-party payor that reflects various factors, including geographic area and number of persons covered.

Our contract and network management business, known as Linkia, is the only network management company dedicated solely to serving the O&P market for national and regional insurance companies. We partner with healthcare insurance companies either as a preferred provider or to manage their O&P network of providers. Our network now includes approximately 1,150 O&P provider locations in total, composed of approximately 750 Hanger locations and 400 independent providers. As of December 31, 2013, Linkia had 57 contracts with national and regional insurance companies.

Our Products & Services segment was created in the first quarter of 2013 through the combination of our previously reported Distribution segment and Therapeutic Solutions segment. Through our wholly-owned subsidiary, Southern Prosthetic Supply (SPS), we distribute O&P components both to independent customers and to our own patient care clinics. This business maintains over 26,000 individual SKUs in inventory, which are manufactured by more than 375 different companies, is a leading fabricator and distributor of therapeutic footwear for diabetic patients in the podiatric market and fabricates O&P devices both for our O&P clinics and those of our competitors. Our distribution facilities in California, Florida, Georgia, Illinois, Pennsylvania and Texas allow us to deliver products to the vast majority of our distribution customers in the United States within two business days.

Marketing of our services is conducted on a national basis through a dedicated sales force, print and e-commerce catalogues, and exhibits at industry and medical meetings and conventions. We direct specialized catalogues to segments of the healthcare industry, such as orthopedic surgeons, physical and occupational therapists, and podiatrists.

Through our wholly-owned subsidiary, Accelerated Plus ("ACP"), our rehabilitative solutions business is the nation's leading provider of rehabilitation technologies and integrated clinical programs to rehabilitation providers. Our unique value proposition is to provide our customers with a full-service "total solutions" approach encompassing proven medical technology; evidence based clinical programs, and continuous onsite therapist education and training. Our services support increasingly advanced treatment options for a broader patient population and more medically complex conditions. We serve more than 4,200 skilled nursing facilities nationwide, including 21 of the 25 largest national providers.

We also have a product development business specializing in the commercialization of emerging products in the O&P and rehabilitation markets. Working with inventors under licensing and consulting agreements, we commercialize the design, obtain regulatory approvals, develop clinical protocols for the technology, and then introduce the devices to the marketplace through a variety of distribution channels. We currently have two commercial products: the V-Hold, which is active vacuum technology used in lower extremity prosthetic devices, and the WalkAide system, which benefits patients with a condition referred to as foot drop. The V-Hold is primarily sold through our patient care clinics. The WalkAide system is currently reimbursable for Medicare beneficiaries with foot drop due to incomplete spinal cord injuries. Our product development business conducted randomized clinical trials in an effort to gain additional coverage for stroke patients with foot drop, which represents the largest potential patient population. We analyzed the clinical trial data and were accepted for publication in 2013. In February 2014, the trial result findings were published in the peer-reviewed journal Neurorehabilitation and Neural repair, and we submitted these findings to the Centers of Medicare and Medicaid Services (CMS) as part of a request for expanded coverage for the WalkAide. The WalkAide system is sold in the United States through our patient care clinics and SPS. We are also marketing the system internationally through a network of distributors in Europe, the Middle East/Africa, Latin America, Canada, and Asia. Research and development expenses, which were reported in Other operating expenses on our Consolidated Statements of Income and Comprehensive Income for the year ended December 31, 2013, 2012 and 2011 were $0.5 million, $0.7 million and $1.2 million, respectively.

We believe the combination of the following competitive strengths will help us to grow our businesses by increasing our net sales, net income and market share:

In our O&P patient care businesses, we purchase prefabricated O&P devices, components and materials from in excess of 375 suppliers across the country that our technicians use to fabricate O&P products. These devices, components and materials are used in the products we offer in our patient care clinics throughout the United States. As of December 31, 2013 only three of our third-party suppliers accounted for more than 5% of our total annual purchases.

In our O&P patient care business, individual clinicians in local patient care clinics historically have conducted our sales and marketing efforts. Due primarily to the fragmented nature of the O&P industry, the success of a particular patient care clinic has been largely a function of its local reputation for quality of care, responsiveness and length of service in the local communities. In our Products & Services segment, we employ dedicated sales professionals that generally are responsible for a geographic region or specific product line.

In addition, we have developed a centralized marketing department, the goal of which is to augment the efforts of the business segment personnel. In the case of our O&P business, this enables the clinician to focus more of his or her efforts on patient care. Our sales and marketing effort targets the following:

In 2013, we acquired nine O&P companies with approximately $19.2 million in annualized revenue, operating a total of 18 patient care clinics located in Colorado, Florida, Georgia, Kansas, Kentucky, Maryland, Tennessee and Virginia. The aggregate purchase price for these O&P businesses was $14.1 million, including $9.1 million in cash and $5.0 million in unsecured notes and contingent earn-out payments to be paid over the next two years. We have preliminarily allocated the purchase price for 2013 acquisitions to the individual assets acquired and liabilities assumed. Our valuations are subject to adjustment as additional information is obtained; however, these adjustments are not expected to be material. The excess of purchase price over the aggregate fair values was recorded as goodwill. We incurred $0.9 million of one-time legal costs and other related acquisition expenses. Acquisition related expenses are included in Other operating expenses on our Consolidated Statements of Income and Comprehensive Income in the period incurred.

In 2012, we acquired 18 O&P companies with approximately $60.2 million in annualized revenue, operating a total of 59 patient care clinics located in Michigan, Montana, Washington, Alabama, Colorado, Tennessee, Texas, Oregon, Mississippi, Ohio, South Carolina, Maryland, Indiana, Georgia, Louisiana, North Carolina and California. The aggregate purchase price for these O&P businesses was $83.1 million, including $60.1 million in cash and $23.0 million in unsecured notes and contingent earn-out payments to be paid over the next five years. We have allocated the purchase price for 2012 acquisitions to the individual assets acquired and liabilities assumed. The excess of purchase price over the aggregate fair values was recorded as goodwill. We incurred $1.2 million of one-time legal costs and other related acquisition expenses. Acquisition related expenses are included in Other operating expenses on our Consolidated Statements of Income and Comprehensive Income in the period incurred.

Subsequent to December 31, 2013, the Company acquired seven O&P companies for approximately $29 million.

The O&P services industry is highly fragmented, consisting mainly of local O&P patient care clinics. The business of providing O&P patient care services is highly competitive in the markets in which we operate. We compete with numerous small independent O&P providers for referrals from physicians, therapists, employers, HMOs, PPOs, hospitals, rehabilitation centers, out-patient clinics and insurance companies on both a local and regional basis. We compete with other patient care service providers, including device manufacturers that have independent sales forces, on the basis of quality and timeliness of patient care, location of patient care clinics and pricing for services.

We also compete with independent O&P providers for the retention and recruitment of qualified clinicians. In some markets, the demand for clinicians exceeds the supply of qualified personnel.

Our Products & Services segment competes with other distributors, manufactures who sell their products directly, and providers of equipment and services on a regional and national basis that have similar sales forces and products. Some of our distributor competitors are also dedicated to the O&P industry, but many others are large medical product distributors who also distribute O&P products, particularly orthotic products. We strive to differentiate our products with additional services such as clinical protocols and continuing education.

We are subject to a variety of federal, state and local governmental regulations. We make every effort to comply with all applicable regulations through compliance programs, policies and procedures, manuals, and personnel training. Despite these efforts, we cannot guarantee that we will be in absolute compliance with all regulations at all times. Failure to comply with applicable governmental regulations may result in significant penalties, including exclusion from the Medicare and Medicaid programs, which would have a material adverse effect on our business.

Medical Device Regulation. We distribute products that are subject to regulation as medical devices by the U.S. Food and Drug Administration ("FDA") under the Federal Food, Drug and Cosmetic Act ("FDCA") and accompanying regulations. With the exception of two products which have been cleared for marketing as prescription medical devices under section 510(k) of the FDCA, we believe that the products we distribute, including O&P medical devices, accessories and components, are exempt from the FDA's regulations for pre-market clearance or approval requirements and from requirements relating to quality system regulation (except for certain recordkeeping and complaint handling requirements). We are required to adhere to regulations regarding adverse event reporting, establishment registration, and product listing; and we are subject to inspection by the FDA for compliance with all applicable requirements. Labeling and promotional materials also are subject to scrutiny by the FDA and, in certain circumstances, by the Federal Trade Commission. Our medical device operations are subject to inspection by the FDA for compliance with applicable FDA requirements, and the FDA has raised compliance concerns in connection with these investigations. We believe we have addressed these concerns and are in compliance with applicable FDA requirements, but we cannot assure that we will be found to be in compliance at all times. Non-compliance could result in a variety of civil and/or criminal enforcement actions, which could have a material adverse effect on our business and results of operations.

Fraud and Abuse. Violations of fraud and abuse laws are punishable by criminal and/or civil sanctions, including, in some instances, imprisonment and exclusion from participation in federal healthcare programs, including Medicare, Medicaid, U.S. Department of Veterans Affairs health programs and the Department of Defense's TRICARE program, formerly known as CHAMPUS. These laws, which include but are not limited to, antikickback laws, false claims laws, physician self-referral laws, and federal criminal healthcare fraud laws, are discussed in further detail below. We believe our billing practices, operations, and compensation and financial arrangements with referral sources and others

materially comply with applicable federal and state requirements. However, we cannot assure that such requirements will not be interpreted by a governmental authority in a manner inconsistent with our interpretation and application. The failure to comply, even if inadvertent, with any of these requirements could require us to alter our operations and/or refund payments to the government. Such refunds could be significant and could also lead to the imposition of significant penalties. Even if we successfully defend against any action against us for violation of these laws or regulations, we would likely be forced to incur significant legal expenses and divert our management's attention from the operation of our business. Any of these actions, individually or in the aggregate, could have a material adverse effect on our business and financial results.

Antikickback Laws. Our operations are subject to federal and state antikickback laws. The federal Antikickback Statute (Section 1128B(b) of the Social Security Act) prohibits persons or entities from knowingly and willfully soliciting, offering, receiving, or paying any remuneration in return for, or to induce, the referral of persons eligible for benefits under a federal healthcare program (including Medicare, Medicaid, the U.S. Department of Veterans Affairs health programs and TRICARE), or the ordering, purchasing, leasing, or arranging for, or the recommendation of purchasing, leasing or ordering of, items or services that may be paid for, in whole or in part, by a federal healthcare program. Courts have held that the statute may be violated when even one purpose (as opposed to a primary or sole purpose) of the remuneration is to induce referrals or other business.

Recognizing that the Antikickback Statute is broad and may technically prohibit beneficial arrangements, the Office of Inspector General of the Department of Health and Human Services has developed regulations addressing certain business arrangements that will offer protection from scrutiny under the Antikickback Statute. These "Safe Harbors" describe activities which may be protected from prosecution under the Antikickback Statute, provided that they meet all of the requirements of the applicable Safe Harbor. For example, the Safe Harbors cover activities such as offering discounts to healthcare providers and contracting with physicians or other individuals or entities that have the potential to refer business to us that would ultimately be billed to a federal healthcare program. Failure to qualify for Safe Harbor protection does not mean that an arrangement is illegal. Rather, the arrangement must be analyzed under the Antikickback Statute to determine whether there is intent to pay or receive remuneration in return for referrals. Conduct and business arrangements that do not fully satisfy one of the Safe Harbors may result in increased scrutiny by government enforcement authorities. In addition, some states have antikickback laws that vary in scope and may apply regardless of whether a federal healthcare program is involved.

Our operations and business arrangements include, for example, discount programs or other financial arrangements with individuals and entities, such as lease arrangements with hospitals and certain participation agreements. Therefore, our operations and business arrangements are required to comply with the antikickback laws. Although our business arrangements and operations may not always satisfy all the criteria of a Safe Harbor, we believe that our operations are in material compliance with federal and state antikickback statutes.

HIPAA Violations. The Health Insurance Portability and Accountability Act ("HIPAA") provides criminal penalties for, among other offenses: health care fraud; theft or embezzlement with respect to a health care benefit program; false statements in connection with the delivery of or payment for health care benefits, items or services; and obstruction of criminal investigation of health care offenses. Unlike other federal laws, these offenses are not limited to Federal health care programs.

In addition, HIPAA authorizes the imposition of civil monetary penalties where a person offers or pays remuneration to any individual eligible for benefits under a federal healthcare program that such person knows or should know is likely to influence the individual to order or receive covered items or services from a particular provider, clinician or supplier. Excluded from the definition of "remuneration" are incentives given to individuals to promote the delivery of preventive care (excluding

cash or cash equivalents), incentives of nominal value and certain differentials in or waivers of coinsurance and deductible amounts.

These laws may apply to certain of our operations. As noted above, we have established various types of discount programs and other financial arrangements with individuals and entities. We also bill third-party payors and other entities for items and services provided at our patient care clinics. While we endeavor to ensure that our discount programs and other financial arrangements, and billing practices comply with applicable laws, such programs, arrangements and billing practices could be subject to scrutiny and challenge under HIPAA.

False Claims Laws. We are also subject to federal and state laws prohibiting individuals or entities from knowingly presenting, or causing to be presented, claims for payment to third-party payors (including Medicare and Medicaid) that are false or fraudulent, are for items or services not provided as claimed, or otherwise contain misleading information. Each of our patient care clinics is responsible for the preparation and submission of reimbursement claims to third-party payors for items and services furnished to patients. In addition, our personnel may, in some instances, provide advice on billing and reimbursement to purchasers of our products. While we endeavor to assure that our billing practices comply with applicable laws, if claims submitted to payors are deemed to be false, fraudulent, or for items or services not provided as claimed, we may face liability for presenting or causing to be presented such claims.

Physician Self-Referral Laws. We are also subject to federal and state physician self-referral laws. With certain exceptions, the federal Medicare physician self-referral law (the "Stark Law") (Section 1877 of the Social Security Act) prohibits a physician from referring Medicare beneficiaries to an entity for "designated health services"—including prosthetic and orthotic devices and supplies—if the physician or the physician's immediate family member has a financial relationship with the entity. A financial relationship includes both ownership or investment interests and compensation arrangements. An entity that furnishes designated health services pursuant to a prohibited referral may not present or cause to be presented a claim or bill for such designated health services. Penalties for violating the Stark Law include denial of payment for the service, an obligation to refund any payments received, civil monetary penalties, and the possibility of being excluded from the Medicare or Medicaid programs.

With respect to ownership/investment interests, there is an exception under the Stark Law for referrals made to a publicly traded entity in which the physician or the physician's immediate family member has an investment interest if the entity's shares are generally available to the public at the time of the designated health service referral, and are traded on certain exchanges, including the New York Stock Exchange, and the entity had shareholders' equity exceeding $75.0 million for its most recent fiscal year or as an average during the three previous fiscal years. We meet these tests and, therefore, believe that referrals from physicians who have ownership interests in our stock, or whose immediate family members have ownership interests in our stock, should not result in liability under the Stark Law.

With respect to compensation arrangements, there are exceptions under the Stark Law that permit physicians to maintain certain business arrangements, such as personal service contracts and equipment or space leases, with healthcare entities to which they refer patients for designated health services. Unlike the Antikickback Statute, all of the elements of a Stark Law exception must be met in order for the exception to apply. We believe that our compensation arrangements with physicians comply with the Stark Law, either because the physician's relationship fits fully within a Stark Law exception or because the physician does not generate prohibited referrals. If, however, we receive a prohibited referral, our submission of a bill for services rendered pursuant to such a referral could subject us to sanctions under the Stark Law and applicable state self-referral laws. State self-referral laws may extend the prohibitions of the Stark Law to Medicaid beneficiaries.

Certification and Licensure. Our clinicians and/or certain operating units may be subject to certification or licensure requirements under the laws of some states. Most states do not require separate licensure for clinicians. However, several states currently require clinicians to be certified by an organization such as the American Board for Certification. The American Board for Certification conducts a certification program for clinicians and an accreditation program for patient care clinics. The minimum requirements for a certified clinician are a college degree, completion of an accredited academic program, one to four years of residency at a patient care clinic under the supervision of a certified clinician and successful completion of certain examinations. Minimum requirements for an accredited patient care clinic include the presence of a certified clinician and specific plant and equipment requirements.

Some states may require licensure or registration of facilities that dispense or distribute prescription medical devices within or from outside of the state. In addition, some states may require a license or registration to provide services such as those offered by Linkia. We are in the process of meeting these requirements.

While we endeavor to comply with all state licensure requirements, we cannot assure that we will be in compliance at all times with these requirements. Failure to comply with state licensure requirements could result in suspension or termination of licensure, civil penalties, termination of our Medicare and Medicaid agreements, and repayment of amounts received from Medicare and Medicaid for services and supplies furnished by an unlicensed individual or entity.

Confidentiality and Privacy Laws. The Administrative Simplification Provisions of HIPAA, and their implementing regulations, set forth privacy standards and implementation specifications concerning the use and disclosure of individually identifiable health information (referred to as "protected health information") by health plans, healthcare clearinghouses and healthcare providers that transmit health information electronically in connection with certain standard transactions ("Covered Entities"). HIPAA further requires Covered Entities to protect the confidentiality of health information by meeting certain security standards and implementation specifications. In addition, under HIPAA, Covered Entities that electronically transmit certain administrative and financial transactions must utilize standardized formats and data elements ("the transactions/code sets standards"). HIPAA imposes civil monetary penalties for non-compliance, and, with respect to knowing violations of the privacy standards, or violations of such standards committed under false pretenses or with the intent to sell, transfer or use individually identifiable health information for commercial advantage, criminal penalties. We believe that we are subject to the Administrative Simplification Provisions of HIPAA and are taking steps to meet applicable standards and implementation specifications. The new requirements have had a significant effect on the manner in which we handle health data and communicate with payors. Our billing system, OPS, was designed to meet these requirements.

In addition, state confidentiality and privacy laws may impose civil and/or criminal penalties for certain unauthorized or other uses or disclosures of individually identifiable health information. We are also subject to these laws. While we endeavor to assure that our operations comply with applicable laws governing the confidentiality and privacy of health information, we could face liability in the event of a use or disclosure of health information in violation of one or more of these laws.

None of our employees are subject to a collective-bargaining agreement. We believe that we have satisfactory relationships with our employees and strive to maintain these relationships by offering competitive benefit packages, training programs and opportunities for advancement. During the year ended December 31, 2013, we had an average of approximately 4,800 employees of which approximately 1,300 were clinicians.

We provide a series of ongoing training programs to improve the professional knowledge of our clinicians. For example, we have an annual Education Fair that is attended by over 850 of our clinicians and consists of lectures and seminars covering many clinical topics including the latest technology and process improvements, business courses and other courses that allow the clinicians to fulfill their ongoing continuing education requirements.

We currently maintain insurance coverage for professional liability, product liability, general liability, workers' compensation, executive protection and property damage and other lines of insurance. Our general liability insurance coverage is $1.0 million per incident, with a $50.0 million umbrella insurance policy. The coverage for professional liability, product liability and workers' compensation is self-insured with both individual specific claim and aggregate stop-loss policies to protect us from either significant individual claims or dramatic changes in our loss experience. Based on our experience and prevailing industry practices, we believe our coverage is adequate as to risks and amount.

Some of the statements contained in this report discuss our plans and strategies for our business or make other forward-looking statements, as this term is defined in the Private Securities Litigation Reform Act. The words "anticipates," "believes," "estimates," "expects," "plans," "intends" and similar expressions are intended to identify these forward-looking statements, but are not the exclusive means of identifying them. These forward-looking statements reflect the current views of our management; however, various risks, uncertainties and contingencies could cause our actual results, performance or achievements to differ materially from those expressed in, or implied by, these statements, including the following:

For a discussion of important risk factors affecting our business, including factors that could cause actual results to differ materially from results referred to in the forward-looking statements, see "Item 1A—Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" below. We do not have any obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise.

Changes in government reimbursement levels could adversely affect our net sales, cash flows and profitability.

We derived 40.0%, 40.4% and 40.0% of our net sales for the years ended December 31, 2013, 2012 and 2011, respectively, from reimbursements for O&P services and products from programs administered by Medicare, Medicaid and the U.S. Department of Veterans Affairs. Each of these programs set maximum reimbursement levels for O&P services and products. If these agencies reduce reimbursement levels for O&P services and products in the future, our net sales could substantially decline. In addition, the percentage of our net sales derived from these sources may increase as the portion of the U.S. population over age 65 continues to grow, making us more vulnerable to reimbursement reductions by these organizations. Reduced government reimbursement levels could result in reduced private payor reimbursement levels because fee schedules of certain third-party payors are indexed to Medicare. Furthermore, the healthcare industry is experiencing a trend towards cost containment as government and other third-party payors seek to impose lower reimbursement rates and negotiate reduced contract rates with service providers. This trend could adversely affect our net sales. For example, a number of states have reduced their Medicaid reimbursement rates for O&P services and products, or have reduced Medicaid eligibility, and others are in the process of reviewing Medicaid reimbursement policies generally, including for prosthetic and orthotic devices. Additionally, Medicare provides for reimbursement for O&P products and services based on prices set forth in fee schedules for ten regional service areas. Medicare prices are adjusted each year based on the Consumer Price Index—Urban ("CPIU") unless Congress acts to change or eliminate the adjustment. The Medicare price increases/(decreases) for 2014, 2013, 2012, 2011 and 2010 were 1.0%, 0.8%, 2.4%, (0.1%) and 0.0%, respectively. The Patient Protection and Affordable Care Act, Pub. L. No. 111-148, March 23, 2010 ("PPACA") changed the Medicare inflation factors applicable to O&P (and other) suppliers. The annual updates for years subsequent to 2011 are based on the percentage increase in the CPI-U for the 12-month period ending with June of the previous year. Section 3401(m) of PPACA required that for 2011 and each subsequent year, the fee schedule update factor based on the CPI-U for the 12-month period ending with June of the previous year is to be adjusted by the annual change in economy-wide private nonfarm business multifactory productivity ("the MFP Adjustment"). The MFP Adjustment may result in the percentage increase being less than zero for a year, and may result in payment rates for a year being less than such payment rates for the preceding year. CMS has not yet issued a final rule implementing these adjustments for years beyond 2011, but has indicated in a proposed rule that it will do so as part of the annual program instructions to the O&P fee schedule updates. See 75 Fed. Reg. 40040, 40122, et seq. (July 13, 2010). If the U.S. Congress were to legislate additional modifications to the Medicare fee schedules, our net sales from Medicare and other payors could be adversely and materially affected.

The Budget Control Act of 2011 required, among other things, mandatory across-the-board reductions in Federal spending, or "sequestration." While delayed by the American Taxpayer Relief Act of 2012, President Obama issued a sequestration order on March 1, 2013. For services provided on or after April 1, 2013, Medicare fee-for-service claim payments, including those for DMEPOS (durable medical equipment (DME), prosthetics, orthotics and supplies) as well as claims under the DME Competitive Bidding Program, are reduced by 2 percent. This is a claims payment adjustment with limited impact on the Company (approximately $2.8 million through December 31, 2013) ; no permanent reductions in the Medicare DMEPOS fee schedule have been made as a result of sequestration, therefore reimbursements from Medicaid, the VA and commercial payers who use the Medicare fee schedule as a basis for reimbursement have not been impacted.

In addition to the risks to our Patient Care segment businesses discussed above, changes in government reimbursement levels could also adversely affect the net sales, cash flows and profitability of one of the business in our Product & Services segment business. In particular, a significant majority of sales at ACP involve devices and related services provided to skilled nursing facilities (SNFs) and similar

businesses. Reductions in government reimbursement levels to SNFs could cause such SNFs to reduce or cancel their use of ACP's devices and modalities, negatively impacting net sales, cash flows and profitability. For example in July 2011 CMS announced an across the board reduction of approximately 10% in SNF reimbursement levels, negatively impacting the demand for ACP's devices and treatment modalities. We cannot predict whether any other modifications to reimbursement levels will be implemented, or if implemented what form any modifications might take.

Changes in payor reimbursements could negatively affect our net sales volume.

Recent years have seen a consolidation of healthcare companies coupled with certain payors terminating contracts, imposing caps or reducing reimbursement for O&P products. Additionally, employers are increasingly pushing healthcare costs down to their employees. These trends could result in decreased O&P revenue.

Healthcare reform in the United States may adversely affect our net sales, cash flows and profitability.

Various healthcare reform measures have been enacted into law in recent years, including the Patient Protection and Affordable Care Act adopted in March of 2010 ("PPACA"). These reforms are significant and over time could significantly change the way healthcare, including O&P services and products, are obtained and paid for in the United States. These changes are designed to increase access to and reduce the cost of healthcare through, among other things: expanded access to Medicaid; incentives to encourage shared savings programs, such as accountable care organizations; other alternative payment methodologies for Medicare reimbursement; and mandated private insurance for most non-indigent individuals under the age of 65. The reforms also include stronger enforcement tools and increased penalties. These changes could have a dramatic impact on the healthcare market generally, including the O&P services and products markets. It remains unclear, however, the ultimate impact the reforms will have since they will not be fully implemented for a number of years, and the reforms have been, and could be, further modified, delayed or repealed prior to full implementation. Nevertheless, the reforms, when implemented, may have an adverse affect our net sales, cash flows and profitability.

We face periodic reviews, audits and investigations under our contracts with federal and state government agencies, and these audits could have adverse findings that may negatively impact our business.

We contract with various federal and state governmental agencies to provide O&P services. Pursuant to these contracts, we are subject to various governmental reviews, audits and investigations to verify our compliance with the contracts and applicable laws and regulations. Any adverse review, audit or investigation could result in:

In recent years we have seen a significant increase in Medicare audits, including Recover Audit Contractor or RAC audits, Comprehensive/Error Rate Testing or CERT audits and Medicare Administrative Contractor (MAC) prepayment audits. At December 31, 2013, 2012 and 2011 we had approximately $15.2 million, $5.4 million and an immaterial amount of claims subject to pending Medicare audits, respectively. Through December 31, 2013, our success rate on these audits at final adjudication (the Administrative Law Judge hearing) was approximately 90%. Nevertheless, Medicare

audits could have a material and adverse effect on our business financial condition and result of operations, particularly if our success rate at final adjudication were to decline.

We are subject to numerous federal, state and local governmental regulations, noncompliance with which could result in significant penalties that could have a material adverse effect on our business.

A failure by us to comply with the numerous federal, state and/or local healthcare and other governmental regulations to which we are subject, including the regulations discussed under "Government Regulation" in Item 1 above, could result in significant penalties and adverse consequences, including exclusion from the Medicare and Medicaid programs, which could have a material adverse effect on our business.

If we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results, timely file our periodic reports, maintain our reporting status or prevent fraud.

In connection with our assessment of the effectiveness of our internal control over financial reporting as of December 31, 2013, we concluded there were certain material weaknesses in internal control over financial reporting. Specifically, we did not design and maintain effective controls over i) raw materials to ensure items are priced using the first in first out method resulting from the identification of inaccurate prices utilized in the valuation of our inventory quantities on hand based on physical observation; ii) the accuracy of the stage of completion in valuing work-in-process inventory resulting from the identification of data input errors from our physical inventory observation used in the valuation of our work-in-process inventory; and iii) certain key assumptions used in the valuation of work-in-process inventory resulting from the identification of inaccurate or imprecise data used in the development of these assumptions. Under standards established by the Public Company Accounting Oversight Board, a material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected or corrected on a timely basis.

We are working to remediate the material weaknesses. We have begun taking steps and plan to take additional measures to remediate the underlying causes of the material weaknesses, primarily through the continued development and implementation of formal policies, improved processes and documented procedures, as well as the hiring of additional finance personnel. The actions that we are taking are subject to ongoing senior management review, as well as audit committee oversight. Although we plan to complete this remediation as quickly as possible, we cannot at this time estimate how long it will take, and our initiatives may not prove to be successful in remediating our material weaknesses. If our remedial measures are insufficient to address the material weaknesses, or if additional material weaknesses or significant deficiencies in our internal control over financial reporting are discovered or occur in the future, then there exists a risk that our consolidated financial statements may contain material misstatements that are unknown to us at that time, and such misstatements could require us to restate our financial results.

Our management or our independent registered public accounting firm may identify other material weaknesses in our internal control over financial reporting in the future. The existence of a material weakness in our internal control over financial reporting may result in current and potential stockholders losing confidence in our financial reporting, which could negatively impact the market price of our common stock.

In addition, the existence of material weaknesses in our internal control over financial reporting may affect our ability to timely file periodic reports under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Our inability to timely file periodic reports under the Exchange Act could result in the SEC revoking the registration of our common stock, the New York Stock Exchange delisting our

common stock, or a default or an event of default under our credit and other debt agreements. Any of these events could have a material adverse effect on the market price of our common stock or on our business, financial condition and results of operations.

The implementation of Janus, our new comprehensive clinic management system, could interfere with our patient care clinic operations and adversely affect our business, financial condition and results of operations.

We depend on our information technology infrastructure to achieve our business objectives. We are currently in the process of implementing Janus, our new comprehensive clinic management system in our patient care clinics. We are in the process of rolling out Janus, and expect the rollout to continue through 2016. Any disruptions, delays or complications in the implementation process, or any deficiencies in the design, operation or expected performance of this new system, could result in higher than expected implementation costs, the diversion of management's and other employee's attention from the day-to-day operations of our patient care clinics, including scheduling patient visits, and other disruptions to our patient care business. Any of these consequences could have an adverse impact on our revenue or costs and could materially and adversely affect our business, financial condition and results of operations.

If the non-competition agreements we have with our key executive officers and key clinicians were found by a court to be unenforceable, we could experience increased competition resulting in a decrease in our net sales.

We generally enter into employment agreements with our executive officers and a significant number of our clinicians which contain non-compete and other provisions. The laws of each state differ concerning the enforceability of non-competition agreements. State courts will examine all of the facts and circumstances at the time a party seeks to enforce a non-compete covenant. We cannot predict with certainty whether or not a court will enforce a non-compete covenant in any given situation based on the facts and circumstances at that time. If one or more of our key executive officers and/or a significant number of our clinicians were to leave us and the courts refused to enforce the non-compete covenant, we might be subject to increased competition, which could materially and adversely affect our business, financial condition and results of operations.

Our website is http://www.hanger.com. We make available free of charge, on or through our website, our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, Section 16 filings (i.e. Forms 3, 4 and 5), proxy statements, and other documents as required by applicable law and regulations as soon as reasonably practicable after electronically filing such reports with the Securities and Exchange Commission at http://www.sec.gov. The public may read and copy any materials that we file with the SEC at the SEC's Public Reference Room at 100 F Street N.E., Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330 (1-800-732-0330). The SEC maintains an Internet site (http://www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. Our website also contains the charters of the Audit Committee, Corporate Governance and Nominating Committee, Compensation Committee and Quality and Technology Committee of our Board of Directors; our Code of Business Conduct and Ethics for Directors and Employees, which includes our principal executive, financial and accounting officers; as well as our Corporate Governance Guidelines. Information contained on our website is not part of this report.

As of December 31, 2013, we operated over 740 patient care clinics and facilities in 45 states and the District of Columbia. We own 14 buildings that house a patient care clinic. The remaining clinics are occupied under leases expiring between 2014 and 2023. We believe our leased and owned facilities are adequate for carrying out our current and anticipated future O&P operations. We believe we will be able to renew such leases as they expire or find comparable or alternative space on commercially suitable terms.

The following table sets forth the number of our patient care clinics located in each state as of December 31, 2013:

State		State		State

Alabama	14	Louisiana	16	North Carolina	21
Arizona	41	Maine	5	North Dakota	2
Arkansas	6	Maryland	13	Ohio	37
California	81	Massachusetts	8	Oklahoma	11
Colorado	22	Michigan	8	Oregon	14
Connecticut	10	Minnesota	6	Pennsylvania	30
Delaware	1	Mississippi	15	South Carolina	21
District of Columbia	1	Missouri	21	South Dakota	1
Florida	55	Montana	5	Tennessee	16
Georgia	35	Nebraska	10	Texas	43
Illinois	26	Nevada	5	Utah	4
Indiana	12	New Hampshire	2	Virginia	11
Iowa	14	New Jersey	8	Washington	18
Kansas	13	New Mexico	8	West Virginia	6
Kentucky	10	New York	29	Wisconsin	11
				Wyoming	3

Other real estate holdings include our lease distribution facilities in Texas, California, Georgia, Florida, Illinois & Pennsylvania, our corporate headquarters in Austin, Texas, and the headquarters for our rehabilitative solutions in Reno, Nevada. Substantially all of our owned properties are pledged to collateralize bank indebtedness. See Note G to our Consolidated Financial Statements for further information regarding our outstanding debt.

We are subject to legal proceedings and claims which arise in the ordinary course of our 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 our financial position, liquidity or results of our operations.

We are in a highly regulated industry and receive regulatory agency inquiries from time to time in the ordinary course of our business, including inquiries relating to our 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 our consolidated financial statements.

On May 20, 2013, the Staff of the SEC's Division of Enforcement informed us that it was conducting an investigation of the Company and made a request for a voluntary production of documents and

information concerning our calculations of bad debt expense and allowance for doubtful accounts. We are cooperating fully with the SEC Staff.

The following table sets forth information regarding current executive officers of the Company and certain of its subsidiaries:

Name		Office with the Company

Vinit K. Asar	48	President and Chief Executive Officer
Richmond L. Taylor	65	Executive Vice President of Hanger, Inc., President and Chief Operating Officer of Hanger Prosthetics & Orthotics, Inc.
George E. McHenry	61	Executive Vice President, Secretary, and Chief Financial Officer
Russell G. Allen	43	Vice President and Treasurer
Thomas E. Hartman.	51	Vice President and General Counsel
Rebecca J. Hast	63	President of Linkia, LLC
Walt A. Meffert, Jr	50	Vice President and Chief Information Officer
Andrew C. Morton	48	Vice President, Human Resources
Kenneth W. Wilson	51	President and Chief Operating Officer of Southern Prosthetic Supply, Inc.

Vinit K. Asar has been our Chief Executive Officer and President since May 2012, and served as our President and Chief Operating Officer from September 2011 to May 2012. Mr. Asar also served as our Executive Vice President and Chief Growth Officer from December 2008 to September 2011. Mr. Asar came to Hanger from the Medical Device & Diagnostic sector at Johnson and Johnson, having worked at the Ethicon, Ethicon-Endo-Surgery, Cordis and Biosense Webster franchises. During his 18 year career at Johnson and Johnson, Mr. Asar held various roles of increasing responsibility in Finance, Product Development, Manufacturing, and Marketing and Sales in the US and in Europe. Prior to joining Hanger, Mr. Asar was the Worldwide Vice-President at Biosense Webster, the Electrophysiology division of Johnson and Johnson, responsible for the Worldwide Sales, Marketing and Services organizations. Mr. Asar has a B.S.B.A from Aquinas College and an M.B.A. from Lehigh University.

Richmond L. Taylor is our Executive Vice President of Hanger Inc, and the President and Chief Operating Officer of Hanger Prosthetics & Orthotics, Inc. and HPO, Inc., our two wholly-owned subsidiaries which operate all of our patient care clinics. Previously, Mr. Taylor served as the Chief Operating Officer of NovaCare O&P from June 1996 until July 1999, and held the positions of Region Vice-President and Region President of NovaCare O&P for the West Region from 1989 to June 1996. Prior to joining NovaCare O&P, Mr. Taylor spent 20 years in the healthcare industry in a variety of management positions including Regional Manager at American Hospital Supply Corporation, Vice President of Operations at Medtech, Vice President of Sales at Foster Medical Corporation and Vice President of Sales at Integrated Medical Systems.

George E. McHenry has been our Executive Vice President and Chief Financial Officer since October 2001 and our Secretary since 2004. From 1987 until he joined us in October 2001, Mr. McHenry served as Executive Vice President, Chief Financial Officer and Secretary of U.S. Vision, Inc., an optical company with 600 locations in 47 states. Prior to joining U.S. Vision, Inc., he was employed principally as a Senior Manager by the firms of Touche Ross & Co. (now Deloitte & Touche) and Main Hurdman (now KPMG LLP) from 1974 to 1987. Mr. McHenry is a Certified Public Accountant and received a Bachelor of Science degree in accounting from St. Joseph's University.

Russell G. Allen joined us in March of 2011 as our Vice President and Treasurer. Mr. Allen joined Hanger from Lance, Inc., a publicly traded consumer products company located in Charlotte, North Carolina, where he served in a variety of positions from 2003 to 2011, including Vice President of Treasury and Planning, and Director of Financial Planning & Analysis and Investor Relations. From 1995 to 2002 Mr. Allen worked at Ford Motor Company in Dearborn, Michigan, where he held various roles of increasing responsibility as part of Ford's Finance Management Development Program. Mr. Allen is a Certified Public Accountant and received a Bachelor of Business Administration from Southern Arkansas University and a Masters of Business Administration from The University of Illinois.

Thomas E. Hartman has been our Vice President & General Counsel since June 2009. Mr. Hartman joined Hanger from Foley & Lardner, LLP where he was a partner in Foley's Business Law Department. Mr. Hartman's practice at Foley was focused on securities transactions, securities law compliance, mergers and acquisitions, and corporate governance. Prior to joining Foley in 1995, Mr. Hartman was a business law associate at Jones Day. Mr. Hartman received his J.D. from the University of Wisconsin in Madison, and a Bachelor of Science in Engineering (Industrial & Operations Engineering) from the University of Michigan in Ann Arbor.

Rebecca J. Hast has been President of Linkia, LLC since November 2005. Prior to joining Linkia, Ms. Hast was with United Health Group Incorporated, a healthcare company that offers a broad spectrum of products and services through two distinct platforms: UnitedHealthcare, which provides health care coverage and benefits services; and Optum, which provides information and technology-enabled health services. Ms. Hast held a variety of positions from 1999 to 2004, leaving United Healthgroup as Senior Vice President, Account Development for the Dental Benefit Providers, a wholly owned subsidiary of United Healthgroup's Specialty Services Division (now Optum). Prior to joining United Healthgroup, Ms. Hast held management and leadership positions with Magellan Health Services, Inc., a specialty healthcare management company, and other healthcare insurance and services providers. Ms. Hast holds a Bachelor of Science degree from University of Pittsburgh.

Walt A. Meffert, Jr. joined Hanger as Vice President and Chief Information Officer in April 2010. Mr. Meffert was previously the Senior Vice President & Chief Technology Officer for Apria Healthcare from December 2008. Concurrently Mr. Meffert also served as Senior Vice President & Chief Information Officer for Coram, Inc. since November 2005. As the CTO/CIO at Apria Healthcare and Coram, Inc. he directed all production infrastructures and business applications supporting over 700 branches and five main business lines in addition to providing IT oversight and alignment for Apria's Global IT service delivery. Before joining Apria Healthcare/Coram Inc., Mr. Meffert Served as Senior Vice President & Chief Information Officer for NeighborCare. Mr. Meffert served as Chief Technology Officer for Register.com, a leading provider of global domain name registration and Internet services from November 2001 to April 2004; Vice President of Enterprise Application Engineering at the creative software development company, Macromedia from October 1999 to November 2001; Director of Electronic Commerce—Internet Center at Bell Atlantic from January 1998 to October 1999; various leadership positions at The General Electric Company including the leading of the Internet Consulting and Systems Integration teams from 1990 to 1998. Mr. Meffert is a graduate of the renowned GE Edison Engineer program. Mr. Meffert holds a Bachelor of Science degree in Computer Science from the University of Maryland, Baltimore County and a Master of Science in Computer Science degree from John Hopkins University.

Andrew C. Morton joined us as our Vice President Human Resources in June 2010. Prior to joining Hanger, Mr. Morton worked for Freescale Semiconductor since 2006 in two capacities; first as Vice President Talent and Corporate Services, and then Vice President Human Resources Supply Chain. From 1992 to 2006 Mr. Morton worked at IBM and held various global field and corporate HR executive roles of increasing responsibility across its software, hardware and sales businesses. Mr. Morton has a B.S. degree in Finance from the University of Colorado at Boulder, and an MBA

from Syracuse University. In between degrees he worked for Baxter Healthcare in Finance roles from 1988 to 1989.

Kenneth W. Wilson has been President and Chief Operating Officer of Southern Prosthetic Supply (SPS) since September 2011. Mr. Wilson was previously employed by Cardinal Health Inc., the largest distributor of pharmaceuticals and medical products in the United States, for 22 years, serving as Senior Vice President/General Manager of its Ambulatory Care business from 2008 until September 2011, as Vice President/General Manager of its Onsite business from 2006 to 2008, and as Senior Vice President—Group Purchasing Accounts from 2004 to 2006. Prior to joining Cardinal Health, he worked at Allegiance Healthcare Corporation, a manufacturer of medical products, including surgical apparel and drapes, surgical instruments and respiratory care products. Allegiance Healthcare was a 1997 spin-off of Baxter Healthcare Corporation that was acquired by Cardinal Health in 1999. Mr. Wilson served Allegiance Healthcare as Head of Allegiance National Account and Health Systems from 2002 to 2004, and as Vice President—Health Systems from 1997-2002. From 1988 to 1997, Mr. Wilson was with Baxter Healthcare, a manufacturer of a wide variety of medical products across three divisions, including drugs and vaccines, dialysis equipment and intravenous (IV) supplies. Mr. Wilson left Baxter in 1997 as a Regional Director in Encinitas, California. Prior to joining Baxter, he also worked for PepsiCo, USA and Proctor & Gamble in a variety of sales roles. Mr. Wilson received his Bachelor of Science degree in Economics and Social Science from Davidson College in 1984. He has been married to wife Candace since 1989 and has 5 children.

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock has been listed and traded on the New York Stock Exchange since December 15, 1998, under the symbol "HGR." The following table sets forth the high and low closing sale prices for the common stock for the periods indicated as reported on the New York Stock Exchange:

At March 28, 2014 there were approximately 212 holders of record of our 35,136,602 shares of outstanding common stock.

We have never paid cash dividends on our common stock and intend to continue this policy for the foreseeable future. We plan to retain earnings for use in our business. The terms of our credit agreements and certain other agreements limit the payment of dividends on our common stock and such agreements are expected to continue to limit the payment of dividends in the future.

Any future determination to pay cash dividends will be at the discretion of our Board of Directors and will be dependent on our results of operations, financial condition, contractual and legal restrictions and any other factors deemed to be relevant.

The following table sets forth information as of December 31, 2013 regarding our equity compensation plans:

During the year ended December 31, 2013, we sold no securities that were unregistered under the Securities Act of 1933, as amended.

During the year ended December 31, 2013, we made no purchases of our common stock.

The annual changes in the cumulative total shareholder return on Hanger's common stock for the five-year period shown in the graph below are based on the assumption that $100 had been invested in Hanger common stock, the Russell 2000 Stock Index, the Standard & Poor's 500 Stock Index, the Standard & Poor's Small Cap 600 Stock Index, and the Standard & Poor's 500 Health Care Services Index on December 31, 2008, and that all quarterly dividends were reinvested at the average of the closing stock prices at the beginning and end of the quarter. The total cumulative dollar returns shown on the graph represent returns that such investments would have had on December 31, 2013.

The following information in this Item 5 of this Annual Report on Form 10-K is not deemed to be "soliciting material" or to be "filed" with the SEC or subject to Regulation 14A or 14C under the Securities Exchange Act of 1934 (the "Exchange Act") or to the liabilities of Section 18 of the Exchange Act, and will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Exchange Act, except to the extent we specifically incorporate it by reference into such a filing.

Comparison of 5 Year Cumulative Total Return
Assumes Initial Investment of $100
As of December 31, 2013

The following selected consolidated financial data should be read in conjunction with our consolidated financial statements and related notes, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and other financial data included elsewhere in this annual report on Form 10-K. The Consolidated Statement of Income and Comprehensive Income and Balance Sheet data for all periods presented is derived from the audited consolidated financial statements included elsewhere in this annual report on Form 10-K or in annual reports on Form 10-K for prior years on file with the Commission.

	Year Ended December 31,

Consolidated Statements of Income and Comprehensive Income:	2013		2012			2011			2010		2009
(In thousands)
Net sales	$	1,046,438	$	974,429		$	907,794		$	808,766	$	753,115
Material costs		319,046		296,193			270,210			248,667		228,295
Personnel costs		369,738		335,328			321,529			282,417		264,581
Other operating expenses		186,304		178,918			169,131			178,403		153,400
Depreciation and amortization		37,486		34,652			30,969			18,809		16,319


Income from operations		133,864		129,338			115,955			80,470		90,520
Interest expense, net		26,475		31,169			31,821			30,340		30,693
Loss (gain) from interest rate swap(1)		—		—			—			1,610		(167	)
Extinguishment of debt		6,645		—			—			13,985		—


Income before taxes		100,744		98,169			84,134			34,535		59,994
Provision for income taxes		37,160		34,477			29,657			13,639		23,901


Net income		63,584		63,692			54,477			20,896		36,093
Other comprehensive income (loss)		899		(734	)		(906	)		2,777		1,441


Comprehensive income	$	64,483	$	62,958		$	53,571		$	23,673	$	37,534




Basic Per Common Share Data
Net income	$	1.83	$	1.86		$	1.62		$	0.65	$	1.15


Shares used to compute basic per common share amounts		34,818		34,283			33,545			32,238		31,384




Diluted Per Common Share Data
Net income	$	1.80	$	1.83		$	1.59		$	0.64	$	1.13


Shares used to compute diluted per common share amounts		35,395		34,833			34,220			32,888		32,068

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following is a discussion of our results of operations and financial condition for the periods described below. This discussion should be read in conjunction with our consolidated financial statements included elsewhere in this Form 10-K. Our discussion of our results of operations and financial condition includes various forward-looking statements about, among other things, our markets, the demand for our products and services and our future results. These statements are based on our current expectations, which are inherently subject to risks and uncertainties. Our actual results and the timing of certain events may differ materially from those indicated in the forward looking statements.

The goal of Hanger, Inc. ("Hanger" or the "Company") is to be the world's premier provider of services and products that enhance human physical capabilities. Built on the legacy of James Edward Hanger, the first amputee of the American Civil War, Hanger is steeped in 150 years of clinical excellence and innovation. We provide orthotic and prosthetic (O&P) patient care services, distribute O&P devices and components, manage O&P networks, and provide rehabilitative solutions to the broader post-acute market. We have two segments, Patient Care and Products & Services, which are summarized below. For further descriptions of our segments, see the Business Description section of Item 1of this Form 10-K.

Our Patient Care segment is comprised of Hanger Clinic, Cares, Dosteon, other O&P businesses and our contracting network management business. Through this segment, we (i) are the largest owner and operator of orthotic and prosthetic patient care clinics in the United States and (ii) manage an O&P provider network that coordinates all aspects of O&P patient care for insurance companies. We operate in excess of 740 O&P patient care clinics located in 45 states and the District of Columbia.

Our Products & Services segment is comprised of our distribution business, one of the largest distributors of O&P products in the United States, and our rehabilitative solutions business. Our distribution business facilities in California, Florida, Georgia, Illinois, Pennsylvania and Texas allow us to deliver products to the vast majority of our distribution customers in the United States within two business days. Our rehabilitative solutions business develops specialized rehabilitation technologies and is a leading provider of evidence-based clinical programs for post-acute rehabilitation, serving more

than 4,200 long-term care facilities and other sub-acute rehabilitation providers throughout the United States. This segment also develops neuromuscular technologies through independent research.

Net sales for the year ended December 31, 2013 increased by $72.0 million, or 7.4%, to $1,046.4 million from $974.4 million for the year ended December 31, 2012. The sales increase was principally the result of a $18.8 million, or 2.4%, increase in same center sales; a $51.2 million increase from acquired entities; and a $2.0 million, or 1.2%, increase in sales in the Products & Services segment.

Income from operations and Net income were $133.9 million and $63.6 million, respectively, in 2013 compared to $129.3 million and $63.7 million, respectively, in the prior year. Our cash flow from operations increased $5.0 million to $86.3 million in 2013, from $81.3 million in 2012, primarily from an increase in noncash charges on the income statement due both to the refinance and an increase in depreciation. As of December 31, 2013, $247.2 million, or 52.8%, of our total debt of $468.3 million was subject to variable interest rates. We had total liquidity of $181.3 million, comprised of $9.9 million of cash and $171.4 million available under our Revolving Credit Facility, net of $3.6 million in letters of credit at December 31, 2013. We believe that we have sufficient liquidity to conduct our normal operations and fund our acquisition plans through 2014.

We expect 2014 revenues of between $1.110 and $1.130 billion, resulting from 3% to 5% same center sales growth in our Patient Care Segment, and a slight decline in our Products & Services Segment sales. The decline in Products & Services Segment sales reflects the carry-over impact of a large one-time sale during 2013, continued acquisition of its O&P distribution customers by the Patient Care Segment, and increasing pressure on independent O&P customers resulting from continuing Medicare audits. We anticipate adjusted diluted earnings per share to rise 8% to 13% to between $2.10 and $2.20, excluding approximately $0.05 for training and implementation costs of Janus. The earnings growth includes an $11 million, or $0.19 per diluted share, investment the company is making in our back-office operations, including centralization of our billing and processing activities and improvements in our finance, accounting and information technology functions. Operational improvements and costs savings related to these investments are expected to be realized beginning in late 2014. We also are making investments in our financial reporting group, imbedding a finance group in our clinics and have allocated funds to develop an ERP strategy for the Company in 2014. Despite these significant investments, we anticipate maintaining our adjusted operating margins at a level similar to the prior year and generating cash flow from operations of between $90 and $100 million. We also plan to invest between $40 and $50 million in capital additions during the year. In the month of January 2014, we acquired O&P practices with annualized sales of approximately $20 million. In view of this level of acquisitions in January, our goal in 2014 is to acquire a total of $35 to $45 million of O&P annualized revenue.

Our analysis and discussion of our financial condition and results of operations is based upon the Consolidated Financial Statements that have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"). The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that effect 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. GAAP provides the framework from which to make these estimates, assumptions and disclosures. We have chosen accounting policies within GAAP that management believes are appropriate to fairly present, in all material respects, our operating results and financial position. Our accounting policies are stated in Note B to the Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K. We believe the following accounting policies are critical to

understanding our results of operations and the more significant judgments and estimates used in the preparation of our Consolidated Financial Statements.

The following represents the composition of our gross accounts receivable balance by payor:

In 2012, CMS began using recovery audit contractors ("RACs") to detect Medicare overpayments related to prosthetic devices not identified through existing claims review mechanisms. The RAC program relies on private companies to examine Medicare claims filed by healthcare providers. RACs perform post-delivery audits of medical records to identify Medicare overpayments resulting from incorrect payment amounts, non-covered services, incorrectly coded services, and duplicate services. CMS has given RACs the authority to look back at claims up to three years old. Claims review strategies used by RACs generally include a review of high dollar claims, including the fitting, assembling, and delivery of prosthetic devices. RACs are paid a contingency fee based on the overpayments they identify and collect. Claims identified as overpayments by RACs are subject to the Medicare appeals process. We expect that the RACs will continue to look closely at claims submitted in an attempt to identify possible overpayments. Although we believe the claims for reimbursement submitted to the Medicare program are accurate, we cannot predict the results of any future RAC audits.

In July 2012, the FASB issued ASU 2012-02, "Testing Indefinite-Lived Intangibles for Impairment". This ASU amended guidance that simplifies how entities test indefinite-lived intangible assets other than goodwill for impairment. After assessment of certain qualitative factors, if it is determined to be more likely than not that an indefinite-lived asset is impaired, entities must perform the quantitative impairment test. Otherwise, the quantitative test becomes optional. The amended guidance was effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. The Company adopted this new guidance in the first quarter of 2013, and the adoption did not have a material impact on the Company's condensed consolidated financial statements.

In February 2013, the FASB issued ASU 2013-2, "Other Comprehensive Income." This ASU amends ASC 220, "Comprehensive Income," and supersedes ASU 2011-05 "Presentation of Comprehensive Income" and ASU 2011-12 "Comprehensive Income," to require reclassification adjustments from other comprehensive income to be presented either in the financial statements or in the notes to the financial statements. The standard does not change the current requirements for reporting net income or other comprehensive income in financial statements. However, the guidance requires an entity to provide enhanced disclosures to present separately by component reclassifications out of accumulated other comprehensive income. The amendments in this ASU were effective prospectively for reporting periods beginning after December 15, 2012. The Company has adopted this guidance and its implementation did not have a material impact on its consolidated financial statements.

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 does not expect the adoption of these provisions to have a material effect on the consolidated financial statements.

The following table sets forth, for the periods indicated, certain items from our Consolidated Statements of Income and Comprehensive Income as a percentage of our Net sales:

	For the Year Ended December 31,

	2013			2012			2011
Net sales		100.0	%		100.0	%		100.0	%
Material costs		30.5			30.4			29.8
Personnel costs		35.3			34.4			35.4
Other operating expenses		17.8			18.4			18.6
Depreciation and amortization		3.6			3.6			3.4


Income from operations		12.8			13.2			12.8
Interest expense, net		2.5			3.2			3.5
Extinguishment of debt		0.6			—			—


Income before taxes		9.7			10.0			9.3
Provision for income taxes		3.6			3.5			3.3


Net income		6.1			6.5			6.0

Year ended December 31, 2013 compared with the year ended December 31, 2012

Net Sales. Net sales for the year ended December 31, 2013 increased by $72.0 million, or 7.4%, to $1,046.4 million from $974.4 million last year. The sales increase was principally the result of a $18.8 million, or 2.4%, increase in same center sales; a $51.2 million increase from acquired entities; and a $2.0 million, or 1.2%, increase in sales of the Products & Services segment. The increase in same center sales of the Patient Care segment was principally due to an increase in volume as pricing was neutral to slightly negative due in part to the impact of sequestration on Medicare reimbursement. The sales increase in the Products & Services segment increased $2.0 million due to a $9.4 million sales increase at the ACP unit offset by a $7.4 million sales decline in our distribution business due principally to the impact of the acquisition of independent O&P providers, who were past customers of the distribution unit, and the negative impact of government audits on the purchase of high end devices.

Material Costs. Material costs for the year ended December 31, 2013 were $319.0 million, an increase of $22.8 million, or 7.7%, over $296.2 million for the same period in the prior year. The increase was the result of the growth in sales and change of product mix. Material costs as a percentage of Net sales increased to 30.5% in 2013 from 30.4% in 2012.

Personnel Costs. Personnel costs for the year ended December 31, 2013 increased by $34.4 million to $369.7 million from $335.3 million for the year ended December 31, 2012. The increase from prior year was primarily due to $21.5 million of personnel costs associated with acquired patient care clinics, $6.1 million in increased employee benefits and related taxes, $5.2 million impact from merit increases and the balance was due to additions to our infrastructure to support growth.

Other Operating Expenses. Other operating expenses, which are comprised primarily of professional, office, bad debt, incentive compensation and reimbursable employee expenses, increased $7.4 million in 2013 to $186.3 million from $178.9 million for the year ended December 31, 2012. Bonus expense decreased by $6.3 million due to the impact of the fourth quarter results on the management and general bonus pool and the company realized savings of $4.7 million in general liability insurance, personal property and franchise tax and other expense. The remaining $18.4 million increase was comprised principally of $6.5 million in expenses related to acquisitions, $3.3 million in increased rent,

$4.7 million increase in bad debts, $1.7 million in professional fees and a $1.9 million reduction of overhead capitalized into work in process. The remaining $0.3 million change was attributable to changes in other operating expenses. Other operating expenses as a percentage of net sales decreased to 17.8%.

Depreciation and Amortization. Depreciation and amortization for the year ended December 31, 2013 was $37.5 million versus $34.7 million for the year ended December 31, 2012. The increase was principally due to a combination of the impact of acquisitions and a slightly higher rate of capital additions.

Income from Operations. Income from operations increased $4.6 million to $133.9 million for the year ended December 31, 2013 compared to $129.3 million in the year ended December 31, 2012. The increase was primarily due to Patient Care Segment through increased sales both from the same center sales increase and acquisitions. The remaining increase was due to additional operating income in the Products & Services segment resulting from an increase in sales prices, implementation of strategies to reduce material costs and changes in sales mix. As a percentage of sales, Income from operations in 2013 decreased 0.4% from 13.2% to 12.8%.

Interest Expense. Interest expense for the year ended December 31, 2013 decreased slightly to $26.5 million, compared to $31.2 million for the year ended December 31, 2012. The decrease resulted from the interest savings from the refinancing that occurred in the second quarter of 2013 as well as a reduction of outstanding borrowings.

Provision for Income Taxes. An income tax provision of $37.2 million was recognized for the year ended December 31, 2013, compared to $34.5 million for the same period of the prior year. The increase in the income tax provision was primarily due to higher pre-tax earnings and less deferred tax discrete benefit items. Our effective tax rate was 36.9% and 35.1% for 2013 and 2012, respectively. The 2013 effective tax rate benefited 1.2% from current and prior period federal research and development credit claims, the release of a reserve for prior period federal research and development credit claims, the release of a portion of our valuation allowance, and prior period return to provision adjustments. The 2012 effective tax rate benefited 2.3% from prior period federal research and development credit claims filed in 2012, certain deferred tax asset rate changes, the release of a portion of our valuation allowance, and other nonrecurring discrete items.

Net Income. Net income for the year ended December 31, 2013 remained consistent at $63.6 million, or $1.80 per diluted share, compared to net income of $63.7 million, or $1.83 per diluted share, for the year ended December 31, 2012, primarily due to increased Net sales and leveraged costs in 2013.

Year ended December 31, 2012 compared with the year ended December 31, 2011

Net Sales. Net sales for the year ended December 31, 2012 increased by $66.6 million, or 7.3%, to $974.4 million from $907.8 million last year. The sales increase was principally the result of a $29.6 million, or 4.0%, increase in same center sales; a $30.2 million increase from acquired entities; and a $6.8 million, or 6.8%, increase in sales of the Distribution segment.

Material Costs. Material costs for the year ended December 31, 2012 were $296.2 million, an increase of $26.0 million, or 9.6%, over $270.2 million for the same period in the prior year. The increase was the result of the growth in sales and change of product mix. Material costs as a percentage of net sales increased to 30.4% in 2012 from 29.8% in 2011.

Personnel Costs. Personnel costs for the year ended December 31, 2012 increased by $13.8 million to $335.3 million from $321.5 million for the year ended December 31, 2011. The increase from prior year was primarily due to $10.2 million of personnel costs associated with acquired patient care clinics, and other increases in salary expense, commissions and benefits.

Other Operating Expenses. Other operating expenses, which are comprised primarily of professional, office, bad debt, incentive compensation and reimbursable employee expenses, increased $9.8 million in 2012 to $178.9 million from $169.1 million for the year ended December 31, 2011. The increase was attributable to $4.2 million related to acquisitions, $3.3 million in incentive compensation and $2.2 million in professional fees, respectively. The remainder is attributable to other operating expenses. Other operating expenses as a percentage of net sales decreased slightly to 18.4%.

Relocation Expenses. During 2011, we completed the relocation of our corporate office from Bethesda, Maryland to Austin, Texas, which began in 2010. During the year ended December 31, 2012, we incurred no relocation costs compared to $1.2 million incurred in 2011.

Acquisition Expenses. During 2012, we acquired eighteen companies, consisting of 59 patient care clinics, and incurred $1.2 million of non-recurring costs related to these acquisitions, an increase of $0.4 million compared to the $0.8 million of acquisition related costs we incurred in 2011 to acquire eight companies that consisted of 21 patient care clinics.

Depreciation and Amortization. Depreciation and amortization for the year ended December 31, 2012 was $34.7 million versus $31.0 million for the year ended December 31, 2011. The increase was commensurate with the increase in capital expenditures in 2012.

Income from Operations. Income from operations increased $13.3 million to $129.3 million for the year ended December 31, 2012 compared to $116.0 million in the year ended December 31, 2011. The increase was primarily due to the Patient Care segment as fixed costs were leveraged over increased sales. The remaining increase was due to $5.9 million of additional operating income in the Distribution segment resulting from an increase in sales prices, implementation of cost management strategies and changes in sales mix. As a percentage of sales, income from operations in 2012 increased 0.4% from 12.8% to 13.2%.

Interest Expense. Interest expense for the year ended December 31, 2012 decreased slightly to $31.2 million, compared to $31.8 million for the year ended December 31, 2011, primarily due to a lower average term loan balance resulting from scheduled repayments, offset by increases in seller notes resulting from the 2012 acquisitions.

Provision for Income Taxes. An income tax provision of $34.5 million was recognized for the year ended December 31, 2012, compared to $29.7 million for the same period of the prior year. The increase in the income tax provision was primarily due to higher pre-tax earnings. Our effective tax rate was 35.1% and 35.3% for 2012 and 2011, respectively. The 2012 effective tax rate benefited 2.3% from prior period federal research and development credit claims filed in 2012, certain deferred tax asset rate changes, the release of a portion of our valuation allowance, and other nonrecurring discrete items. The 2011 effective tax rate benefited 2.5% from the realization of certain state tax benefits and other nonrecurring discrete items.

Net Income. Net income for the year ended December 31, 2012 increased to $63.7 million, or $1.83 per diluted share, compared to net income of $54.5 million, or $1.59 per diluted share, for the year ended December 31, 2011, primarily due to increased net sales and leveraged costs in 2012.

Our working capital at December 31, 2013 was $267.1 million, compared to $251.5 million and $240.6 million for the years ended December 31, 2012 and 2011, respectively. The increase in working capital was primarily due to an increase in inventories, accounts receivable and other current assets. The increases are primarily due to the organic growth of the business, acquisitions completed in

2013and 2012 and the impact of Medicare related audits on our accounts receivables. Days sales outstanding ("DSO"), which is the number of days between the billing for our O&P services and the date of our receipt of payment thereof, for the year ended December 31, 2013 increased to 65 days, compared to 60 days in 2012 and 56 days in 2011 for the same period. The increase in DSO was primarily due to the increase in fourth quarter sales, the impact of the previously mentioned Medicare audits and an increase in accounts receivable related to fourth quarter acquisitions. Net cash provided by operating activities increased $5.0 million to $86.3 million for the year ended December 31, 2013, compared to $81.3 million in 2012 and $61.8 million in 2011. The increase in cash provided by operating activities in the current year resulted primarily from an increase in noncash charges on the income statement due both to the refinance and an increase in depreciation.

Net cash used in investing activities was $35.9 million, $99.1 million, and $46.9 million for the years ended December 31, 2013, 2012, and 2011 respectively. In 2013, 2012, and 2011, we invested $38.4 million, $33.2 million, and $28.7 million, respectively, in improvements to our patient care clinics, capitalized costs and license fees related to the implementation of the Janus billing system, upgrades to our computer hardware and software, and purchases of equipment leased to third parties by our Products & Services segment. In 2013, we acquired nine O&P companies, operating a total of 18 patient care clinics, at an aggregate purchase price of $14.1 million. In 2012, we acquired eighteen O&P companies, operating a total of 59 patient care clinics, at an aggregate purchase price of $83.1 million. In 2011, we acquired eight O&P companies, operating a total of 21 patient care clinics, at an aggregate purchase price of $24.9 million. Additionally, in 2012, we restricted $3.1 million of cash in order to eliminate letters of credit obligations under our revolving credit agreement.

Net cash (used in)/provided by financing activities was $(59.7) million, $(6.0) million, and $(8.3) million for the years ended December 31, 2013, 2012 and 2011, respectively. During 2013 we: (i) borrowed $225.0 million related to term loan borrowings under our credit facilities ("Term Loans"); (ii) repaid $296.1 million related to term loan borrowings under our credit facilities ("Term Loans"); (iii) borrowed $249.0 million under our revolving credit facility; (iv) repaid $224.0 million under the revolving credit facility; (v) made $12.4 million of required repayments of promissory notes issued in connection with acquisitions ("Seller Notes"); and (vi) received net $0.1 million of proceeds from employee stock compensation plan. During 2012 we: (i) repaid $3.7 million related to term loan borrowings under our credit facilities ("Term Loans") (ii) made $5.3 million of scheduled repayments of promissory notes we issued in connection with acquisitions ("Seller Notes"); (iii) made $0.7 million of scheduled payments of capital lease obligations; (iv) received $1.5 million in tax benefits associated with stock based compensation; and (iv) received net $2.2 million of proceeds from employee stock compensation plans. During 2011 we: (i) borrowed and repaid $10.0 million under our revolving credit facility; (ii) made $4.2 million of scheduled repayments of Seller Notes; (iii) repaid $3.0 million related to Term Loans; incurred $4.2 million of financing costs related to the repricing of our debt in the first quarter of 2011; and (iv) received net $0.6 million of proceeds from employee stock compensation plans.

We believe that, based on current levels of operations and anticipated growth, cash generated from operations, together with other available sources of liquidity, including borrowings available under the Revolving Credit Facility and Term Loan, will be sufficient for at least the next twelve months to fund anticipated capital expenditures and make required payments of principal and interest on our debt, including payments due on our outstanding debt. We manage our interest rate risk through a portfolio hedging strategy by partially offsetting our borrowings subject to variable interest rates with cash equivalents which receive variable interest income. We would consider entering into interest rate derivatives to hedge our variable interest rate exposure depending on the nature of the interest rate environment in the future. For further information regarding our outstanding debt, see Note G. As of

December 31, 2013, $247.2 million, or 52.8%, of our total debt of $468.3 million was subject to variable interest rates. As of December 31, 2013, we had access to funds totaling $181.3 million, comprised of $9.9 million of cash and cash equivalents and $171.4 million available under the Revolving Credit Facility. Availability under the Revolving Credit Facility is net of $3.6 million of outstanding letters of credit. We believe that we have sufficient liquidity to conduct our normal operations and fund our acquisition plan in 2014.

The following table sets forth our contractual obligations and commercial commitments as of December 31, 2013:

Our wholly-owned subsidiary, IN, Inc., is party to a non-binding purchase agreement under which it purchases assembled WalkAide system kits. As of December 31, 2013, IN, Inc. had outstanding purchase commitments of approximately $0.4 million, which we expect to be fulfilled over the next three months.

In 2004, we implemented an unfunded noncontributory defined benefit plan that covers certain of our senior executives. We have engaged an actuary to calculate the benefit obligation and net benefits cost as of December 31, 2013, 2012 and 2011 and utilized such to establish our benefit obligation liability.

The following weighted average assumptions were used to determine the benefit obligation and net benefit cost at December 31:

The discount rate at December 31, 2013 of 4.03% increased 78 basis points compared to the discount rate used at December 31, 2012 due to changes in the pension discount curve rate available on the open market at December 31, 2013. The average rate of increase in compensation was 3.00% at December 31, 2013, 2012 and 2011.

Future payments under the supplemental executive retirement plan as of December 31, 2013 are as follows:

The following table sets forth selected operating data as of the end of the years indicated:

We are exposed to the market risk that is associated with changes in interest rates. $247.2 million of our $468.3 million total debt outstanding as of December 31, 2013 is subject to variable interest rates (see Item 7A below).

This report contains forward-looking statements setting forth our beliefs or expectations relating to future revenues, contracts and operations, as well as the results of an internal investigation and certain legal proceedings. Actual results may differ materially from projected or expected results due to changes in the demand for our O&P products and services, uncertainties relating to the results of operations or recently acquired O&P patient care clinics, our ability to enter into and derive benefits from managed-care contracts, our ability to successfully attract and retain qualified O&P clinicians, federal laws governing the health-care industry, uncertainties inherent in investigations and legal proceedings, governmental policies affecting O&P operations and other risks and uncertainties generally affecting the health-care industry. Readers are cautioned not to put undue reliance on forward-looking statements. Refer to risk factors disclosed in Part I, Item 1A of this filing for discussion of risks and uncertainties. We disclaim any intent or obligation to publicly update these forward-looking statements, whether as a result of new information, future events or otherwise.

Our future financial result is subject to a variety of risks, including interest rate risk. As of December 31, 2013, the interest expense arising from the $247.2 million of outstanding borrowings under both our Term loan facility and our Revolver are subject to variable interest rates, partially offset by interest income subject to variable interest rates generated from our $7.7 million of cash equivalents. As of December 31, 2013, we had $221.1 million of fixed rate debt which includes our 7¹/8% Senior notes and Subordinated seller notes.

Presented below is an analysis of our financial instruments as of December 31, 2013 that are sensitive to changes in interest rates. The table demonstrates the changes in estimated annual cash flow related to the outstanding balance under the Revolving and Term Loan Facilities, calculated for an instantaneous shift in interest rates, plus or minus 50 basis points ("BPS"), 100 BPS and 150 BPS. As of December 31, 2013, the interest rate on the Revolving and Term loan facilities was 1.92% based on a LIBOR rate of 0.17% and the applicable margin of 1.75%.

The consolidated financial statements and schedules required hereunder and contained herein are listed under Item 15(a) below and included beginning at page F-4 of this Annual Report on Form 10-K.

For a discussion of material events affecting performance in each quarter, see Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.

In connection with the filing of the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2013, the Company corrected an error in the previously reported financial information for the quarters ended Mar 31, 2012; Jun 30, 2012; Sep 30, 2012; Mar 31, 2013; and Jun 30, 2013. This correction was related to the classification of certain components of bad debt expense from Other

operating expense to Net sales. For a discussion of the revision and the correction of errors, see Revision of Previously Reported Consolidated Income Statements in Note B of the financial statements. The error had no impact on previously reported Income from operations, Net income, Basic per Common Share Net Income, and Diluted per Commons Share Net Income. For the three month ended December 31, 2012, the reclassification resulted in revised Net sales of $269,636, compared to the originally reported Net sales of $272,202 for such period.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Our disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed by us in our reports filed or submitted to the Securities and Exchange Commission is recorded, processed, summarized and reported within the time periods specified in the Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Act is accumulated and communicated to the issuer's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based on an evaluation of the Company's disclosure controls and procedures conducted by our Chief Executive Officer and Chief Financial Officer, such officers concluded that our disclosure controls and procedures were not effective as of December 31, 2013 as a result of the material weaknesses described below.

In accordance with Item 308(a) of the Commission's Regulation S-K, the report of management on our internal control over financial reporting is set forth immediately preceding our financial statements included in this Annual Report on Form 10-K.

The effectiveness of our internal control over financial reporting as of December 31, 2013 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears herein.

In accordance with Rule 13a-15(d) under the Securities Exchange Act of 1934, management, with the participation of our Chief Executive Officer and Chief Financial Officer, determined that, the corrective measures noted below related to the remediation efforts implemented for a previously identified material weakness, were changes in our internal control over financial reporting that occurred during the fourth quarter ended December 31, 2013, that have materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

As previously reported, the Company determined that as of December 31, 2012, it did not maintain effective controls over the valuation of work-in-process inventory. Specifically the Company did not

appropriately account for the effect of sales volume changes on the determination of the valuation of the Company's work-in-process inventory. The Company continues to implement its remediation plans to enhance controls and procedures to address the material weakness by implementing additional annual and quarterly reviews, analyses, and calculations. Based on these actions performed through December 31, 2013, management has concluded, that despite the corrective action measures implemented in 2013, the material weakness related to the valuation of work-in-process inventory, as described in material weakness iii) in Management's Annual Report on Internal Control Over Financial Reporting has not been remediated as of December 31, 2013.

Pursuant to General Instruction G(3) of Form 10-K, the information called for by this item regarding directors is hereby incorporated by reference from our definitive proxy statement or amendment hereto to be filed pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this report. Information regarding our executive officers is set forth at the end of Part I of this Annual Report on Form 10-K.

Pursuant to General Instruction G(3) of Form 10-K, the information called for by this item is hereby incorporated by reference from our definitive proxy statement or amendment hereto to be filed pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this report.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

All other schedules are omitted either because they are not applicable or required, or because the required information is included in the financial statements or notes thereto.

Exhibit No.			Document

	3.1		Restated Certificate of Incorporation of Hanger, Inc., dated August 27, 2012. (Incorporated herein by reference to Exhibit 3.1 to the Current Report on Form 8-K filed by the Registrant on August 27, 2012).
	3.2		Amended and Restated By-Laws of Hanger Orthopedic Group, Inc., as amended effective February 2, 2012. (Incorporated herein by reference to Exhibit 3.1 to the Current Report on Form 8-K filed by the Registrant on February 6, 2012).
	4.1		Indenture, dated November 2, 2010, by and among Hanger Orthopedic Group, Inc., each of the Subsidiary Guarantors party thereto and Wilmington Trust Company, as trustee. (Incorporated herein by reference to Exhibit 4.1 to the Registrant's Current Report on Form 8-K filed on October 29, 2010).
	4.2		First Supplemental Indenture, dated December 13, 2010, by and among Hanger Orthopedic Group, Inc., each of the Subsidiary Guarantors party thereto and Wilmington Trust Company, as trustee. (Incorporated herein by reference to Exhibit 4.3 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2010).

Exhibit No.			Document

	4.3		Second Supplemental Indenture, dated February 15, 2011, by and among Hanger Orthopedic Group, Inc., Accelerated Care Plus Corp., ACP Medical Supply Corporation, Liberty Health Services, LLC and Wilmington Trust Company, as trustee. (Incorporated herein by reference to Exhibit 4.2 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2011).
	4.4		Third Supplemental Indenture, dated June 27, 2013, by and among Hanger, Inc., each of the Subsidiary Guarantors party thereto and Wilmington Trust Company, as trustee. (Incorporated herein by reference to Exhibit 4.2 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2013).
	4.5		Credit Agreement, dated June 17, 2013, among Hanger, Inc. and the lenders and agents party hereto. (Incorporated herein by reference to Exhibit 4.1 to the Current Report on Form 8-K filed by the Registrant on June 19, 2013).
	10.1		Amended and Restated 2002 Stock Incentive Plan, as amended through May 10, 2007. (Incorporated herein by reference to Appendix 1 to the Registrant's Proxy Statement, dated April 10, 2007, relating to the Registrant's Annual Meeting of Stockholders held on May 10, 2007).*
	10.2		Amended and Restated 2003 Non-Employee Directors' Stock Incentive Plan, as amended through May 10, 2007. (Incorporated herein by reference to Appendix 2 to the Registrant's Proxy Statement, dated April 10, 2007, relating to the Registrant's Annual Meeting of Stockholders held on May 10, 2007).
	10.3		Form of Stock Option Agreement (Non-Executive Employees), Stock Option Agreement (Executive Employees), Restricted Stock Agreement (Non-Executive Employees) and Restricted Stock Agreement (Executive Employees). (Incorporated herein by reference to Exhibits 10.1, 10.2, 10.3 and 10.4, respectively, to the Registrant's Current Report on Form 8-K filed on February 24, 2005).*
	10.4		Supplemental Executive Retirement Plan, as amended and restated effective January 1, 2011 (Incorporated herein by reference to Exhibit 10.4 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2010).*
	10.5		Fourth Amended and Restated Employment Agreement, effective as of January 1, 2012, by and between George E. McHenry and the Company. (Incorporated herein by reference to Exhibit 10.3 to the Registrant's Current Report on Form 8-K filed on January 27, 2012).*
	10.6		Fourth Amended and Restated Employment Agreement, effective as of January 1, 2012, by and between Richmond L. Taylor and the Company. (Incorporated herein by reference to Exhibit 10.4 to the Registrant's Current Report on Form 8-K filed on January 27, 2012).*
	10.7		Hanger Orthopedic Group, Inc. 2010 Omnibus Incentive Plan (incorporated herein by reference to Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2010).*
	10.8		Form of Restricted Stock Agreement for Non-Employee Directors (incorporated herein by reference to Exhibit 10.2 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2010).*
	10.9		Form of Restricted Stock Agreement for Executives (incorporated herein by reference to Exhibit 10.3 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2010).*

Exhibit No.			Document

	10.10		Form of Restricted Stock Agreement for Employees Executives (incorporated herein by reference to Exhibit 10.4 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2010).*
	10.11		Form of Non-Employee Director Non-Qualified Stock Option Agreement (incorporated herein by reference to Exhibit 10.5 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2010).*
	10.12		Form of Executive Non-Qualified Stock Option Agreement (incorporated herein by reference to Exhibit 10.6 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2010).*
	10.13		Form of Non-Qualified Stock Option Agreement (incorporated herein by reference to Exhibit 10.7 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2010).*
	10.14		Amended and Restated Employment Agreement, dated as of March 30, 2012, between Thomas E. Hartman and Hanger Prosthetics & Orthotics, Inc. (Incorporated herein by reference to Exhibit 10.22 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2012).*
	10.15		Second Amended and Restated Employment Agreement, dated August 27, 2012, by and between Vinit K. Asar and Hanger, Inc. (Incorporated herein by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by the Registrant on August 27, 2012).*
	10.16		Amended and Restated Employment Agreement, dated as of February 25, 2013, by and between Kenneth W. Wilson and Southern Prosthetic Supply, Inc. (Incorporated herein by reference to Exhibit 10.24 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2012).*
	10.17		Defined Contribution Supplemental Retirement Plan, dated May 1, 2013. (Incorporated herein by reference to exhibit 10.1 to the Current Report on Form 8-K filed by the Registration on May 13, 2013).
	21		List of Subsidiaries of the Registrant. (Filed herewith).
	23.1		Consent of PricewaterhouseCoopers LLP. (Filed herewith).
	31.1		Written Statement of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (Filed herewith).
	31.2		Written Statement of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (Filed herewith).
	32		Written Statement of the Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (Filed herewith).
	101		The following financial information from the Company's Annual Report on Form 10-K, for the period ended December 31, 2013, formatted in eXtensible Business Reporting Language: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income and Comprehensive Income, (iii) Consolidated Statements of Shareholders' Equity, (iv) Consolidated Statements of Cash Flows, (v) Notes to Consolidated Financial Statements(1)

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

The following sets forth Item 308(a) of the Securities and Exchange Commission's Regulation S-K, the annual report of management of Hanger, Inc. (the "Company") on the Company's internal control over financial reporting.

Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. Rule 13a-15(f) of the Securities Exchange Act of 1934, as amended defined internal control over financial reporting as a process designed by, or under the supervision of, the Company's Chief Executive Officer and Chief Financial Officer, and effected by the Company's Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

Management of the Company, in accordance with Rule 13a-15(c) under the Securities Exchange Act of 1934, as amended and with the participation of the Company's Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Company's internal control over financial reporting as of December 31, 2013. The framework on which management's evaluation of the Company's internal control over financial reporting is based on the "Internal Control—Integrated Framework" (1992) by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO"). Based on the evaluation performed, we identified the material weaknesses described below in the Company's internal control over financial reporting as of December 31, 2013. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company's annual or interim financial statements will not be prevented or detected on a timely basis.

We have identified the following material weaknesses in internal control over financial reporting. Specifically, the Company did not design and/or maintain effective controls over i) raw materials to ensure items are priced using the first in first out method resulting from the identification of inaccurate prices utilized in the valuation of our inventory quantities on hand based on physical observation; ii) the accuracy of the stage of completion in valuing work-in-process inventory resulting from the identification of data input errors from our physical inventory observation used in the valuation of our work-in-process inventory; and iii) certain key assumptions used in the valuation of work-in-process inventory resulting from the identification of inaccurate or imprecise data used in the development of these assumptions. These control deficiencies affect the completeness, valuation, and presentation and disclosure of inventories, cost of materials, personnel costs, and other operating expenses and related disclosures and although they did not result in material misstatements they could result in a misstatement to the aforementioned account balances or disclosures that would result in a material misstatement to the annual or interim consolidated financial statements that would not be prevented or detected. Accordingly, management has concluded that these control deficiencies each constitute a material weakness. Because of these material weaknesses, our management, including our Chief

Executive Officer and Chief Financial Officer, concluded, that as of December 31, 2013, our internal control over financial reporting was not effective based on the criteria set forth above.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the consolidated statements listed in the index appearing under Item 15(a)(1), present fairly, in all material respects, the financial position of Hanger, Inc. and its subsidiaries at December 31, 2013 and 2012, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2013 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 15(a)(2), presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company did not maintain, in all material respects, effective internal control over financial reporting as of December 31, 2013, based on criteria established in Internal Control—Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) because material weaknesses in internal control over financial reporting related to, i) the valuation of raw materials, ii) the accuracy of the stage of completion in valuing work-in-process inventory and iii) certain assumptions made by management in the valuation of work-in-process inventory existed as of that date. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. The material weakness referred to above are described in the accompanying Management's Annual Report on Internal Control Over Financial Reporting. We considered these material weaknesses in determining the nature, timing, and extent of audit tests applied in our audit of the 2013 consolidated financial statements and our opinion regarding the effectiveness of the Company's internal control over financial reporting does not affect our opinion on those consolidated financial statements. The Company's management is responsible for these financial statements and financial statement schedule, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in management's report referred to above. Our responsibility is to express opinions on these financial statements, on the financial statement schedule, and on the Company's internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide

reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

HANGER, INC.

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except share and per share amounts)

	December 31,

	2013		2012
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	9,860	$	19,211
Restricted cash		—		3,120
Net accounts receivable, less allowance for doubtful accounts of $10,022 and $7,526 in 2013 and 2012, respectively		185,769		165,668
Inventories		141,518		127,295
Prepaid expenses, other current assets and income taxes receivable		15,519		15,673
Deferred income taxes		30,298		27,685


Total current assets		382,964		358,652


PROPERTY, PLANT AND EQUIPMENT
Land		794		794
Buildings		15,397		8,896
Furniture and fixtures		15,855		19,582
Machinery and equipment		61,707		60,364
Equipment leased to third parties under operating leases		34,142		34,827
Leasehold improvements		85,176		74,615
Computer and software		88,950		98,186


Total property, plant and equipment, gross		302,021		297,264
Less accumulated depreciation and amortization		175,223		182,803


Total property, plant and equipment, net		126,798		114,461


INTANGIBLE ASSETS
Goodwill		681,547		674,774
Patents and other intangible assets, less accumulated amortization of $27,375 and $20,643 in 2013 and 2012, respectively		58,021		64,281


Total intangible assets, net		739,568		739,055


OTHER ASSETS
Debt issuance costs, net		8,564		14,033
Other assets		13,766		11,126


Total other assets		22,330		25,159


TOTAL ASSETS	$	1,271,660	$	1,237,327

The accompanying notes are an integral part of the consolidated financial statements.

	December 31,

	2013			2012
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt	$	15,998		$	11,082
Accounts payable		36,729			28,923
Accrued expenses and other current liabilities		24,923			22,357
Accrued interest payable		1,898			3,041
Accrued compensation related costs		36,331			41,784


Total current liabilities		115,879			107,187


LONG-TERM LIABILITIES
Long-term debt, less current portion		452,261			509,564
Deferred income taxes		76,545			77,730
Other liabilities		46,755			39,752


Total liabilities		691,440			734,233


COMMITMENTS AND CONTINGENCIES (Note H)
SHAREHOLDERS' EQUITY
Common stock, $.01 par value; 60,000,000 shares authorized, 36,113,202 shares and 35,617,884 shares issued and outstanding in 2013 and 2012, respectively		361			356
Additional paid-in capital		292,722			280,084
Accumulated other comprehensive loss		(1,020	)		(1,919	)
Retained earnings		288,813			225,229


		580,876			503,750
Treasury stock at cost (141,154 shares)		(656	)		(656	)


Total shareholders' equity		580,220			503,094


TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	1,271,660		$	1,237,327

The accompanying notes are an integral part of the consolidated financial statements.

HANGER, INC.

CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME

For the Years Ended December 31,

(Dollars in thousands, except share and per share amounts)

	2013		2012			2011

Net sales	$	1,046,438	$	974,429		$	907,794
Material costs		319,046		296,193			270,210
Personnel costs		369,738		335,328			321,529
Other operating expenses		186,304		178,918			169,131
Depreciation and amortization		37,486		34,652			30,969


Income from operations		133,864		129,338			115,955
Interest expense, net		26,475		31,169			31,821
Extinguishment of debt		6,645		—			—


Income before taxes		100,744		98,169			84,134
Provision for income taxes		37,160		34,477			29,657


Net income	$	63,584	$	63,692		$	54,477




Other comprehensive income (loss):
Unrealized gain/(loss) on SERP net of taxes of $531, $439 and $546 for 2013, 2012 and 2011, respectively		899		(734	)		(906	)


Total other comprehensive income (loss)		899		(734	)		(906	)


Comprehensive income	$	64,483	$	62,958		$	53,571




Basic Per Common Share Data
Net income	$	1.83	$	1.86		$	1.62




Shares used to compute basic per common share amounts		34,818,214		34,282,591			33,544,813




Diluted Per Common Share Data
Net income	$	1.80	$	1.83		$	1.59




Shares used to compute diluted per common share amounts		35,394,721		34,832,830			34,220,256

The accompanying notes are an integral part of the consolidated financial statements.

HANGER, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

For the Three Years Ended December 31, 2013

(Dollars in thousands, except share and per share amounts)

			Common Stock			Additional Paid in Capital			Accumulated Other Comprehensive Loss			Retained Earnings		Treasury Stock			Total

Balance, December 31, 2010	34,352		$	344		$	257,419		$	(279	)	$	107,060	$	(656	)	$	363,888
Net income	—			—			—			—			54,477		—			54,477
Other comprehensive loss (net of taxes)	—			—			—			(906	)		—		—			(906	)
Issuance of Common Stock in connection with the exercise of stock options	417			4			2,676			—			—		—			2,680
Forfeiture of restricted stock units	(63	)		(1	)		1			—			—		—			—
Issuance of restricted stock units	548			5			(5	)		—			—		—			—
Purchase and retirement of common stock	(127	)		(1	)		(2,106	)		—			—		—			(2,107	)
Stock-based compensation expense	—			—			8,088			—			—		—			8,088
Tax benefit associated with vesting of restricted stock units	—			—			2,462			—			—		—			2,462


Balance, December 31, 2011	35,127			351			268,535			(1,185	)		161,537		(656	)		428,582
Net income	—			—			—			—			63,692		—			63,692
Other comprehensive loss (net of taxes)	—			—			—			(734	)		—		—			(734	)
Issuance of Common Stock in connection with the exercise of stock options	239			3			3,557			—			—		—			3,560
Forfeiture of restricted stock units	(231	)		(2	)		2			—			—		—			—
Issuance of restricted stock units	532			5			(5	)		—			—		—			—
Purchase and retirement of common stock	(49	)		(1	)		(1,349	)		—			—		—			(1,350	)
Stock-based compensation expense	—			—			8,061			—			—		—			8,061
Tax benefit associated with vesting of restricted stock units	—			—			1,283			—			—		—			1,283


Balance, December 31, 2012	35,618			356			280,084			(1,919	)		225,229		(656	)		503,094
Net income	—			—			—			—			63,584		—			63,584
Other comprehensive income (net of taxes)	—			—			—			899			—		—			899
Issuance of Common Stock in connection with the exercise of stock options	205			2			2,435			—			—		—			2,437
Forfeiture of restricted stock units	(69	)		(1	)		1			—			—		—			—
Issuance of restricted stock units	421			5			(5	)		—			—		—			—
Purchase and retirement of common stock	(54	)		(1	)		(2,373	)		—			—		—			(2,374	)
Stock-based compensation expense	—			—			9,080			—			—		—			9,080
Tax benefit associated with vesting of restricted stock units	—			—			3,500			—			—		—			3,500


Balance, December 31, 2013	36,121		$	361		$	292,722		$	(1,020	)	$	288,813	$	(656	)	$	580,220

The accompanying notes are an integral part of the consolidated financial statements.

HANGER, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Years Ended December 31,

(Dollars in thousands)

	2013			2012			2011

Cash flows from operating activities:
Net income	$	63,584		$	63,692		$	54,477
Adjustments to reconcile net income to net cash provided by operating activities:
Loss/(gain) on disposals of assets		(5,914	)		64			7
Reduction of seller notes and earnouts		(1,032	)		(993	)		(541	)
Provision for doubtful accounts		14,330			9,589			9,396
Provision (benefit) for deferred income taxes		(1,602	)		(4,303	)		8,439
Depreciation and amortization		37,486			34,652			30,969
Amortization of debt issuance costs		2,488			3,452			3,334
Loss on extinguishment of debt		6,645			—			—
Compensation expense restricted stock units		9,080			8,061			8,088
Changes in operating assets and liabilities, net of effects of acquired companies:
Accounts receivable		(32,060	)		(30,259	)		(26,583	)
Inventories		(11,329	)		(12,827	)		(14,072	)
Prepaid expenses, other current assets, and income taxes		4,689			3,867			796
Accounts payable		6,235			(2,114	)		(5,902	)
Accrued expenses, accrued interest payable		(223	)		3,501			(1,424	)
Accrued compensation related costs		(7,379	)		4,348			(7,404	)
Other		1,262			589			2,224


Net cash provided by operating activities		86,260			81,319			61,804


Cash flows from investing activities:
Purchase of property, plant and equipment (net of acquisitions)		(34,236	)		(29,492	)		(25,300	)
Purchase of equipment leased to third parties under operating leases		(4,210	)		(3,671	)		(3,374	)
Acquisitions and contingent considerations (net of cash acquired)		(9,296	)		(62,500	)		(14,842	)
Restricted cash		3,120			(3,120	)		—
Purchase of company-owned life insurance investment		—			(2,000	)		(4,000	)
Proceeds from sale of property, plant and equipment		8,684			1,732			646


Net cash used in investing activities		(35,938	)		(99,051	)		(46,870	)


Cash flows from financing activities:
Borrowings under revolving credit agreement		249,000			—			10,000
Repayments under revolving credit agreement		(224,000	)		—			(10,000	)
Borrowings under term loan		225,000			—			—
Repayment of term loan		(296,113	)		(3,700	)		(3,000	)
Scheduled repayment of seller's notes		(12,410	)		(5,255	)		(4,151	)
Repayment of capital lease obligations		(1,047	)		(713	)		—
Deferred financing costs		(3,667	)		—			(4,230	)
Excess tax benefit from stock based compensation		3,501			1,505			2,462
Proceeds from issuance of common stock		2,437			3,560			2,680
Purchase and retirement of treasury stock		(2,374	)		(1,350	)		(2,107	)


Net cash used in financing activities		(59,673	)		(5,953	)		(8,346	)
Increase (decrease) in cash and cash equivalents		(9,351	)		(23,685	)		6,588
Cash and cash equivalents, at beginning of year		19,211			42,896			36,308


Cash and cash equivalents, at end of year	$	9,860		$	19,211		$	42,896

The accompanying notes are an integral part of the consolidated financial statements.

The goal of Hanger, Inc. ("Hanger" or the "Company") is to be the world's premier provider of services and products that enhance human physical capabilities. Built on the legacy of James Edward Hanger, the first amputee of the American Civil War, Hanger is steeped in 150 years of clinical excellence and innovation. The Company provides orthotic and prosthetic ("O&P") patient care services, distributes O&P devices and components, manages O&P networks, and provides rehabilitative solutions to the broader post-acute market. We have two segments—Patient Care and Products & Services, which are summarized below. For further description of our segments, see the Business Description section of Item 1 of this Form 10-K.

Our Patient Care segment is comprised of our patient care clinics, Cares, Dosteon, other related O&P businesses and our contracting network management business. Through this segment, we (i) are the largest owner and operator of orthotic and prosthetic patient care clinics in the United States and (ii) manage an O&P provider network of over 1,150 clinics that coordinates all aspects of O&P patient care for insurance companies. We operate in excess of 740 O&P patient care clinics located in 45 states and the District of Columbia.

Our Products & Services segment is comprised of our distribution business, one of the largest distributors of O&P products in the United States, and our rehabilitative solutions business. Our distribution business facilities in California, Florida, Georgia, Illinois, Pennsylvania and Texas allow us to deliver products to the vast majority of our distribution customers in the United States within two business days. Our rehabilitative solutions business develops specialized rehabilitation technologies and is a leading provider of evidence-based clinical programs for post-acute rehabilitation, serving more than 4,200 long-term care facilities and other sub-acute rehabilitation providers throughout the U.S. This segment also develops neuromuscular technologies through independent research.

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.

During the third quarter 2013, the Company corrected an error in the classification of certain components of bad debt expense (the "2013 Revision"). Hanger previously classified the reserves related to the write-off of older accounts receivable balances due from commercial and government payors as bad debt expense, which was reported as Other Operating Expense in its financial statements, instead of as a reduction of sales. Management has assessed the materiality of the errors on previously reported periods and concluded the impact was not material to any of the prior annual or quarterly consolidated financial statements. The errors had no impact on previously reported net income, balance sheet totals or the operating cash flows for any of the periods. The impact of the adjustment lowers sales and reduces Other Operating Expenses by equal and offsetting amounts in the Consolidated Statements of Income and Comprehensive Income and the Provision for doubtful accounts and Change in accounts receivable by equal and offsetting amounts in the Consolidated Statements of Cash Flows. Further, the Company has historically included the reserve for contra revenue in its presentation of the Allowance for doubtful accounts on the Consolidated Balance Sheets and the net change in the reserve

for contra revenue in the Provision for doubtful accounts on the Consolidated Statements of Cash Flows and the Schedule II Valuation and Qualifying Accounts included in the Company's Annual Report on Form 10-K. The Company has revised that presentation to only include the reserve for doubtful accounts and the related activity in the reserve for doubtful accounts in those respective balances. The impacts of the revisions on Net sales are included in the results of the Patient Care segment in Note O.

The impact of the 2013 Revision on the Consolidated Statements of Income and Comprehensive Income and the Consolidated Statements of Cash Flows for the annual periods ended 2011 and 2012, and Schedule II Valuation and Qualifying Accounts for the annual periods 2011 and 2012 are shown below.

Impact of 2013 Revision to previously reported consolidated annual results
(In thousands)

Impact of 2013 Revision to previously reported Schedule II Allowance for doubtful accounts table
(In thousands)

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America ("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.

The Company considers all highly liquid investments with original maturities of three months or less at the date of purchase to be cash equivalents. The Company maintains cash balances in excess of Federal Deposit Insurance Corporation limits at certain financial institutions.

Restricted cash has statutory or contractual restrictions that prevent it from being used in the Company's operations. As of December 31, 2013, the Company had no restricted cash. At December 31, 2012, the Company had agreed to restrict $3.1 million of cash to serve as collateral for its Workers' Compensation program. In August of 2013, the Company substituted a letter of credit for the restricted cash to serve as collateral for its Worker's Compensation program, and the cash balances used as collateral were transferred to the Company's operating accounts.

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, by 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 Products & Services segment 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 legislation and regulatory actions. Additionally, the Company maintains reserves for potential losses from these receivables that historically have been within management's expectations.

Patient Care—Inventories at Hanger Clinics, Dosteon and Cares, which consists of raw materials, work-in-process and finished goods, amounted to $109.2 million and $98.3 million as of December 31, 2013 and 2012, respectively. Inventories in Hanger's Clinics, which amounted to $99.0 million and $86.9 million at December 31, 2013 and 2012, 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 $8.9 million and $9.7 million at December 31, 2013 and 2012, respectively, consists principally of raw materials. As of December 31, 2013, the Dosteon inventories were valued at the lower of cost or market using the first-in first-out method based on a physical count as of December 31, 2013. As of December, 31, 2012, the Dosteon inventories were valued based on the gross profit method, which

approximated lower of cost or market using the first-in first-out method. Inventories in the Cares business amounted to $1.3 million and $1.7 million as of December 31, 2013 and 2012 respectively, consists 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 31^st 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 fourth quarter adjustments of a decrease to inventory of $2.3 million, a decrease to inventory of $0.5 million and an increase to inventory of $2.3 million in 2013, 2012, and 2011, respectively.

For Hanger Clinics, the October 31^st 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 consist 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.

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:

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.

Assets measured at fair value on a recurring basis as of December 31, 2013 and 2012, are $7.7 million and $11.0 million, respectively, and are comprised 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 G for further information regarding our outstanding debt.

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 December 31, 2013 and 2012, the Company estimated the reserve for future contractual adjustments and discounts to be $20.6 million and $13.9 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 leasing 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.

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 December 31, 2013 and 2012, net accounts receivable reflected allowance for doubtful accounts of $10.0 million and $7.5 million, respectively.

The following represents the composition of our gross accounts receivable balance by payor:

Property, plant and equipment are recorded at cost less accumulated depreciation and amortization, 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. Depreciation is computed for financial reporting purposes using the straight-line method over the estimated useful lives of the related assets, which generally follows:


Asset class		Estimated life (in years)
Furniture and fixtures		5
Machinery and equipment		5
Computers and software		5
Buildings		10 - 40
Assets under capital leases		Shorter of 10 or lease term
Leasehold improvements		Shorter of 10 or lease term
Equipment leased to third parties under operating leases		Up to 10

The following table outlines the investment in equipment leased to third parties under operating leases:

Depreciation expense related to property, plant and equipment was approximately $30.8 million, $29.2 million and $26.2 million for the years ended December 31, 2013, 2012 and 2011, respectively, which is included in Depreciation and amortization on the Company's Consolidated Statements of Income and Comprehensive Income.

Included within Buildings were $10.9 million and $4.4 million of buildings recorded under a capital lease, as of December 31, 2013 and 2012, respectively. Accumulated depreciation on these capital leases were $0.9 million and $0.4 million, as of December 31, 2013 and 2012, respectively. The annual future minimum lease payments as of December 31, 2013 under the lease agreements are $1.6 million, $1.6 million, $1.6 million, $1.7 million, $1.7 million, $6.2 million for the years ending December 31, 2014, 2015, 2016, 2017, 2018 and thereafter. These future minimum lease payments include $4.3 million of interest.

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 as of October 1, 2013.

Non-compete agreements are recorded based on agreements entered into by the Company and are amortized, using the straight-line method, over their estimated term ranging from two to seven years. Trade names are primarily comprised of an indefinite-lived intangible asset in the Company's Products & Services segment, which is annually assessed for impairment in the Company's fourth quarter using a relief-from-royalty method valuation model to estimate its fair value. Trade names not identified as an indefinite-lived intangible asset are amortized over their estimated period of benefit of approximately one to three years. Other definite-lived intangible assets are recorded at cost and are amortized, using the straight-line method, over their estimated useful lives of up to 20 years. The Company periodically evaluates the recoverability of intangible assets and takes into account events or circumstances that may warrant revised estimates of useful lives or that indicate that impairment had occurred. Refer to Note D for further discussion.

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.

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 years ended December 31, 2013 or 2012.

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 K of the accompanying financial statements.

Marketing costs, including advertising, are expensed as incurred. The Company incurred $4.5 million, $4.2 million, and $3.9 million in marketing costs during the years ended December 31, 2013, 2012 and 2011, respectively, which is reported in Other operating expenses on the Company's Consolidated Statements of Income and Comprehensive Income.

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.

The Company issues restricted stock units of common stock under one active stock-based compensation plan. At December 31, 2013, 1.1 million shares of common stock were available for issuance under the Company's stock-based compensation plan. 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 by the compensation plan, ranging from one to four years.

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 stock options are 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.

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 reportable segments. The description of the Company's reportable segments and the disclosure of segment information are presented in Note O.

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 does not expect the adoption of these provisions to have a material effect on the consolidated financial statements.

The supplemental disclosure requirements for the statements of cash flows are as follows:

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. No triggering events have transpired since the Company's fourth quarter assessment. Goodwill allocated to the Company's operating segments for the two years ended December 31, 2013 and 2012 is as follows:

The activity related to intangible assets for the two years ended December 31, 2013 and 2012 is as follows:

Customer lists are amortized over their estimated period of benefit, generally 10 to 14 years. The majority of the value associated with trade names is identified as an indefinite-lived intangible asset. Trade names not identified as an indefinite- lived intangible asset are amortized over their estimated period of benefit of approximately one to three years. Patents are amortized using the straight-line method over five years. Total intangible amortization expenses were $6.7 million and $5.5 million for the years ended December 31, 2013 and December 31, 2012, respectively, which were included in Depreciation and amortization on the Company's Consolidated Statements of Income and Comprehensive Income. The weighted average life of the additions to customer lists, patents and other intangibles is 7.8 years.

Estimated aggregate amortization expense for definite-lived intangible assets for each of the five years ending December 31 and thereafter is as follows:

Inventories recorded using the gross profit method primarily consists of raw materials and work-in-process held by the Patient Care segment. Inventories using the perpetual method primarily consists of finished goods held by the Products & Services segment. A description of the Company's inventory valuation methodologies are presented in Note B.

Finished goods includes products that are available for both sale to third party customers and transfer to the Patient Care segment into work-in-process to be customized and ultimately sold to a patient. During the twelve months ended December 31, 2013, approximately 72% of inventory purchased as finished goods was transferred to the Patient Care segment and the remaining 28% was sold to third party customers of the Products & Services segment.

In 2013, the Company acquired nine O&P companies, operating a total of 18 patient care clinics. The aggregate purchase price for these O&P businesses was $14.1 million, which consisted of $9.1 million of cash on hand, $2.7 million of promissory notes and $2.3 million of contingent consideration payable within the next two years. The Company preliminarily allocated the purchase price for 2013 acquisitions to the individual assets acquired and liabilities assumed. The Company's valuations are subject to adjustment as additional information is obtained; however, these adjustments are not expected to be material. The excess of purchase price over the aggregate fair value was recorded as goodwill. Contingent consideration is reported as Accounts payable and Other liabilities on the Company's Consolidated Balance Sheet. The Company recorded (i) approximately $7.3 million of goodwill; (ii) $1.8 million of customer lists; (iii) $3.1 million in accounts receivable; and (iv) $1.9 million of other assets and liabilities related to these acquisitions. 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. The Company incurred $0.9 million in acquisition expenses, which were included in Other operating expenses on the Company's Consolidated Statements of Income and Comprehensive Income. The results of operations for these acquisitions are included in the Company's results of operations from the date of acquisition. Pro forma results would not be materially different. Of the $7.3 million of goodwill recorded for the 2013 acquisitions, the Company intends to make an election to treat certain of these acquisitions as an asset acquisition for tax purposes resulting in $5.2 million of this amount being amortizable for tax purposes.

In 2012, the Company acquired eighteen O&P companies, operating a total of 59 patient care clinics. The aggregate purchase price for these O&P businesses was $83.1 million, which consisted of $60.1 million of cash on hand, $21.4 million of promissory notes and $1.6 million of contingent consideration payable within five years of the acquisition date. The Company allocated the purchase price for 2012 acquisitions to the individual assets acquired and liabilities assumed. The excess of purchase price over the aggregate fair value was recorded as goodwill. Contingent consideration is reported as Accounts payable and Other liabilities on the Company's Consolidated Balance Sheet. The Company recorded (i) approximately $63.8 million of goodwill; (ii) $12.1 million of customer lists; (iii) $6.0 million in accounts receivable; and (iv) $1.2 million of other assets and liabilities related to these acquisitions. 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. The Company incurred $1.2 million in acquisition expenses, which were included in Other operating expenses. The results of operations for these acquisitions are included in the Company's results of operations from the date of acquisition. Pro forma results would not be materially different. Of the $63.8 million of goodwill recorded for the 2012 acquisitions, the Company elected to treat certain of these acquisitions as an asset acquisition for tax purposes resulting in $13.0 million of this amount being amortizable for tax purposes.

In 2011 the Company acquired eight O&P companies, operating a total of 21 patient care clinics. The aggregate purchase price for these O&P businesses was $24.9 million, which consisted of $14.1 cash on

hand, $6.7 million of promissory notes and $4.1 million of contingent consideration payable within four years of the acquisition date. The Company incurred $0.8 million in acquisition expenses, which were included in Other operating expenses on the Company's Consolidated Statement of Income and Comprehensive Income. The results of operations for these acquisitions were included in the Company's results of operations from the date of acquisition. Pro forma results would not be materially different. Of the $17.2 million of goodwill recorded for the 2011 acquisitions, the Company elected to treat certain of these acquisitions as an asset acquisition for tax purposes resulting in $14.0 million of this amount being amortizable for tax purposes.

In connection with contingent consideration agreements with acquisitions completed prior to adoption of the revised authoritative guidance for business combinations becoming effective, the Company made no payments in 2013. For the years ended December 31, 2012 and 2011, the company made payments of $0.5 million and $0.7, respectively. The Company has accounted for changes in the estimates of these amounts as additional purchase price, resulting in an increase in goodwill. In connection with contingent consideration agreements with acquisitions completed subsequent to adoption of the revised authoritative guidance, the Company made payments of $2.6 million in 2013, $2.5 million in 2012, and $1.5 million in 2011. As of December 31, 2013, the Company accrued $2.6 million related to contingent consideration.

Subsequent to December 31, 2013, the Company acquired 7 O&P companies for approximately $29 million.

During the second quarter of 2013 the Company refinanced its bank credit facilities through a new 5 year credit agreement that increased its senior secured facilities to an aggregate principal amount of up to $425.0 million from $400.0 million previously. The new credit agreement includes a $200.0 million revolving credit facility and a $225.0 million term loan facility. Each new facility matures on June 17, 2018 and is subject to a leveraged-based pricing grid, with initial pricing of LIBOR plus 1.75%. In conjunction with the refinancing, the Company incurred a pre-tax non-cash charge of approximately

$6.6 million during the second quarter of 2013 related to the write-off of existing debt issuance costs associated with its previous credit agreement. No prepayment penalties were incurred.

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 December 31, 2013, the Company had $171.4 million available under this facility. The amounts outstanding under the Revolving Credit Facility as of December 31, 2013 were $25.0 million of borrowings and 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.

The Term Loan Facility, of which $222.2 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% of the initial amount borrowed 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 such mandatory prepayments were required during 2013. 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.

The 7¹/8% 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% of outstanding principal plus the payment of interest that would have become due from the redemption date through November 15, 2014 and remains unpaid through the date of any such redemption. On or after November 15, 2014, the Company may redeem all or a part of the notes with a premium of 1.036% of outstanding principal. On or after November 15, 2015, the premium reduces to 1.018% of outstanding principal and after November 15^th 2016, the Notes are callable at par.

The Revolving Credit Facility, 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, and the guarantees are full and unconditional and joint and several. There are no restrictions on the ability of the Company's subsidiaries to transfer cash to the Company or to co-guarantors.

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 December 31, 2013, the Company was in compliance with all covenants under these debt agreements.

Maturities of long-term debt at December 31, 2013 and the years thereafter are as follows:

The Company's wholly-owned subsidiary, Innovative Neurotronics, Inc. ("IN, Inc."), is party to a non-binding purchase agreement under which it agreed to purchase assembled WalkAide system kits. As of December 31, 2013, IN, Inc. had outstanding purchase commitments of approximately $0.4 million that the Company expects to be fulfilled over the next three months.

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.

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.

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 stock units and are calculated using the treasury stock method.

Components of income tax expense attributable to continuing operations are as follows:

A reconciliation of the federal statutory tax rate to the Company's effective tax rate is as follows:

The significant components of the net deferred income tax liability (asset) were as follows at December 31:

(In thousands)	2013			2012

Deferred tax liabilities:
Goodwill amortization	$	68,735		$	63,405
Property, plant and equipment		4,239			3,339
Acquired intangibles		16,980			18,062
Debt issuance costs		—			1,600
Tax accounting method changes		—			1,278
Other		6,830			4,511


		96,784			92,195


Deferred tax assets:
Net operating loss carryforwards		5,599			4,415
Accrued expenses		13,553			15,573
Deferred benefit plan compensation		8,103			8,363
Provision for doubtful accounts		12,313			7,911
Inventory capitalization and reserves		2,642			2,408
Restricted stock		2,752			2,182
Deferred rent		1,855			1,432
Other		4,711			557


		51,528			42,841
Valuation allowance		(991	)		(691	)


		50,537			42,150


Net deferred tax liabilities	$	46,247		$	50,045

At December 31, 2013 and 2012, the Company had accumulated federal net operating loss carryforwards of $9.9 million, and $7.0 million, respectively, and state net operating loss carryforwards of $45.0 million and $39.8 million, respectively. The federal net operating loss carryforwards expire from 2025 through 2030, and the state net operating loss carryforwards for significant taxing jurisdictions expire from 2023 through 2028. Utilization of the acquired carryforwards is subject to limitations due to ownership changes that may delay or prevent the utilization of a portion of the acquired carryforwards.

The Company establishes valuation allowances when necessary to reduce deferred tax assets to amounts expected to be realized. As of December 31, 2013 and 2012, the Company recorded a valuation allowance of $1.0 million and $0.7 million, respectively, related to state loss carryforwards, which are expected to expire before utilization.

A reconciliation of the beginning and ending balances of unrecognized tax benefits is as follows:

As of December 31, 2013, the total amount of unrecognized tax benefits, if recognized, that would affect the effective tax rate is $0.0 million. At December 31, 2013, there were no unrecognized tax benefits that the Company expects would change significantly over the next 12 months.

The Company recognizes accrued interest and penalties related to unrecognized tax benefits as a component of income tax expense. As of December 31, 2013, 2012 and 2011, the amount of accrued interest and penalties was immaterial. The amount of interest and penalties recognized in all periods presented was immaterial.

The Company is subject to income tax in U.S. federal, state and local jurisdictions. The Company is no longer subject to U.S. Federal income tax examinations for years before 2010, and with few exceptions, is no longer subject to state and local income tax examinations by tax authorities for years before 2009. However, due to acquired net operating losses, tax authorities have the ability to adjust those net operating losses related to closed years.

The Company maintains a 401(k) Savings and Retirement plan that covers all of the employees of the Company. Under this 401(k) plan, employees may defer such amounts of their compensation up to the levels permitted by the Internal Revenue Service. The Company recorded matching contributions of $6.0 million, $4.2 million and $3.9 million under this plan during 2013, 2012 and 2011, respectively, which were included in Personnel costs on the Company's Consolidated Statements of Income and Comprehensive Income.

Effective January 2004, the Company implemented an unfunded noncontributory defined benefit plan (the "Plan") for certain senior executives. The Plan, which is administered by the Company, calls for fifteen annual payments upon retirement with the payment amount based on years of service and final average salary. The Company has engaged an actuary to calculate the benefit obligation and net benefits cost at December 31, 2013 and has utilized such to establish the benefit obligation liability. Net

periodic benefit expense is also actuarially determined. As of December 31, 2013, the average remaining service period of plan participants is 7.6 years.

(In thousands)

Change in Benefit Obligation
Benefit obligation at December 31, 2010	$	17,510
Service cost		986
Interest cost		807
Payments		(526	)
Actuarial loss		1,453


Benefit obligation at December 31, 2011	$	20,230




Service cost		878
Interest cost		761
Amortization of loss		40
Payments		(706	)
Actuarial loss		1,174


Benefit obligation at December 31, 2012	$	22,377




Service cost		556
Interest cost		696
Amortization of loss		121
Payments		(1,247	)
Actuarial gain		(1,551	)


Benefit obligation at December 31, 2013	$	20,952




Unfunded status	$	20,952
Unamortized net (gain) loss		—


Net amount recognized	$	20,952




Amounts Recognized in the Consolidated Balance Sheet
Current accrued expenses and other current liabilities		1,247
Non-Current other liabilities		19,705


Total Accrued liabilities	$	20,952

The Company recorded a comprehensive gain of $1.6 million, a comprehensive loss of $(1.2) million and a comprehensive loss of $(1.4) million for the years 2013, 2012 and 2011, respectively. The Company recorded a tax obligation of $0.5 million on the unrealized gain for the plan years 2013 and a tax benefit of $0.4 and $0.5 million on the unrealized loss for the plan years 2012 and 2011, respectively. The Company also amortized the loss of $0.1 million and $0.04 million for the plan years 2013 and 2012, respectively within Personnel costs on the Consolidated Statements of Income and Comprehensive Income. As of December 31, 2013, the Company does not expect to recognize amounts from Accumulated other comprehensive income as a component of net periodic benefit cost in 2014. There were no other components such as prior service costs or transition obligations relating to the

Plan costs recorded within accumulated other comprehensive loss during 2013, 2012 or 2011. Accumulated other comprehensive loss was comprised of actuarial gain of $0.9 million, actuarial loss of $(0.7) million and actuarial loss of $(0.9) million, net of tax, for the years ended 2013, 2012 and 2011, respectively.

The following weighted average assumptions were used to determine the benefit obligation and net benefit cost at December 31:

At December 31, 2013, the estimated accumulated benefit obligation is $21.0 million. Future payments under the Plan are as follows:

On May 13, 2010, the stockholders of the Company approved the 2010 Omnibus Incentive Plan (the "2010 Plan") and prohibited future awards under the Amended and Restated 2002 Stock Incentive and Bonus Plan (the "2002 Plan") and 2003 Non-Employee Directors' Stock Incentive Plan (the "2003 Plan"). In conjunction with this approval, it was determined that no new awards will be granted under the 2002 Plan or the 2003 Plan; however, awards granted under either the 2002 Plan or the 2003 Plan that were outstanding will 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 were newly authorized for issuance under the 2010 Plan and 0.5 million are unissued shares not subject to awards that had 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 remains in effect until the earlier of (i) the date that is ten years from the date the plan is approved by the Company's stockholders, namely May 13, 2020, or (ii) the date all shares reserved for issuance have been issued.

As of December 31, 2013, of the 2.5 million shares of common stock authorized for issuance under the Company's 2010 Plan, awards relating to approximately 1.6 million shares have been issued of which awards relating to approximately 0.2 million shares have been subsequently canceled, leaving 1.1 million

shares available for future issuance. In 2013, shares issued under equity plans are issued from authorized and unissued shares. Total unrecognized stock-based compensation cost related to unvested restricted stock unit awards is approximately $14.3 million as of December 31, 2013, and is expected to be expensed as compensation expense over approximately four years.

For the years ended December 31, 2013, 2012 and 2011, the Company has included approximately $9.0 million, $8.1 million and $8.1 million, respectively, of stock-based compensation expense in the accompanying Consolidated Statements of Income and Comprehensive Income for the 2002, 2003 and 2010 Plans. Compensation expense relates to restricted stock unit grants, as the amount of expense related to options is immaterial in all periods presented. The fair value of restricted stock unit awards is based on the closing price of the Company's common stock on the grant date. The total value of the restricted stock units is expensed ratably over the requisite service period of the awards.

The summary of restricted stock units and weighted average grant date fair values are as follows:

	Employee Awards					Director Awards

	Shares			Weighted Average Grant Date Fair Value		Shares			Weighted Average Grant Date Fair Value
Nonvested at December 31, 2010		808,071		$	16.33		133,754		$	16.38
Granted		487,620			25.25		59,698			25.72
Vested		(374,067	)		14.61		(62,533	)		15.46
Forfeited		(28,101	)		19.17		(15,001	)		20.80


Nonvested at December 31, 2011		893,523		$	21.84		115,918		$	21.12
Granted		468,500			20.47		63,497			22.35
Vested		(318,927	)		20.17		(58,059	)		19.34
Forfeited		(231,537	)		21.26		—			—


Nonvested at December 31, 2012		811,559		$	21.76		121,356		$	22.62


Granted		371,111			29.35		71,651			26.05
Vested		(262,860	)		21.58		(107,146	)		20.69
Forfeited		(53,174	)		22.81		(997	)		25.72


Nonvested at December 31, 2013		866,636		$	25.00		84,864		$	27.92

During the years ended December 31, 2013, 2012 and 2011, 370,006, 376,986 and 436,600 restricted stock units of common stock with an intrinsic value of $7.9 million, $7.6 million and $6.4 million, respectively, became fully vested. As of December 31, 2013, total unrecognized compensation expense related to non-vested restricted stock units of common stock was approximately $14.3 million and the related weighted-average period over which it is expected to be recognized is approximately two years. The aggregate granted units have vesting dates through March 2017. The 2013, 2012 and 2011 grants totaled $12.8 million, $11.0 million and $13.3 million, respectively, at the grant date, and are amortized to expense ratably over the vesting period of the granted units.

The summary of option activity and weighted average exercise prices are as follows:

	Employee Awards					Director Awards					Non-Qualified Awards

	Shares			Weighted Average Exercise Price		Shares			Weighted Average Exercise Price		Shares			Weighted Average Exercise Price
Outstanding at December 31, 2010		434,500		$	13.45		80,091		$	11.08		376,000		$	5.95
Granted		—			—		—			—		—			—
Terminated		—			—		(10,373	)		10.79		—			—
Exercised		—			—		(41,459	)		10.38		(376,000	)		5.98


Outstanding at December 31, 2011		434,500		$	13.45		28,259		$	11.99		—		$	—
Granted		—			—		—			—		—			—
Terminated		(1,500	)		15.60		—			—		—			—
Exercised		(230,000	)		14.82		(9,404	)		16.04		—			—


Outstanding at December 31, 2012		203,000		$	11.88		18,855		$	10.02		—		$	—
Granted		—			—		—			—		—			—
Terminated		(3,000	)		12.10		—			—		—			—
Exercised		(200,000	)		11.88		(5,535	)		11.21		—			—


Outstanding at December 31, 2013		—					13,320		$	9.53		—		$	—




Aggregate intrinsic value at December 31, 2013	$	—				$	126,956				$	—
Weighted average remaining contractual term (years)		—					1.0					—

The intrinsic value of options exercised during the years ended December 31, 2013, 2012 and 2011 was $2.4 million, $3.6 million and $2.7 million, respectively. Options exercisable under the Company's stock-based compensation plans at December 31, 2013, 2012 and 2011 were 13,320 shares, 221,855 shares and 462,759 shares, respectively, with a weighted average exercise price of $9.53, $11.72 and $13.36, respectively, an average remaining contractual term of 1.0 years, 1.0 years and 1.7 years, respectively, and an aggregate intrinsic value of $0.1 million, $2.6 million and $6.2 million, respectively. Cash received by the Company related to the exercise of options during the years ended December 31, 2013, 2012 and 2011 amounted to $2.4 million, $3.6 million and $2.7 million. As of December 31, 2013, 2012 and 2011, there is no unrecognized compensation cost related to stock option awards.

Information concerning outstanding and exercisable options as of December 31, 2013 is as follows:

The Company leases office space under non-cancellable operating leases, the majority of which contain escalation clauses. The Company recognizes rent expense on a straight-line basis for leases with escalation clauses. Certain of these leases also contain renewal options. Renewal periods vary according to lease agreements. Rent expense was approximately $48.8 million, $43.0 million, and $41.4 million, for the years ended December 31, 2013, 2012 and 2011, respectively, which were included in Other operating expenses on the Company's Consolidated Statements of Income and Comprehensive Income. Sublease rental income of $1.5 million, $1.3 million and $0.6 million, for the years ended December 31, 2013, 2012, and 2011, respectively, was netted against rent expense. The Company estimates it will receive approximately $1.2 million of sublease rent income over the next four years.

Future minimum rental payments, by year and in the aggregate, under operating leases with terms of one year or more at December 31, 2013 are as follows:

The firm of Foley & Lardner LLP serves as the Company's outside general counsel. The Company's former Chairman is the brother-in-law of the partner in charge of the relationship for the years ended 2012 and 2011. The Company's former Chairman retired from the board 2013. Total fees paid by the Company to Foley & Lardner LLP were $3.0 million, $2.4 million, and $2.6 million, for the years ended 2013, 2012 and 2011, respectively.

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 other O&P operations 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:

The Company's contract and network management business, known as Linkia, 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. The Company 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 Company's network now includes approximately 1,150 O&P provider locations, including over 400 independent providers. As of December 31, 2013, the Company had 57 contracts with national and regional providers.

Products & Services—This segment consists of the Company's distribution business, which distributes and fabricates O&P products and components for both the O&P industry and the Company's own patient care clinics, and the Company's 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. In the schedule below, the segment information for earlier periods has been conformed to the change in the composition of the Company's reportable segments that occurred in first quarter of 2013. The impacts of the revision of previously reported consolidated financial information on Net sales, as discussed in Note B, are included in the results of the Patient Care segment.

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. The Company's

foreign and export sales and assets located outside of the United States of America are not significant. Additionally, no single customer accounted for more than 10% of revenues in 2013, 2012 or 2011.

(In thousands)	Patient Care		Products & Services		Other			Consolidating Adjustments			Total

*2013*
Net sales
Customers	$	873,203	$	173,235	$	—		$	—		$	1,046,438
Intersegments		—		226,025		—			(226,025	)		—
Depreciation and amortization		16,509		12,539		8,438			—			37,486
Income (loss) from operations		141,461		50,658		(57,147	)		(1,108	)		133,864
Interest (income) expense		30,815		14,760		(19,100	)		—			26,475
Extinguishment of debt		—		—		6,645			—			6,645
Income (loss) before taxes		110,646		35,898		(44,692	)		(1,108	)		100,744
Total assets		1,502,721		408,628		—			(639,689	)		1,271,660
Capital expenditures		12,524		3,316		22,606						38,446
*2012*
Net sales
Customers	$	803,243	$	171,186	$	—		$	—		$	974,429
Intersegments		—		212,725		—			(212,725	)		—
Depreciation and amortization		14,193		12,515		7,944			—			34,652
Income (loss) from operations		142,467		40,215		(52,278	)		(1,066	)		129,338
Interest (income) expense		30,353		9,037		(8,221	)		—			31,169
Income (loss) before taxes		112,114		31,178		(44,057	)		(1,066	)		98,169
Total assets		1,389,224		336,319		—			(488,216	)		1,237,327
Capital expenditures	$	15,335		4,386	$	13,442		$	—			33,163
*2011*
Net sales
Customers	$	743,324	$	164,470	$	—		$	—		$	907,794
Intersegments		—		193,804		—			(193,804	)		—
Depreciation and amortization		12,495		11,633		6,954			(113	)		30,969
Income (loss) from operations		133,321		32,371		(49,432	)		(305	)		115,955
Interest (income) expense		28,440		9,118		(5,737	)		—			31,821
Income (loss) before taxes		104,881		23,253		(43,695	)		(305	)		84,134
Total assets		1,249,382		307,139		—			(429,802	)		1,126,719
Capital expenditures		11,897		5,535		11,242			—			28,674

Exhibit No.			Document

	3.1		Restated Certificate of Incorporation of Hanger, Inc., dated August 27, 2012. (Incorporated herein by reference to Exhibit 3.1 to the Current Report on Form 8-K filed by the Registrant on August 27, 2012).
	3.2		Amended and Restated By-Laws of Hanger Orthopedic Group, Inc., as amended effective February 2, 2012. (Incorporated herein by reference to Exhibit 3.1 to the Current Report on Form 8-K filed by the Registrant on February 6, 2012).
	4.1		Indenture, dated November 2, 2010, by and among Hanger Orthopedic Group, Inc., each of the Subsidiary Guarantors party thereto and Wilmington Trust Company, as trustee. (Incorporated herein by reference to Exhibit 4.1 to the Registrant's Current Report on Form 8-K filed on October 29, 2010).
	4.2		First Supplemental Indenture, dated December 13, 2010, by and among Hanger Orthopedic Group, Inc., each of the Subsidiary Guarantors party thereto and Wilmington Trust Company, as trustee. (Incorporated herein by reference to Exhibit 4.3 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2010).
	4.3		Second Supplemental Indenture, dated February 15, 2011, by and among Hanger Orthopedic Group, Inc., Accelerated Care Plus Corp., ACP Medical Supply Corporation, Liberty Health Services, LLC and Wilmington Trust Company, as trustee. (Incorporated herein by reference to Exhibit 4.2 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2011).
	4.4		Third Supplemental Indenture, dated June 27, 2013, by and among Hanger, Inc., each of the Subsidiary Guarantors party thereto and Wilmington Trust Company, as trustee. (Incorporated herein by reference to Exhibit 4.2 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2013).
	4.5		Credit Agreement, dated June 17, 2013, among Hanger, Inc. and the lenders and agents party hereto. (Incorporated herein by reference to Exhibit 4.1 to the Current Report on Form 8-K filed by the Registrant on June 19, 2013).
	10.1		Amended and Restated 2002 Stock Incentive Plan, as amended through May 10, 2007. (Incorporated herein by reference to Appendix 1 to the Registrant's Proxy Statement, dated April 10, 2007, relating to the Registrant's Annual Meeting of Stockholders held on May 10, 2007).*
	10.2		Amended and Restated 2003 Non-Employee Directors' Stock Incentive Plan, as amended through May 10, 2007. (Incorporated herein by reference to Appendix 2 to the Registrant's Proxy Statement, dated April 10, 2007, relating to the Registrant's Annual Meeting of Stockholders held on May 10, 2007).
	10.3		Form of Stock Option Agreement (Non-Executive Employees), Stock Option Agreement (Executive Employees), Restricted Stock Agreement (Non-Executive Employees) and Restricted Stock Agreement (Executive Employees). (Incorporated herein by reference to Exhibits 10.1, 10.2, 10.3 and 10.4, respectively, to the Registrant's Current Report on Form 8-K filed on February 24, 2005).*
	10.4		Supplemental Executive Retirement Plan, as amended and restated effective January 1, 2011 (Incorporated herein by reference to Exhibit 10.4 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2010).*
	10.5		Fourth Amended and Restated Employment Agreement, effective as of January 1, 2012, by and between George E. McHenry and the Company. (Incorporated herein by reference to Exhibit 10.3 to the Registrant's Current Report on Form 8-K filed on January 27, 2012).*

Exhibit No.			Document

	10.6		Fourth Amended and Restated Employment Agreement, effective as of January 1, 2012, by and between Richmond L. Taylor and the Company. (Incorporated herein by reference to Exhibit 10.4 to the Registrant's Current Report on Form 8-K filed on January 27, 2012).*
	10.7		Hanger Orthopedic Group, Inc. 2010 Omnibus Incentive Plan (incorporated herein by reference to Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2010).*
	10.8		Form of Restricted Stock Agreement for Non-Employee Directors (incorporated herein by reference to Exhibit 10.2 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2010).*
	10.9		Form of Restricted Stock Agreement for Executives (incorporated herein by reference to Exhibit 10.3 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2010).*
	10.10		Form of Restricted Stock Agreement for Employees Executives (incorporated herein by reference to Exhibit 10.4 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2010).*
	10.11		Form of Non-Employee Director Non-Qualified Stock Option Agreement (incorporated herein by reference to Exhibit 10.5 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2010).*
	10.12		Form of Executive Non-Qualified Stock Option Agreement (incorporated herein by reference to Exhibit 10.6 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2010).*
	10.13		Form of Non-Qualified Stock Option Agreement (incorporated herein by reference to Exhibit 10.7 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2010).*
	10.14		Amended and Restated Employment Agreement, dated as of March 30, 2012, between Thomas E. Hartman and Hanger Prosthetics & Orthotics, Inc. (Incorporated herein by reference to Exhibit 10.22 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2012).*
	10.15		Second Amended and Restated Employment Agreement, dated August 27, 2012, by and between Vinit K. Asar and Hanger, Inc. (Incorporated herein by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by the Registrant on August 27, 2012).*
	10.16		Amended and Restated Employment Agreement, dated as of February 25, 2013, by and between Kenneth W. Wilson and Southern Prosthetic Supply, Inc. (Incorporated herein by reference to Exhibit 10.24 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2012).*
	10.17		Defined Contribution Supplemental Retirement Plan, dated May 1, 2013. (Incorporated herein by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by the Registration on May 13, 2013).
	21		List of Subsidiaries of the Registrant. (Filed herewith).
	23.1		Consent of PricewaterhouseCoopers LLP. (Filed herewith).
	31.1		Written Statement of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (Filed herewith).
	31.2		Written Statement of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (Filed herewith).


ý		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the fiscal year ended December 31, 2013
OR
o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.


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)

Title of class		Name of exchange on which registered

Common Stock, par value $0.01 per share		New York Stock Exchange


Large accelerated filer ý		Accelerated filer o		Non-accelerated filer o (Do not check if a smaller reporting company)		Smaller reporting company o


Hanger, Inc.
Part I
	Item 1. Business	1
	Item 1A. Risk Factors	13
	Item 1B. Unresolved Staff Comments	16
	Item 2. Properties	17
	Item 3. Legal Proceedings	17
	Executive Officers of the Registrant	18
	Item 4. Mine Safety Disclosures	20
Part II
	Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	21
	Item 6. Selected Financial Data	23
	Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations	24
	Item 7A. Quantitative and Qualitative Disclosures about Market Risk	37
	Item 8. Financial Statements and Supplementary Data	37
	Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	38
	Item 9A. Controls and Procedures	38
	Item 9B. Other Information	39
Part III
	Item 10. Directors, Executive Officers and Corporate Governance	40
	Item 11. Executive Compensation	40
	Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	40
	Item 13. Certain Relationships and Related Transactions, and Director Independence	40
	Item 14. Principal Accountant Fees and Services	40
Part IV
	Item 15. Exhibits and Financial Statement Schedules	41
Signatures		44
Index to Financial Statements		F-1
Exhibits, including certifications of CEO and CFO

Year Ended December 31, 2013	High		Low

First Quarter	$	31.79	$	28.07
Second Quarter		33.41		28.92
Third Quarter		37.39		30.46
Fourth Quarter		39.75		32.62

Year Ended December 31, 2012	High		Low

First Quarter	$	22.93	$	18.13
Second Quarter		25.64		20.64
Third Quarter		29.13		23.81
Fourth Quarter		28.83		22.74

Plan Category	Number of securities to be issued upon exercise of outstanding options, warrants and rights		Weighted average exercise price of outstanding options, warrants and rights		Number of securities remaining available for future issuance (excluding securities reflected in column(a)

	(a)		(b)		(c)
Equity Compensation Plans:
Approved by security holders		13,320	$	9.53		1,118,792
Not approved by security holders		—		—		N/A


Total		13,320				1,118,792

	As of December 31,

	2008		2009		2010		2011		2012		2013
Hanger, Inc.	$	100.00	$	95.31	$	146.04	$	128.81	$	188.56	$	271.12
S & P 500	$	100.00	$	126.46	$	145.51	$	148.59	$	172.37	$	228.19
S&P SmallCap 600	$	100.00	$	125.57	$	158.60	$	160.22	$	186.37	$	263.37
RUSSELL 2000	$	100.00	$	127.17	$	161.33	$	154.60	$	179.88	$	249.71
S&P 500 Health Care Services Index	$	100.00	$	140.72	$	152.17	$	140.36	$	168.96	$	203.96

	Year Ended December 31,

Balance Sheet Data:	2013		2012		2011		2010		2009
(In thousands)
Cash and cash equivalents	$	9,860	$	19,211	$	42,896	$	36,308	$	84,558
Working capital		267,085		251,465		240,648		185,260		216,664
Total assets		1,271,660		1,237,327		1,126,719		1,060,570		875,036
Total debt		468,259		520,646		508,033		508,684		410,472
Shareholders' equity		580,220		503,094		428,582		364,427		315,893

	Year Ended December 31,

Other Financial Data:	2013			2012			2011			2010			2009
(In thousands)
Capital expenditures	$	38,446		$	33,163		$	28,674		$	30,593		$	21,270
Net cash provided by (used in):
Operating activities	$	86,260		$	81,319		$	61,804		$	54,200		$	71,824
Investing activities		(35,938	)		(99,051	)		(46,870	)		(185,975	)		(34,152	)
Financing activities		(59,673	)		(5,953	)		(8,346	)		83,525			(11,527	)

December 31, 2013	0-60 days		61-120 days		Over 120 days		Total

(In thousands)
Patient Care
Commercial insurance	$	52,899	$	12,092	$	14,507	$	79,498
Private pay		3,991		3,413		5,751		13,155
Medicaid		11,876		4,122		5,282		21,280
Medicare		30,587		7,097		20,918		58,602
VA		2,589		565		463		3,617
Products & Services
Trade accounts receivable		11,541		3,370		4,728		19,639


	$	113,483	$	30,659	$	51,649	$	195,791


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

(In thousands)	2014		2015		2016		2017		2018		Thereafter		Total

Long-term debt(1)	$	15,998	$	22,200	$	23,488	$	29,171	$	377,226	$	176	$	468,259
Interest payments on long-term debt		19,215		18,942		18,727		18,627		14,054		11		89,576
Operating leases		47,100		35,637		28,031		21,522		14,350		27,418		174,058
Capital leases		1,882		1,861		1,851		1,773		1,726		7,351		16,444
Other long-term obligations(2)		16,048		10,088		2,910		2,759		1,985		13,194		46,984


Total contractual cash obligations	$	100,243	$	88,728	$	75,007	$	73,852	$	409,341	$	48,150	$	795,321



Discount rate	4.03	%	3.25	%	3.90	%
Average rate of increase in compensation	3.00	%	3.00	%	3.00	%

December 31, 2012	0-60 days		61-120 days		Over 120 days		Total

(In thousands)
Patient Care
Commercial insurance	$	51,658	$	10,468	$	12,249	$	74,375
Private pay		5,437		4,545		5,783		15,765
Medicaid		11,812		3,181		3,228		18,221
Medicare		27,433		5,611		9,029		42,073
VA		2,082		558		324		2,964
Products & Services
Trade accounts receivable		12,556		3,149		4,091		19,796


	$	110,978	$	27,512	$	34,704	$	173,194

(In thousands)

2014	$	1,247
2015		1,585
2016		1,585
2017		1,585
2018		1,928
Thereafter		13,022


	$	20,952

	Annual Interest Expense Given an Interest Rate Decrease of X Basis Points						No Change in Interest Rates		Annual Interest Expense Given an Interest Rate Increase of X Basis Points

Cash Flow Risk	(150 BPS)		(100 BPS)		(50 BPS)				50 BPS		100 BPS		150 BPS
(In thousands)	(150 BPS)		(100 BPS)		(50 BPS)				50 BPS		100 BPS		150 BPS
Term Loan	$	4,326	$	4,326	$	4,326	$	4,715	$	5,913	$	7,111	$	8,308

	Quarter Ended (Unaudited)

2013	Mar 31		Jun 30		Sep 30		Dec 31
(Dollars in thousands, except per share amounts)	Mar 31		Jun 30		Sep 30		Dec 31
Net Sales	$	229,350	$	267,798	$	271,053	$	278,237
Income from Operations	$	22,716	$	36,644	$	39,906	$	34,598
Net Income	$	9,490	$	14,079	$	21,659	$	18,356
Basic per Common Share Net Income	$	0.27	$	0.40	$	0.62	$	0.53
Diluted per Common Share Net Income	$	0.27	$	0.40	$	0.61	$	0.52



Patient care clinics	749		748		701		678		677
Revenue generating O&P clinicians	1,291		1,269		1,191		1,156		1,127
Number of states (including D.C.)	46		46		46		46		46
Same center net sales growth(1)	2.4	%	4.0	%	2.3	%	4.4	%	5.2	%


Management's Annual Report on Internal Control over Financial Reporting
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2013 and 2012
Consolidated Statements of Income and Comprehensive Income for the Three Years Ended December 31, 2013
Consolidated Statements of Changes in Shareholders' Equity for the Three Years Ended December 31, 2013
Consolidated Statements of Cash Flows for the Three Years Ended December 31, 2013
Notes to Consolidated Financial Statements


	HANGER, INC.
Dated: April 4, 2014	By:	/s/ VINIT K. ASAR Vinit K. Asar Chief Executive Officer


Dated: April 4, 2014		/s/ VINIT K. ASAR Vinit K. Asar Chief Executive Officer and Director (Principal Executive Officer)
Dated: April 4, 2014		/s/ GEORGE E. MCHENRY George E. McHenry Executive Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)
Dated: April 4, 2014		/s/ CHRISTOPHER B. BEGLEY Christopher B. Begley Director
Dated: April 4, 2014		/s/ THOMAS P. COOPER, M.D. Thomas P. Cooper, M.D. Director
Dated: April 4, 2014		/s/ CYNTHIA L. FELDMANN Cynthia L. Feldmann Director
Dated: April 4, 2014		/s/ ERIC A. GREEN Eric A. Green Director


Dated: April 4, 2014		/s/ STEPHEN E. HARE Stephen E. Hare Director
Dated: April 4, 2014		/s/ THOMAS F. KIRK Thomas F. Kirk Director
Dated: April 4, 2014		/s/ RICHARD R. PETTINGILL Richard R. Pettingill Director
Dated: April 4, 2014		/s/ PATRICIA B. SHRADER Patricia B. Shrader Director

	Year Ended December 31, 2012						Year Ended December 31, 2011

	As Previously Reported			As Revised			As Previously Reported			As Revised
Consolidated Statements of Income and Comprehensive Income
Net Sales	$	985,550		$	974,429		$	918,539		$	907,794
Other operating expenses*	$	188,868		$	178,918		$	177,910		$	169,131
Consolidated Statements of Cash Flows
Provision for doubtful accounts	$	19,773		$	9,589		$	24,837		$	9,396
Change in accounts receivable	$	(40,443	)	$	(30,259	)	$	(42,024	)	$	(26,583	)

	Classification	Balance at beginning of year		Additions Charged to Costs and Expenses		Write-offs		Balance at end of year

2012	Allowance for doubtful accounts
	Previously reported	$	22,028	$	19,773	$	20,422	$	21,379
	Revised	$	7,236	$	9,589	$	9,299	$	7,526
2011	Allowance for doubtful accounts
	Previously reported	$	16,686	$	22,101	$	16,759	$	22,028
	Revised	$	5,153	$	9,396	$	7,313	$	7,236

(In thousands)

Program equipment	$	34,142
Less: Accumulated depreciation		(14,184	)


Net book value at December 31, 2013		19,958

(In thousands)	2013		2012		2011

Cash paid during the period for:
Interest	$	25,230	$	27,362	$	27,799
Income taxes		34,409		34,468		17,152
Non-cash financing and investing activities:
Issuance of notes in connection with acquisitions	$	2,650	$	21,895	$	6,700
Issuance of restricted stock units		11,698		5,996		12,754

(In thousands)	Patient Care			Products & Services		Total

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

	Patient Care		Products & Services		Total

Balance at December 31, 2011	$	474,166	$	135,318	$	609,484
Additions due to acquisitions		63,849		964		64,813
Contingent considerations(1)		477		—		477


Balance at December 31, 2012	$	538,492	$	136,282	$	674,774

	December 31, 2013							December 31, 2012

(In thousands)	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Customer Lists	$	46,932	$	(11,627	)	$	35,305	$	48,044	$	(7,846	)	$	40,198
Trade Name		10,023		(264	)		9,759		9,070		—			9,070
Patents and Other Intangibles		28,441		(15,484	)		12,957		27,810		(12,797	)		15,013


	$	85,396	$	(27,375	)	$	58,021	$	84,924	$	(20,643	)	$	64,281

(In thousands)

2014	$	6,752
2015		6,505
2016		5,813
2017		5,401
2018		4,932
Thereafter		19,549


	$	48,952

(In thousands)	December 31, 2013		December 31, 2012

Raw materials	$	40,970	$	41,372
Work in process		66,832		56,931
Finished goods		33,716		28,992


	$	141,518	$	127,295

(In thousands)	2013			2012

Revolving credit facility	$	25,000		$	—
Term loan		222,188			293,300
7¹/8% 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 4.0%, maturing through November 2018		21,071			27,346


Total debt		468,259			520,646
Less current portion		(15,998	)		(11,082	)


Total long term debt	$	452,261		$	509,564

(In thousands, except share and per share data)	2013		2012		2011

Net income applicable to common stock	$	63,584	$	63,692	$	54,477




Shares of common stock outstanding used to compute basic per common share amounts		34,818,214		34,282,591		33,544,813
Effect of dilutive restricted stock units and options		576,507		550,239		675,443


Shares used to compute diluted per common share amounts		35,394,721		34,832,830		34,220,256




Basic income per share applicable to common stock	$	1.83	$	1.86	$	1.62
Diluted income per share applicable to common stock	$	1.80	$	1.83	$	1.59

(In thousands)	2013			2012			2011

Current:
Federal	$	32,521		$	32,394		$	18,976
State		6,241			6,386			2,242


Total Current		38,762			38,780			21,218


Deferred:
Federal		(1,510	)		(3,273	)		6,242
State		(92	)		(1,030	)		2,197


Total Deferred		(1,602	)		(4,303	)		8,439


Provision for income taxes	$	37,160		$	34,477		$	29,657



Federal statutory tax rate	35.0	%	35.0	%	35.0	%
Increase (decrease) in taxes resulting from:
State income taxes (net of federal effect)	4.0		4.3		4.3
Domestic manufacturing deduction	(2.1	)	(2.4	)	(2.0	)
Other	—		(1.8	)	(2.1	)


Provision for income taxes	36.9	%	35.1	%	35.2	%

(In thousands)	2013			2012			2011

Unrecognized tax benefits, at beginning of the year	$	377		$	230		$	420
Additions for tax positions related to the current year		—			107			—
Additions for tax positions of prior years		207			79			—
Decrease related to prior year positions		(107	)		—			(190	)
Decrease for lapse of applicable statute of limitations		—			(39	)		—


Unrecognized tax benefits, at end of the year	$	477		$	377		$	230

	Options Outstanding and Exercisable

			Weighted Average
Range of Exercise Prices	Number of Options or Awards		Remaining Life (Years)		Exercise Price
$5.09 to $16.10		13,320		1.0	$	9.53