HANGER, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. (form 10-K)

Forward-Looking Statements

This Annual Report on Form 10-K including this "Management's Discussion and
Analysis of Financial Condition and Results of Operations" (or "Management's
Discussion and Analysis") contains statements that are forward-looking
statements within the meaning of the federal securities laws. Forward-looking
statements include information concerning our liquidity and our possible or
assumed future results of operations, including descriptions of our business
strategies. These statements often include words such as "believe," "expect,"
"project," "potential," "anticipate," "intend," "plan," "estimate," "seek,"
"will," "may," "would," "should," "could," "forecasts," or similar words. These
statements are based on certain assumptions that we have made in light of our
experience in the industry as well as our perceptions of historical trends,
current conditions, expected future developments, and other factors we believe
are appropriate in these circumstances. We believe these assumptions are
reasonable, but you should understand that these statements are not guarantees
of performance or results, and our actual results could differ materially from
those expressed in the forward-looking statements due to a variety of important
factors, both positive and negative, that may be revised or supplemented in
subsequent reports.

These statements involve risks, estimates, assumptions, and uncertainties that
could cause actual results to differ materially from those expressed in these
statements and elsewhere in this report. These uncertainties include, but are
not limited to, contractual, inflationary, and other general cost increases,
including with regard to costs of labor, raw materials, and freight; labor
shortages and increased turnover in our employee base; the financial and
business impacts of the COVID-19 pandemic on our operations and the operations
of our customers, suppliers, governmental and private payers, and others in the
healthcare industry and beyond; federal laws governing the health care industry;
governmental policies affecting O&P operations, including with respect to
reimbursement; failure to successfully implement a new enterprise resource
planning system or other disruptions to information technology systems; the
inability to successfully execute our acquisition strategy, including
integration of recently acquired O&P clinics into our existing business; changes
in the demand for our O&P products and services, including additional
competition in the O&P services market; disruptions to our supply chain; our
ability to enter into and derive benefits from managed-care contracts; our
ability to successfully attract and retain qualified O&P clinicians; and other
risks and uncertainties generally affecting the health care industry.

Readers are cautioned that all forward-looking statements involve known and
unknown risks and uncertainties including, without limitation, those described
in Item 1A. "Risk Factors" contained in this Annual Report on Form 10-K, some of
which are beyond our control. Although we believe that the assumptions
underlying the forward-looking statements contained herein are reasonable, any
of the assumptions could be inaccurate. Therefore, there can be no assurance
that the forward-looking statements included in this report will prove to be
accurate. Actual results could differ materially and adversely from those
contemplated by any forward-looking statement. In light of the significant risks
and uncertainties inherent in the forward-looking statements included herein,
the inclusion of such information should not be regarded as a representation by
us or any other person that our objectives and plans will be achieved. We
undertake no obligation to publicly release any revisions to any forward-looking
statements in this discussion to reflect events and circumstances occurring
after the date hereof or to reflect unanticipated events. Forward-looking
statements and our liquidity, financial condition, and results of operations may
be affected by the risks set forth in Item 1A. "Risk Factors" or by other
unknown risks and uncertainties.

Non-GAAP Measures

We refer to certain financial measures and statistics that are not in accordance
with accounting principles generally accepted in the United States of America
("GAAP"). We utilize these non-GAAP measures in order to evaluate the underlying
factors that affect our business performance and trends. These non-GAAP measures
should not be considered in isolation and should not be considered superior to,
or as a substitute for, financial measures calculated in accordance with GAAP.
We have defined and provided a reconciliation of these non-GAAP measures to
their most comparable GAAP measures. The non-GAAP measure used in this
Management's Discussion and Analysis is as follows:

Same Clinic Revenues Per Day - measures the year-over-year change in revenue from clinics that have been open a full calendar year or more. Examples of clinics not included in the same center population are closures and acquisitions. Day-adjusted growth normalizes sales for the number of days a clinic was open in each comparable period.

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Overview

Business Overview

General

We are a leading national provider of products and services that assist in
enhancing or restoring the physical capabilities of patients with disabilities
or injuries, and we and our predecessor companies have provided O&P services for
nearly 160 years. We provide O&P services, distribute O&P devices and
components, manage O&P networks, and provide therapeutic solutions to patients
and businesses in acute, post-acute, and clinic settings. We operate through two
segments - Patient Care and Products & Services.

Our Patient Care segment is primarily comprised of Hanger Clinic, which
specializes in comprehensive, outcomes-based design, fabrication, and delivery
of custom O&P devices through 760 patient care clinics and 115 satellite
locations in 47 states and the District of Columbia, as of December 31, 2021. We
also provide payor network contracting services to other O&P providers through
this segment.

Our Products & Services segment is comprised of our distribution services and
therapeutic solutions businesses. As a leading provider of O&P products in the
United States, we engage in the distribution of a broad catalog of branded and
private label O&P devices, products, and components to independent O&P providers
nationwide. The other business in our Products & Services segment is our
therapeutic solutions business, which develops specialized rehabilitation
technologies and provides evidence-based clinical programs for post-acute
rehabilitation to patients at approximately 4,000 skilled nursing and post-acute
providers nationwide.

For the years ended December 31, 2021, 2020, and 2019, our net revenues were
$1,120.5 million, $1,001.2 million, and $1,098.0 million, respectively. We
recorded net income of $42.0 million, $38.2 million, and $27.5 million for the
years ended December 31, 2021, 2020, and 2019, respectively.

Industry Overview

As of 2019, we estimate that approximately $4.3 billion is spent in the United
States each year for prescription-based O&P products and services through O&P
clinics. We believe our Patient Care segment currently accounts for
approximately 24% of the market, providing a comprehensive portfolio of
orthotic, prosthetic, and post-operative solutions to patients in acute,
post-acute, and patient care clinic settings.

The O&P patient care services market in the United States is highly fragmented
and is characterized by regional and local independent O&P businesses operated
predominantly by independent operators, but also including two O&P product
manufacturers with substantial international patient care services operations.
We do not believe that any single competitor accounts for 2.5% or more of the
nation's total estimated O&P clinic revenues.

The industry is characterized by stable, recurring revenues, primarily resulting
from new patients as well as the need for periodic replacement and modification
of O&P devices. We anticipate that the demand for O&P services will continue to
grow as the nation's population increases, and as a result of several trends,
including the aging of the U.S. population, there will be an increase in the
prevalence of disease-related disability and the demand for new and advanced
devices. We believe the typical replacement time for prosthetic devices is three
to five years, while the typical replacement time for orthotic devices varies,
depending on the device.

We estimate that approximately $1.8 billion is spent in the United States each
year by providers of O&P patient care services for the O&P products, components,
devices, and supplies used in their businesses. Our Products & Services segment
distributes to independent providers of O&P services. We estimate that our
distribution sales account for approximately 7% of the market for O&P products,
components, devices, and supplies (excluding sales to our Patient Care segment).

We estimate the market for rehabilitation technologies, integrated clinical
programs, and clinician training in skilled nursing facilities ("SNFs") to be
approximately $150 million annually. We currently provide these products and
services to approximately 25% of the estimated 15,000 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 $400 million annually. We do not currently provide a meaningful
amount of products and services to this broader market.


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Business Description

Patient Care

Our Patient Care segment employs approximately 1,660 clinical prosthetists,
orthotists, and pedorthists, which we refer to as clinicians, substantially all
of which are certified by either the American Board for Certification ("ABC") or
the Board of Certification of Orthotists and Prosthetists, which are the two
boards that certify O&P clinicians. To facilitate timely service to our
patients, we also employ technicians, fitters, and other ancillary providers to
assist our clinicians in the performance of their duties. Through this segment,
we additionally provide network contracting services to independent providers of
O&P.

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 selection of an orthotic or prosthetic device to meet the
patient's needs. O&P devices are increasingly technologically advanced and
custom designed to add functionality and comfort to patients' lives, shorten the
rehabilitation process, and lower the cost of rehabilitation.

Based on the prescription written by a referring physician, our clinicians
examine and evaluate the patient and either design a custom device or, in the
case of certain orthotic needs, utilize a non-custom device, including, in
appropriate circumstances, an "off the shelf" device, to address the patient's
needs. When fabricating a device, our clinicians ascertain the specific
requirements, componentry, and measurements necessary for the construction of
the device. Custom devices are constructed using componentry provided by a
variety of third party manufacturers that specialize in O&P, coupled with
sockets and other elements that are fabricated by our clinicians and
technicians, to meet the individual patient's physical and ambulatory needs. Our
clinicians and technicians typically utilize castings, electronic scans, and
other techniques to fabricate items that are specialized for the patient. After
fabricating the device, a fitting process is undertaken and adjustments are made
to ensure the achievement of proper alignment, fit, and patient comfort. The
fitting process often involves several stages to successfully achieve desired
functional and cosmetic results.

Given the differing physical weight and size characteristics, location of injury
or amputation, capability for physical activity and mobility, cosmetic, and
other needs of each individual patient, each fabricated prosthesis and orthosis
is customized for each particular patient. These custom devices are commonly
fabricated at one of our regional or national fabrication facilities.

We have earned a 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. We
utilize multiple scanning and imaging technologies in the fabrication process,
depending on the patient's individual needs, including our proprietary Insignia
scanning system. The Insignia system scans the patient and produces an accurate
computer-generated image, resulting in a faster turnaround for the patient's
device and a more professional overall experience.

In recent years, we have established a centralized revenue cycle management
organization that assists our clinics in pre-authorization, patient eligibility,
denial management, collections, payor audit coordination, and other accounts
receivable processes.

The principal reimbursement sources for our services are:

•Commercial private payors and other non-governmental organizations, which
consist of individuals, rehabilitation providers, commercial insurance
companies, health maintenance organizations ("HMOs"), preferred provider
organizations ("PPOs"), hospitals, vocational rehabilitation centers, workers'
compensation programs, third party administrators, and similar sources;

•Medicare, a federally funded health insurance program providing health insurance coverage for persons aged 65 or older and certain persons with disabilities;

•Medicaid, a health insurance program jointly funded by federal and state
governments providing health insurance coverage for certain persons requiring
financial assistance, regardless of age, which may supplement Medicare benefits
for persons aged 65 or older requiring financial assistance; and

•the VA.

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We typically enter into contracts with third party payors that allow us to
perform O&P services for a referred patient and to be reimbursed for our
services. These contracts usually have a stated term of one to three years and
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 market conditions, geographic area, and number of persons covered.
Many of our commercial contracts are indexed to the commensurate Medicare fee
schedule that relates to the products or services being provided.

Government reimbursement is comprised of Medicare, Medicaid, and the VA. These
payors set maximum reimbursement levels for O&P services and products. Medicare
prices are adjusted each year based on the Consumer Price Index for All Urban
Consumers ("CPI-U") unless Congress acts to change or eliminate the adjustment.
The CPI-U is adjusted further by an efficiency factor known as the "Productivity
Adjustment" or the "Multi-Factor Productivity Adjustment" in order to determine
the final rate adjustment each year. There can be no assurance that future
adjustments will not reduce reimbursements for O&P services and products from
these sources.

We, and the O&P industry in general, are subject to various Medicare compliance
audits, including Recovery Audit Contractor ("RAC") audits, Comprehensive Error
Rate Testing ("CERT") audits, Targeted Probe and Educate ("TPE") audits,
Supplemental Medical Review Contractor ("SMRC") audits, and Unified Program
Integrity Contractor ("UPIC") audits. TPE audits are generally pre-payment
audits, while RAC, CERT, and SMRC audits are generally post-payment audits. UPIC
audits can be both pre- or post-payment audits, with a majority currently
pre-payment. TPE audits replaced the previous Medicare Administrative Contractor
audits. Adverse post-payment audit determinations generally require Hanger to
reimburse Medicare for payments previously made, while adverse pre-payment audit
determinations generally result in the denial of payment. In either case, we can
request a redetermination or appeal, if we believe the adverse determination is
unwarranted, which can take an extensive period of time to resolve, currently up
to six years or more.

Products & Services

Through our wholly-owned subsidiary, Southern Prosthetic Supply, Inc. ("SPS"),
we distribute branded and private label devices, products, and components to
independent O&P clinics and other customers. Through our wholly-owned
subsidiary, Accelerated Care Plus Corp. ("ACP"), our therapeutic solutions
business is a leading provider of rehabilitation technologies and integrated
clinical programs to skilled nursing and post-acute rehabilitation providers.
Our value proposition is to provide our customers with a full-service "total
solutions" approach encompassing proven medical technology, evidence-based
clinical programs, and ongoing consultative education and training. Our services
support increasingly advanced treatment options for a broader patient population
and more medically complex conditions. We currently serve approximately 4,000
skilled nursing and post-acute providers nationwide. Through our SureFit
subsidiary, we also manufacture and sell therapeutic footwear for diabetic
patients in the podiatric market. We also operate the Hanger Fabrication
Network, which fabricates custom O&P devices for our patient care clinics, as
well as for independent O&P clinics.

Through our internal "supply chain" organization, we purchase, warehouse, and
distribute over 350,000 active SKUs from approximately 750 different suppliers
through SPS or directly to our own clinics within our Patient Care segment. Our
warehousing and distribution facilities in Nevada, Georgia, Illinois, and Texas
provide us with the ability to deliver products to the vast majority of our
customers in the United States within two business days. In January 2022, we
announced plans to close the warehouse and distribution facilities in Illinois
and Texas in the second quarter of 2022, consolidating their operations into our
Georgia and Nevada facilities.

Our supply chain organization enables us to:

•centralize our purchasing and thus lower our material costs by negotiating purchasing discounts from manufacturers;

•better manage our patient care clinic inventory levels and improve inventory turns;

•improve inventory quality control;

•encourage our patient care clinics to use the most clinically appropriate products; and

•coordinate new product development efforts with key vendors.

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Effects of the COVID-19 Pandemic

We began to see a reduction in business volumes as a result of the COVID-19
pandemic starting in the last weeks of March 2020. As federal, state, and local
authorities implemented social distancing and suppression measures to respond to
an increasing number of nationwide COVID-19 infections, we experienced a
decrease in our patient appointments and general business volumes. In response,
during the last week of March 2020, we made certain changes to our operations,
implemented a broad number of cost reduction measures, and delayed certain
capital investment projects. Although our business volumes have shown gradual
improvement from their initial significant decline in mid-2020, the adverse
impact of the COVID-19 pandemic on our business continued through the fourth
quarter of 2021, and into 2022. As a result, our comparative financial and
operational results when viewed as a whole for the periods impacted by the
COVID-19 pandemic, including temporary labor and cost reduction measures largely
in place during the second and third quarters of 2020, may not be indicative of
future financial and operational performance. The volume effects, our operating
responses, and the effects of COVID-19 on our financial condition are discussed
in Item 1A. "Risk Factors," Item 7. "Management's Discussion and Analysis of
Financial Condition and Results of Operations," and the "Financial Condition,
Liquidity and Capital Resources" sections below. Our results of operations for
any quarter during the COVID-19 pandemic may not be indicative of results of
operations that may be achieved for a subsequent quarter or the full year, and
may not be similar to results of operations experienced in prior years. In
addition, results in any given period in 2021 may be different than 2020 as a
result of the depressed conditions in 2020 stemming from the COVID-19 pandemic.

Effect on Business Volumes

Patient appointments showed some recovery in our clinics during the full year of
2021 increasing 11% over the prior year period, but remaining down by 7% from
the level reported in 2019.

Same clinic revenue per day grew by 9.1% for the full year of 2021. For the
three-month period ending March 31, 2021, June 30, 2021, September 30, 2021, and
December 31, 2021 same clinic revenue per day increased by approximately 1.4%,
18.2%, 10.7%, and 5.8%, respectively, as compared to their corresponding periods
in 2020. However, the progress of the COVID-19 Pandemic has been erratic, with
infection rates fluctuating as new variants, including the Delta and Omicron
variants, have emerged. When compared to each of the quarters in 2019, same
clinic revenue in our clinics was approximately 99%, 96%, 99%, and 95%, of each
respective period in that pre-COVID-19 year. For the full year, same clinic
revenue was 97% of the level reported during 2019.

Throughout the COVID-19 affected periods of 2020 through the fourth quarter of
2021, revenues from orthotics have generally dropped more significantly than
revenues from prosthetics. During the year, our prosthetics and orthotics
day-adjusted sales, excluding acquisitions, increased by approximately 6.1% and
13.0%, respectively. While prosthetic revenues seem to have recovered, the
recovery in orthotics has been more gradual when comparing 2021 over the 2019
periods.

In the early months of 2021, vaccines for combating COVID-19 were approved by
the US Food and Drug Administration, and the US government began a phased roll
out. However, the initial quantities of the vaccines were limited, and the US
government has prioritized distribution to front-line health care workers and
other essential workers, followed by individual populations that were most
susceptible to the severe effects of COVID-19. As vaccines became more readily
available, social adversity to vaccination and other factors affected the
achievement of nationwide vaccination goals. The lack of achievement of broad
immunity coupled with an increase in infections caused by the "Delta" variant in
the third quarter of 2021 and the "Omicron" variant in the fourth quarter of
2021 contributed to an increase in the duration and effect of COVID-19 on our
business volumes and staffing shortages. Currently, we believe our business
volumes are primarily being inhibited by reduced medical procedures due to
surgical constraints, reduced referral volumes from in-patient and out-patient
providers due to decreases in their volumes and the effect of COVID related
protocols on their businesses, patient hesitancy to seek care during the
pandemic, and increased patient mortality. Additionally, we believe that our
patient volumes are being affected by our own labor constraints in technical and
administrative positions, employee absences related to COVID-19, as well as
decreases in our sales of off-the-shelf orthotic devices.

Nevertheless, the overall adverse impact of the COVID-19 pandemic on our
business volumes has diminished and stabilized over time, and while our patient
appointment and other business volumes have improved, they have not reached the
levels experienced prior to the pandemic. We currently anticipate volumes to
increase by approximately 2% over 2021 in the coming year.


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Operating and Cost Reduction Responses

Throughout the periods affected by the COVID-19 pandemic, given that our
services are considered essential, we have continued to operate our businesses.
However, due to the risks posed to our clinicians, other employees, and
patients, we made certain changes to our operating practices in order to promote
safety and to minimize the risk of virus transmission. These included the
implementation of certain patient screening protocols and the relocation of
certain administrative and support personnel to a "work at home" environment.

As a result of the COVID-19 pandemic in 2020, we found it necessary to reduce
our personnel costs in response to significant decreases in business volumes.
Commencing at the start of April 2020, personnel cost reductions were
implemented through (i) an average 32% decrease in the salaries of all of our
exempt employees, the percentage of which varied from lower amounts for lower
salaried employees up to reduction amounts ranging from 47% to 100% for our
senior leadership team; (ii) the furloughing of certain employees on a voluntary
and involuntary basis; (iii) the reduction of work hours for non-exempt
employees; (iv) modification of bonus, commission, and other variable incentive
plans; (v) the reduction of overtime expenses; (vi) the elimination of certain
open positions; (vii) a reduction in the use of contract employees, and (viii)
the temporary suspension of certain auto allowances. During the period April
2020 through September 2020, salaries were gradually reinstated, with full
reinstatement of all exempt employee's salaries being effective on September 19,
2020. We believe this approach allowed us to retain as many employees as
possible to preserve the experience, culture, and patient service capabilities
of our workforce for periods subsequent to the COVID-19 pandemic.

In addition to these reductions in operating expenses, in 2020, we temporarily
delayed the implementation of our supply chain and financial systems, further
discussed in the "New Systems Implementations" section. We also suspended
construction of our new fabrication facility in Tempe, Arizona, and other
projects related to the reconfiguration of our distribution facilities. We
resumed construction of the Tempe, Arizona fabrication facility in the first
quarter of 2021, and recommenced the remaining activities in the second quarter
of 2021.

While it is not yet a requirement that all Hanger employees be vaccinated, we
are strongly encouraging it. As a policy, we adhere to federal, state, and local
regulations which increasingly require certain employees, particularly those who
provide healthcare services, to be vaccinated. We are closely monitoring the
evolving and growing requirements to ensure we are continuing to take the
appropriate actions to ensure our impacted employees are compliant.

Despite the effects of the COVID-19 pandemic on our business volumes, for the
foreseeable future, we currently believe that our cash flows from operations and
retained cash and cash equivalent balances are sufficient to enable us to fund
our operations, capital expenditures and other financial obligations as they
become due. Please refer to the "Financial Condition, Liquidity and Capital
Resources" section below for a discussion of our liquidity position.

CARES Act

The CARES Act established the Public Health and Social Services Emergency Fund,
also referred to as the Cares Act Provider Relief Fund, which set aside $203.5
billion to be administered through grants and other mechanisms to hospitals,
public entities, not-for-profit entities and Medicare- and Medicaid-enrolled
suppliers and institutional providers. The purpose of these funds is to
reimburse providers for lost revenue attributable to the COVID-19 pandemic, such
as lost revenues attributable to canceled procedures, as well as to provide
support for health-care related expenses. In April 2020, HHS began making
payments to healthcare providers from the $203.5 billion appropriation. These
are grants, rather than loans, to healthcare providers, and will not need to be
repaid.

During 2021 and 2020, we recognized a total benefit of $1.1 million and $24.0
million, respectively, in our consolidated statement of operations within Other
operating costs for the grant proceeds we received under the CARES Act
("Grants") from HHS.

Other Products & Services Performance Considerations

As discussed in our 2020 Form 10-K, under Item 7, "Management's Discussion and
Analysis of Financial Condition and Results of Operations", several of the
larger independent O&P providers we served through the distribution of
componentry encountered financial difficulties during the year ended December
31, 2020, which resulted in our discontinuing distribution services to these
customers. Generally, we believe our distribution customers encounter
reimbursement pressures similar to those we experience in our own Patient Care
segment and, depending on their ability to adapt to the increased claims
documentation standards that have emerged in our industry, this may either limit
the rate of growth of some of our customers,


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or otherwise affect the rate of growth we experience in our distribution of O&P
componentry to independent providers. In certain circumstances, we may pursue
acquisition of inventory in advance to preserve pricing to offset inflation and
potential supply chain constraints. During future periods, in addition to the
adverse effects of the COVID-19 pandemic discussed above, we currently believe
our rate of revenue growth in this segment may decrease as we choose to limit
the extent to which we distribute certain low margin orthotic products.
Additionally, to the extent that we acquire independent O&P providers who are
pre-existing customers of our distribution services, our revenue growth in this
segment would be adversely affected as we would no longer recognize external
revenue from the components we provide them.

Within our Products & Services segment, in addition to our distribution of
products, we provide therapeutic equipment and services to patients at SNFs and
other healthcare provider locations. Since 2016, a number of our clients,
including several of our larger SNF clients, have been discontinuing their use
of our therapeutic services. We believe these discontinuances relate primarily
to their overall efforts to reduce the costs they bear for therapy-related
services within their facilities. As a part of those terminations of service, in
a number of cases, we elected to sell terminating clients the equipment that we
had utilized for their locations. Within this portion of our business, we have
and continue to respond to these historical trends through the expansion of our
products and services offerings.

Reimbursement Trends

In our Patient Care segment, we are reimbursed primarily through employer-based
plans offered by commercial insurance carriers, Medicare, Medicaid, and the VA.
The following is a summary of our payor mix, expressed as an approximate
percentage of net revenues for the periods indicated:

                                                                        For the Years Ended December 31,
                                                            2021                      2020                      2019
Medicare                                                         31.4  %                   32.3  %                   31.9  %
Medicaid                                                         17.6  %                   16.2  %                   15.8  %
Commercial Insurance / Managed Care (excluding
Medicare and Medicaid Managed Care)                              34.8  %                   35.7  %                   35.8  %
Veterans Administration                                           9.5  %                    9.2  %                    9.8  %
Private Pay                                                       6.7  %                    6.6  %                    6.7  %
Patient Care                                                    100.0  %                  100.0  %                  100.0  %


Patient Care constituted 84.2%, 83.1%, and 82.5% of our net revenues for the
years ended December 31, 2021, 2020, and 2019, respectively. Our remaining net
revenues were provided by our Products & Services segment which derives its net
revenues from commercial transactions with independent O&P providers, healthcare
facilities, workers' compensation, and other customers. In contrast to net
revenues from our Patient Care segment, payment for these products and services
are not directly subject to third party reimbursement from health care payors.
Our reimbursement from Medicare is normally updated by the Centers for Medicare
and Medicaid Studies ("CMS") annually, and that update is currently based on
changes in the consumer price index, adjusted for increases in productivity.
Within the Medicare caption of the table above, approximately 13.6%, 12.4%, and
10.9% of the segment's net revenues for the years ended December 31, 2021, 2020,
and 2019, respectively is Managed Medicare which is administered through
Commercial Insurance Plans and therefore is not necessarily directly tied to the
Medicare reimbursement rate. Similarly within the Medicaid caption of the table
above, approximately 12.9%, 11.5%, and 11.2% of the segment's net revenues for
the years ended December 31, 2021, 2020, and 2019, respectively is Managed
Medicaid which is administered through Commercial Insurance Plans.

Our contracts with Commercial and other payors are based on negotiated rates, or
fixed fee schedules, and do not generally provide for automatic increases based
on changes in inflation. Overall, approximately half of our reimbursement
arrangements have an inherent reference to inflation, or can be adjusted by us
to reflect increases in inflation, while the other half do not have such
accommodations. While we endeavor to work with Commercial and other payors to
advocate rate adjustments that provide for inflationary increases, such payors
have been generally reluctant to provide increases commensurate with inflation,
which exposes us to potential margin pressures if we are unable to manage our
material, personnel and other costs, or otherwise increase the productivity of
our personnel in a commensurate fashion.

The amount of our reimbursement varies based on the nature of the O&P device we
fabricate for our patients. Given the particular physical weight and size
characteristics, location of injury or amputation, capability for physical
activity, and mobility, cosmetic, and other needs of each individual patient,
each fabricated prostheses and orthoses is customized for each


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particular patient. The nature of this customization and the manner by which our claims submissions are reviewed by payors makes our reimbursement process administratively difficult.

To receive reimbursement for our work, we must ensure that our clinical,
administrative, and billing personnel receive and verify certain medical and
health plan information, record detailed documentation regarding the services we
provide, and accurately and timely perform a number of claims submission and
related administrative tasks. It is our belief the increased nationwide efforts
to reduce health care costs has driven changes in industry trends with increases
in payor pre-authorization processes, documentation requirements, pre-payment
reviews, and pre- and post-payment audits, and our ability to successfully
undertake these tasks using our traditional approach has become increasingly
challenging. For example, the Medicare contractor for Pricing, Data Analysis and
Coding (referred to as "PDAC") recently announced verification requirements and
code changes that has reduced the reimbursement level for certain prosthetic
feet, and the VA is in the process of reassessing the method it uses to
determine reimbursement levels for O&P services and products provided under
certain miscellaneous codes.

A measure of our effectiveness in securing reimbursement for our services can be
found in the degree to which payors ultimately disallow payment of our claims.
Payors can deny claims due to their determination that a physician who referred
a patient to us did not sufficiently document that a device was medically
necessary or clearly establish the ambulatory (or "activity") level of a
patient. Claims can also be denied based on our failure to ensure that a patient
was currently eligible under a payor's health plan, that the plan provides full
O&P benefits, that we received prior authorization, or that we filed or appealed
the payor's determination timely, as well as on the basis of our coding, failure
by certain classes of patients to pay their portion of a claim, or for various
other reasons. If any portion of, or administrative factor within, our claim is
found by the payor to be lacking, then the entirety of the claim amount may be
denied reimbursement.

In recent years, we have taken a number of actions to manage payor disallowance
trends. These initiatives included: (i) the creation of a central revenue cycle
management function; (ii) the implementation of a patient management and
electronic health record system; and (iii) the establishment of new clinic-level
procedures and training regarding the collection of supporting documentation and
the importance of diligence in our claims submission processes.

Payor disallowances is considered an adjustment to the transaction price.
Estimated uncollectible amounts due to us by patients are generally considered
implicit price concessions and are presented as a reduction of net revenues.
These amounts recorded in net revenues within the Patient Care segment for the
years ended December 31, 2021, 2020, and 2019 are as follows:

                                                                  For the Years Ended December 31,
(dollars in thousands)                                     2021                  2020                 2019
Gross charges                                         $    982,523          $   870,575          $   956,852
Less estimated implicit price concessions
arising from:
Payor disallowances                                         31,209               30,875               40,581
Patient non-payments                                         7,986                8,097               10,580

Payor disallowances and patient non-payments $ 39,195 $ 38,972 $ 51,161 Net revenues

$    943,328

$ 831,603 $ 905,691

Payor disallowances                                   $     31,209          $    30,875          $    40,581
Patient non-payments                                         7,986                8,097               10,580
Payor disallowances, patient non-payments, and
bad debt expense                                      $     39,195          $    38,972          $    51,161

Payor disallowances %                                          3.2  %               3.5  %               4.2  %
Patient non-payments %                                         0.8  %               1.0  %               1.1  %
Percent of gross charges                                       4.0  %               4.5  %               5.3  %


During 2020 and 2021, we benefited from reductions in claims denials and
increases in our rates of collection compared to prior periods. This has been
due to a variety of factors, including increases in our revenue cycle management
staffing and an increased focus on collections and liquidity during a period of
reduced business volumes, a possible temporary relaxing of payor review
procedures during the COVID-19 pandemic, the benefit of CARES Act funds on the
ability of patients to pay


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their portion of claims and other factors relating to our pre-authorization and
documentation procedures for devices. We do not believe this favorable trend
will necessarily be sustainable in future periods as the COVID-19 pandemic
subsides and patient volumes and resulting revenues increase.

Our accounts receivable balances for 2019 through 2021 were as follows:

                                                                              As of December 31,
(dollars in thousands)                                       2021                     2020                    2019
Gross charges before estimates for implicit
price concessions                                    $            194,574       $         177,804       $         229,683
Less estimates for implicit price concessions:
Payor disallowances                                              (33,007)                (39,343)                (58,094)
Patient non-payments                                              (7,500)                 (7,042)                 (9,589)
Accounts receivable, gross                                        154,067                 131,419                 162,000
Allowance for doubtful accounts                                   (2,009)                 (2,823)                 (2,641)
Accounts receivable, net                             $            152,058       $         128,596       $         159,359

Payor disallowances %                                           17.0    %               22.1    %               25.3    %
Patient non-payments %                                           3.9    %                4.0    %                4.2    %
Allowance for doubtful accounts %                                1.0    %                1.6    %                1.1    %
Total allowance %                                               21.9    %               27.7    %               30.6    %


Acquisitions

During the first quarter of 2022 to date, we completed the acquisition of one
O&P business for a total purchase price of $5.0 million. Total consideration
transferred for this acquisition is comprised of $4.0 million in cash
consideration, $1.0 million in the form of notes to the former shareholders.

During 2021, we completed the following acquisitions of O&P clinics with the
intention of expanding the geographic footprint of our patient care offerings
through the acquisitions of these high quality O&P providers. None of the
acquisitions were individually material to our financial position, results of
operations, or cash flows.

•In the first quarter of 2021, we completed the acquisitions of all the
outstanding equity interests of three O&P businesses and the assets of one O&P
business for total consideration of $24.2 million, of which $19.2 million was
cash consideration, net of cash acquired, $4.0 million was issued in the form of
notes to shareholders at fair value, and $1.0 million in additional
consideration.

•In the second quarter of 2021, we completed the acquisitions of all the
outstanding equity interests of two O&P businesses for total consideration of
$21.0 million, of which $16.0 million was cash consideration, net of cash
acquired, $4.9 million was issued in the form of notes to shareholders at fair
value, and $0.1 million in additional consideration.

•In the third quarter of 2021, we completed the acquisitions of all the
outstanding equity interests of three O&P businesses and the assets of one O&P
business for total consideration of $6.2 million, of which $3.9 million was cash
consideration, net of cash acquired, $1.5 million was issued in the form of
notes to shareholders at fair value, and $0.8 million in additional
consideration.

•In the fourth quarter of 2021, we completed the acquisitions of all the
outstanding equity interests of eight O&P businesses for total consideration of
$53.1 million, of which $40.8 million was cash consideration, net of cash
acquired, and $12.3 million was issued in the form of notes to shareholders at
fair value.

During 2020, we completed the following acquisitions of O&P clinics with the
intention of expanding the geographic footprint of our patient care offerings
through the acquisitions of these high quality O&P providers. None of the
acquisitions were individually material to our financial position, results of
operations, or cash flows.

•In the second quarter of 2020, we acquired all of the outstanding equity interests of an O&P business for total consideration of $46.2 million at fair value, of which $16.8 million was cash consideration, net of cash acquired,

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$21.9 million was issued in the form of notes to the former shareholders, $3.5
million in the form of a deferred payment obligation to the former shareholders,
and $4.0 million in additional consideration. Of the $21.9 million in notes
issued to the former shareholders, approximately $18.1 million of the notes were
paid in October 2020 in a lump sum payment and the remaining $3.8 million of the
notes are payable in annual installments over a period of three years on the
anniversary date of the acquisition. Total payments of $4.0 million under the
deferred payment obligation are due in annual installments beginning in the
fourth year following the acquisition and for three years thereafter. Additional
consideration includes approximately $3.6 million in liabilities incurred to the
shareholders as part of the business combination payable in October 2020 and is
included in Accrued expenses and other liabilities in the consolidated balance
sheet. The remaining $0.4 million in additional consideration represents the
effective settlement of amounts due to us from the acquired O&P business as of
the acquisition date.

•In the fourth quarter of 2020, we completed the acquisitions of all the
outstanding equity interests of four O&P businesses for total consideration of
$7.1 million, of which $4.9 million was cash consideration, net of cash
acquired, $1.9 million was issued in the form of notes to shareholders at fair
value, and $0.3 million in additional consideration.

Acquisition-related costs are included in general and administrative expenses in
our consolidated statements of operations. Total acquisition-related costs
incurred during the years ended December 31, 2021 and 2020 were $2.1 million and
$0.9 million, respectively, which includes those costs for transactions that are
in progress or not completed during the respective period. Acquisition-related
costs incurred for acquisitions completed during the years ended December 31,
2021 and 2020 were $1.6 million and $0.6 million, respectively.

In response to the expected economic impact of the COVID-19 pandemic, we
implemented certain cost mitigation and liquidity management strategies,
including the temporary delay of our acquisitions of O&P providers, subject to
certain conditions and thresholds in the first amendment to our Credit Agreement
entered into in May 2020, except that certain acquisitions are permitted after
September 30, 2020, in the event we maintain certain leverage and liquidity
thresholds. During the fourth quarter of 2020, we recommenced our acquisition of
O&P providers. Refer to the "Financial Condition, Liquidity, and Capital
Resources" section for additional discussion.

New Systems Implementations

During 2019, we commenced the design, planning, and initial implementation of
new financial and supply chain systems ("New Systems Implementations"), and
planned to invest in new servers and software that operate as a part of our
technology infrastructure. As discussed in the "Effects of the COVID-19
Pandemic" section, we elected in 2020 to temporarily delay our New Systems
Implementations as part of our efforts to preserve liquidity. We recommenced
these activities in the second quarter of 2021, and transitioned our corporate
financial systems to the Oracle Cloud Financials platform in the third quarter
of 2021.

In connection with our New Systems Implementations, for the years ended
December 31, 2021 and 2020, we expensed $5.2 million and $2.6 million,
respectively. We are additionally incurring increased capital expenditures in
connection with improvements to our systems' infrastructure. In 2022, we
currently expect to incur technology-related implementation expenses for the
financial and supply chain projects of approximately $4 to $5 million and
approximately $1 million in lease termination and related facility transition
expenses. In addition, we expect to incur further significant cash outlays and
capital expenditures in connection with our supply chain, financial systems, and
technology infrastructure initiatives. For a further discussion of our current
outlook for capital expenditures and systems implementation expenditures, refer
to the "Financial Condition, Liquidity, and Capital Resources" section below.

In August 2018, the Financial Accounting Standards Board ("FASB") issued ASU
2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Topic 350) -
Customer's Accounting for Implementation Costs Incurred in a Cloud Computing
Arrangement That Is a Service Contract. Effective July 1, 2019, we elected to
early adopt the requirements of the standard on a prospective basis. The new
guidance aligns the requirements for capitalizing implementation costs incurred
in a hosting arrangement that is a service contract with the requirements for
capitalizing implementation costs incurred to develop or obtain internal-use
software (and hosting arrangements that include an internal-use software
license). Under the new standard, certain of the implementation costs of our new
financial and supply chain system will be capitalized. As of December 31, 2021,
we capitalized $7.0 million of implementation costs for cloud computing
arrangements, net of accumulated amortization, and recorded in other current
assets and other assets in the consolidated balance sheet.


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Business Environment and Outlook

Patient Care

In our Patient Care segment, we have a positive view of the long-term need for
prosthetic and orthotic devices and services within the markets that we serve.
To address the debilitating effects of injuries and medical conditions such as
diabetes, vascular disease, cancer, and congenital disorders, we believe
patients will have a continuing need for the O&P services that we provide.  As
the population grows and ages, we also believe there will be a gradual
underlying increase in market demand.

To ensure we maintain and grow our share of this market, we believe that it will
be necessary for us to find effective means to automate and better organize our
business processes, further improve our reimbursement capabilities, and lower
our cost structure in the longer term.  Our size may afford us the ability to
achieve economies of scale through purchasing and process automation initiatives
that could be difficult for our smaller competitors.  However, our size can work
against us if we do not succeed in effectively serving our referring physicians
and in competing with our individual competitors in each of the markets that we
serve.

Products & Services

Generally, we believe our distribution customers encounter reimbursement
pressures similar to those that we do in our own Patient Care services and,
depending on their ability to adapt to the increased claims documentation
standards that have emerged in our industry, that this may either limit the rate
of growth of some of our customers, or otherwise affect the rate of growth we
experience in our distribution of O&P componentry to independent providers.
Additionally, during 2020, we discontinued our distribution of certain
low-margin orthotics products to podiatrists.

Within our Products & Services segment, in addition to our distribution of
products, we provide therapeutic equipment and services to patients at SNFs and
other healthcare provider locations.  Since 2016, a number of our clients,
including several of our larger SNF clients, began to discontinue their use of
our therapeutic services. We believe these discontinuances relate primarily to
their overall efforts to reduce the costs they bear for therapy-related services
within their facilities.  As a part of those terminations of service, in a
number of cases, we elected to sell terminating clients the equipment that we
had utilized for their locations, which resulted in our recognition of $2.5
million in equipment sales in 2021, as compared with $1.9 million in 2020 and
$2.4 million in 2019.  For the year ended December 31, 2021, due to customer
discontinuances, we experienced a decrease of $2.6 million in therapeutic
services and supplies revenue and an increase of $0.6 million in therapeutic
equipment sales, for a total reduction of $2.0 million in revenues we received
from therapeutic equipment and services.  We recognized a total of $43.5 million
in revenues from therapeutic equipment and services in 2021.  Within this
portion of our business, we have and continue to respond to these trends through
the expansion of our products and services offerings.

Personnel

While we have traditionally been able to recruit and retain adequate staffing to
operate and support our business, our ability to support growth is dependent on
our ability to add new personnel. Nevertheless, as are other employers, we are
currently finding it difficult to recruit and retain personnel in certain
positions, including clinic front office administrative, distribution center,
and fabrication center technician positions. In certain cases, we have also
found it necessary to make individual market adjustments for clinical and
professional staff to attract or retain them. Our inability to successfully
recruit and maintain staffing levels for these positions has and could continue
to introduce some constraints on our ability to achieve our revenue growth
objectives. In cases where we have open clinic administrative or technician
positions, or these positions are filled with inexperienced or new personnel,
our clinicians find it necessary to augment the activities performed by these
roles, which can slow the speed of our patient service.

In order to attract and retain personnel, we may find it necessary to further
increase wages in these areas. Additionally, when coupled with the generally
fixed nature of our reimbursement arrangements, increases in our personnel costs
caused by current inflation conditions may put increasing pressure on our
ability to maintain or increase our margins. Please refer to Part I, Item 1A.
"Risk Factors" in this report for further discussion.

Seasonality

We believe our business is affected by the degree to which patients have
otherwise met the deductibles for which they are responsible in their medical
plans during the course of the year.  The first quarter is normally our lowest
relative net revenue


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quarter, followed by the second and third quarters, which are somewhat higher
and consistent with one another. Due to the general fulfillment by patients of
their health plan co-payments and deductible requirements towards the year's
end, our fourth quarter is normally our highest revenue producing quarter.
However, historical seasonality patterns have been impacted by the COVID-19
pandemic and may not be reflective of our prospective financial results and
operations. Please refer to the "Effects of the COVID-19 Pandemic" section for
further discussion.

Our results are also affected, to a lesser extent, by our holding of an
education fair in the first quarter of each year.  This event is conducted to
assist our clinicians in maintaining their training and certification
requirements and to facilitate a national meeting with our clinical leaders.  We
also invite manufacturers of the componentry for the devices we fabricate to
these annual events so they can demonstrate their products and otherwise assist
in our training process.  Due to the COVID-19 pandemic, we conducted our first
virtual education fair in 2021. During the first quarter of 2021, 2020, and
2019, we spent approximately $0.3 million, $2.3 million, and $2.3 million on
travel and other costs associated with this event, respectively.  In addition to
the costs we incur associated with this annual event, we also lose the
productivity of a significant portion of our clinicians during the period in
which this event occurs, which contributes to the lower seasonal revenue level
we experience during the first quarter of each year. Due to the Omicron variant,
the in-person event was cancelled in Q1 2022, resulting in much lower expenses
for the event in 2022. We anticipate resuming an in-person event in 2023.

Critical Accounting Policies and Estimates

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 GAAP. The preparation of consolidated financial statements in
conformity with GAAP requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, disclosure of contingent
assets and liabilities at the date of the consolidated 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 significant accounting policies
are stated in Note A - "Organization and Summary of Significant Accounting
Policies" to the consolidated financial statements included 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.

Revenue Recognition

Patient Care Segment

Revenue in our Patient Care segment is primarily derived from contracts with
third party payors for the provision of O&P devices and is recognized upon the
transfer of control of promised products or services to the patient at the time
the patient receives the device. At, or subsequent to delivery, we issue an
invoice to the third party payor, which primarily consists of commercial
insurance companies, Medicare, Medicaid, the VA, and private or patient pay
("Private Pay") individuals. We recognize revenue for the amounts we expect to
receive from payors based on expected contractual reimbursement rates, which are
net of estimated contractual discounts and implicit price concessions. These
revenue amounts are further revised as claims are adjudicated, which may result
in additional disallowances. These are recorded as a reduction of revenues
because they are not caused by an inability of the payor or patient to pay, but
rather internal administrative issues such as adjustments to contractual
allowances, adjustments to coding, failure to ensure that a patient was
currently eligible under a payor's health plan, that their plan provides full
O&P benefits, failure to receive prior authorization, failure to file or appeal
the payor's determination timely, failure by certain classes of patients to pay
their portion of a claim, or other such administrative issues.

Our products and services are sold with a 90-day labor and 180-day warranty for
fabricated components. Warranties are not considered a separate performance
obligation. We estimate warranties based on historical trends and include them
in accrued expenses and other current liabilities in the consolidated balance
sheet. The warranty liability was $2.9 million at December 31, 2021 and
$2.2 million at December 31, 2020.

A portion of our O&P revenue comes from the provision of cranial devices. In
addition to delivering the cranial device, there are patient follow-up visits
where we assist in treating the patient's condition by adjusting or modifying
the cranial device. We conclude that, for these devices, there are two
performance obligations and use the expected cost plus margin approach to
estimate for the standalone selling price of each performance obligation. The
allocated portion associated with the patient's receipt of the cranial device is
recognized when the patient receives the device while the portion of revenue
associated with


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the follow-up visits is initially recorded as deferred revenue. On average, the
cranial device follow-up visits occur less than 90 days after the patient
receives the device and the deferred revenue is recognized on a straight-line
basis over the period.

Medicare and Medicaid regulations and the various agreements we have with other
third party payors, including commercial healthcare payors under which these
contractual adjustments and payor disallowances are calculated, are complex and
are subject to interpretation and adjustment and may include multiple
reimbursement mechanisms for different types of services. Therefore, the
particular O&P 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 reimbursement schedules, and contract renegotiations occur
frequently, necessitating regular review and assessment of the estimation
process by management. As a result, there is a reasonable possibility that
recorded estimates could change and any related adjustments will be recorded as
adjustments to net revenue when they become known.

Products & Services Segment

Revenue in our Products & Services segment is derived from the distribution of
O&P components and the leasing and sale of rehabilitation equipment and
ancillary consumable supplies combined with equipment maintenance, education,
and training.

Distribution services revenues are recognized when obligations under the terms
of a contract with our customers are satisfied, which occurs with the transfer
of control of our products. This occurs either upon shipment or delivery of
goods, depending on whether the terms are FOB Origin or FOB Destination. Payment
terms are typically between 30 to 90 days. Revenue is measured as the amount of
consideration we expect to receive in exchange for transferring products to a
customer ("transaction price").

To the extent that the transaction price includes variable consideration, such
as prompt payment discounts, list price discounts, rebates, and volume
discounts, we estimate the amount of variable consideration that should be
included in the transaction price utilizing the most likely amount method.
Variable consideration is included in the transaction price if, in our judgment,
it is probable that a significant future reversal of cumulative revenue under
the contract will not occur. Estimates of variable consideration and
determination of whether to include estimated amounts in the transaction price
are based largely on an assessment of our anticipated performance and all
information (historical, current, and forecasted) that is reasonably available.

We reduce revenue by estimates of potential future product returns and other
allowances. Provisions for product returns and other allowances are recorded as
a reduction to revenue in the period sales are recognized. We make estimates of
the amount of sales returns and allowances that will eventually be incurred.
Management analyzes sales programs that are in effect, contractual arrangements,
market acceptance, and historical trends when evaluating the adequacy of sales
returns and allowance accounts.

Therapeutic program equipment and related services revenue are recognized over
the applicable term the customer has the right to use the equipment and as the
services are provided. Equipment sales revenue is recognized upon shipment, with
any related services revenue deferred and recognized as the services are
performed. Sales of consumables are recognized upon shipment.

In addition, we estimate amounts recorded to bad debt expense using historical
trends and these are presented as a bad debt expense under the operating costs
section of our consolidated financial statements.

Accounts Receivable, Net

Patient Care Segment

We establish allowances for accounts receivable to reduce the carrying value of
such receivables to their estimated net realizable value. The Patient Care
segment's accounts receivables are recorded net of unapplied cash and estimated
implicit price concessions, such as payor disallowances and patient
non-payments, as described in the revenue recognition accounting policy above.

Our estimates of payor disallowances utilize the expected value method by
considering historical collection experience by each of the Medicare and
non-Medicare primary payor class groupings. For each payor class grouping,
liquidation analyses of historical period end receivable balances are performed
to ascertain collections experience by aging category. In the absence of an
evident adverse trend, we use historical experience rates calculated using an
average of four quarters of data


                                       43
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with at least twelve months of adjudication. We will modify the time periods analyzed when significant trends indicate that adjustments should be made.

Products & Services Segment

Our Products & Services segment's allowance for doubtful accounts is estimated
based on the analysis of the segment's historical write-offs experience,
accounts receivable aging and economic status of its customers. Accounts
receivable that are deemed uncollectible are written off to the allowance for
doubtful accounts. Accounts receivable are also recorded net of an allowance for
estimated sales returns.

Inventories

Inventories are valued at the lower of estimated cost or net realizable value
with cost determined on a first-in, first-out ("FIFO") basis. Provisions have
also been made to reduce the carrying value of inventories for excess, obsolete,
or otherwise impaired inventory on hand at period end. The reserves for excess
and obsolete inventory and WIP cancellations total $7.5 million and $6.1 million
at December 31, 2021 and 2020, respectively.

Patient Care Segment

Substantially all of our Patient Care segment inventories are recorded through a
periodic approach whereby inventory quantities are adjusted on the basis of a
quarterly physical count. Segment inventories relate primarily to raw materials
and work-in-process at Hanger Clinics. Inventories at Hanger Clinics totaled
$36.7 million and $30.5 million at December 31, 2021 and 2020, respectively,
with WIP inventory representing $15.8 million and $12.0 million of the total
inventory, respectively. The increase in inventories, including the increase in
WIP, is due in part to acquisitions as well as a build in undelivered devices
resulting in part from our inability to deliver devices at the end of 2021 due
to the Omicron variant. Refer to the "Effects of the COVID-19 Pandemic" section
above for further discussion.

Raw materials consist of purchased parts, components, and supplies which are
used in the assembly of O&P devices for delivery to patients. In some cases,
purchased parts and components are also sold directly to patients. Raw materials
are valued based on recent vendor invoices, reduced by estimated vendor rebates.
Such rebates are recognized as a reduction of cost of materials in the
consolidated statements of operations when the related devices or components are
delivered to the patient. Approximately 77% of raw materials at December 31,
2021 and 2020, respectively, were purchased from our Products & Services
segment. Raw material inventory was $20.9 million and $18.4 million at
December 31, 2021 and 2020, respectively.

WIP consists of devices which are in the process of assembly at our clinics or
fabrication centers. WIP quantities were determined by the physical count of
patient orders at the end of every quarter of 2021 and 2020 while the related
stage of completion of each order was established by clinic personnel. We do not
have an inventory costing system and as a result, the identified WIP quantities
were valued on the basis of estimated raw materials, labor, and overhead costs.
To estimate such costs, we develop bills of materials for certain categories of
devices that we assemble and deliver to patients. Within each bill of material,
we estimate (i) the typical types of component parts necessary to assemble each
device; (ii) the points in the assembly process when such component parts are
added; (iii) the estimated cost of such parts based on historical purchasing
data; (iv) the estimated labor costs incurred at each stage of assembly; and (v)
the estimated overhead costs applicable to the device.

Products & Services Segment

Our Product & Service segment inventories consist primarily of finished goods at
its distribution centers as well as raw materials at fabrication facilities, and
totaled $50.8 million and $45.9 million as of December 31, 2021 and 2020,
respectively. Finished goods include products that are available for sale to
third party customers as well as to our Patient Care segment as described above.
Such inventories were determined on the basis of perpetual records and a
physical count at year end. Inventories in connection with therapeutic services
are valued at a weighted average cost.

Business Combinations

We record tangible and intangible assets acquired and liabilities assumed in
business combinations under the acquisition method of accounting. Acquisition
consideration typically includes cash payments, the issuance of Seller Notes and
in certain instances contingent consideration with payment terms based on the
achievement of certain targets of the acquired business. Amounts paid for each
acquisition are allocated to the assets acquired and liabilities assumed based
on their


                                       44

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estimated fair values at the date of acquisition inclusive of identifiable
intangible assets. The estimated fair value of identifiable assets and
liabilities, including intangibles, are based on valuations that use information
and assumptions available to management. We allocate any excess purchase price
over the fair value of the tangible and identifiable intangible assets acquired
and liabilities assumed to goodwill. We allocate goodwill to our reporting units
based on the reporting unit that is expected to benefit from the acquired
goodwill. Significant management judgments and assumptions are required in
determining the fair value of assets acquired and liabilities assumed,
particularly acquired intangible assets, including estimated useful lives. The
valuation of purchased intangible assets is based upon estimates of the future
performance and discounted cash flows of the acquired business. Each asset
acquired or liability assumed is measured at estimated fair value from the
perspective of a market participant. Subsequent changes in the estimated fair
value of contingent consideration are recognized as general and administrative
expenses within the consolidated statements of operations.

Goodwill and Other Intangible Assets, Net

Goodwill represents the excess of the purchase price over the estimated fair
value of net identifiable assets acquired and liabilities assumed from purchased
businesses. We assess goodwill for impairment annually during the fourth
quarter, and between annual tests if an event occurs or circumstances change
that would more likely than not reduce the fair value of a reporting unit below
its carrying amount. We have the option to first assess qualitative factors for
a reporting unit 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 quantitative goodwill
impairment test. If we choose to bypass this qualitative assessment or
alternatively determine that a quantitative goodwill impairment test is
required, our annual goodwill impairment test is performed by comparing the
estimated fair value of a reporting unit with its carrying amount (including
attributed goodwill). We measure the fair value of the reporting units using a
combination of income and market approaches. Any impairment would be recognized
by a charge to income from operations and a reduction in the carrying value of
the goodwill. As of October 1, 2021, we performed a qualitative assessment of
the Patient Care reporting unit. The qualitative assessment did not result in
the carrying value of the reporting unit exceeding its fair value.

We apply judgment in determining the fair value of our reporting units and the
implied fair value of goodwill which is dependent on significant assumptions and
estimates regarding expected future cash flows, terminal value, changes in
working capital requirements, and discount rates.

We did not have any goodwill impairment during 2021, 2020, and 2019. We also did
not have any indefinite-lived trade name impairment during 2021, 2020, and 2019.
See Note H - "Goodwill and Other Intangible Assets" to our consolidated
financial statements in this Annual Report on Form 10-K for additional
information.

As described, we apply judgment in the selection of key assumptions used in the
goodwill impairment test and as part of our evaluation of intangible assets
tested annually and at interim testing dates as necessary. If these assumptions
differ from actual, we could incur additional impairment charges and those
charges could be material.

We consider the assessment of the occurrence of triggering events or substantive
changes in circumstances that may indicate the fair value of goodwill may be
impaired to be a critical estimate. Additionally, we consider the assumptions
discussed above pertaining to the income and market approaches we use in the
testing of impairment to be critical estimates. Changes in these estimates and
assumptions could materially affect the determination of fair value and the
goodwill impairment test result.

Income Taxes

We recognize deferred tax assets and liabilities for net operating loss and
other credit carry forwards and the expected tax consequences of temporary
differences between the tax basis of assets and liabilities and their reported
amounts using enacted tax rates in effect for the year the differences are
expected to reverse. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. The evaluation of deferred
tax assets requires judgment in assessing the likely future tax consequences of
events that have been recognized in our financial statements or tax returns, and
future profitability by tax jurisdiction.

We provide a valuation allowance to reduce our deferred tax assets to the amount
that is more likely than not to be realized. We evaluate our deferred tax assets
quarterly to determine whether adjustments to the valuation allowance are
appropriate in light of changes in facts or circumstances, such as changes in
expected future pre-tax earnings, tax law, interactions with taxing authorities,
and developments in case law. Our material assumptions include forecasts of
future pre-tax earnings and the nature and timing of future deductions and
income represented by the deferred tax assets and liabilities, all of which


                                       45
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involve the exercise of significant judgment. We have experienced losses from
2014 to 2017 due to impairments of our intangible assets, increased professional
fees in relation to our restatement and related remediation procedures for
identified material weaknesses, and increased interest and bank fees. These
losses have necessitated that we evaluate the sufficiency of our valuation
allowance.

We are in a taxable income position in 2021 and are able to utilize net
operating losses. We have $1.6 million and $4.6 million of U.S. federal and
$139.1 million and $153.0 million of state net operating loss carryforwards
available at December 31, 2021 and 2020, respectively. These carryforwards will
be used to offset future income but may be limited by the change in ownership
rules in Section 382 of the Internal Revenue Code. These net operating loss
carryforwards will expire in varying amounts through 2041. We expect to generate
income before taxes in future periods at a level that would allow for the full
realization of the majority of our net deferred tax assets. As of December 31,
2021 and 2020, we have recorded a valuation allowance of approximately $2.1
million related to various state jurisdictions.

We believe that our 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, we are subject to periodic audits and
examinations by the Internal Revenue Service and other state and local taxing
authorities. In these cases, we record the financial statement effects of a tax
position when it is more likely than not, based on the technical merits, that
the position will be sustained upon examination. We record the largest amount of
tax benefit that is greater than fifty percent likely of being realized upon
settlement with a taxing authority that has full knowledge of all relevant
information. If not paid, the liability for uncertain tax positions is reversed
as a reduction of income tax expense at the earlier of the period when the
position is effectively settled or when the statute of limitations has expired.
Although we believe that our estimates are reasonable, actual results could
differ from these estimates. Interest and penalties, when applicable, are
recorded within the income tax provision. During the year ended December 31,
2021, we released $4.0 million of unrecognized tax benefits and $1.3 million of
interest expense due to lapse of statute of limitations for the applicable tax
years. We do not anticipate further significant release of unrecognized tax
benefits within the next twelve months.

Reclassifications

We have reclassified certain amounts in the prior year consolidated financial
statements to be consistent with the current year presentation. These relate to
classifications with the consolidated statements of operations.

Recent Accounting Pronouncements

Refer to the "Recent Accounting Pronouncements" section in Note A -
"Organization and Summary of Significant Accounting Policies" in this Annual
Report on Form 10-K for disclosure of recent accounting pronouncements that are
either expected to have more than a minimal impact on our consolidated financial
position and results of operation, or that we are still assessing to determine
their impact.


                                       46

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Results of Operations - Year Ended December 31, 2021 Compared to Year Ended December 31, 2020

For the years ended December 31, 2021 and 2020, our consolidated results of operations were as follows:

                                                      For the Years Ended             Percent
                                                          December 31,                 Change
   (dollars in thousands)                            2021             2020          2021 vs 2020
   Net revenues                                  $ 1,120,488      $ 1,001,150             11.9  %
   Material costs                                    354,342          315,410             12.3  %
   Personnel costs                                   397,574          351,191             13.2  %
   Other operating costs                             135,630          100,010             35.6  %
   General and administrative expenses               127,752          127,785                -  %
   Depreciation and amortization                      32,519           34,847             (6.7) %
   Operating expenses                              1,047,817          929,243             12.8  %
   Income from operations                             72,671           71,907              1.1  %
   Interest expense, net                              28,864           32,445            (11.0) %
   Non-service defined benefit plan expense              667              632              5.5  %
   Income before income taxes                         43,140           38,830             11.1  %
   Provision for income taxes                          1,158              638             81.5  %
   Net income                                    $    41,982      $    38,192              9.9  %


Material costs, personnel costs, and other operating costs reflect expenses we
incur in connection with our delivery of care through our clinics and other
patient care operations, or through the distribution of products and services,
and exclude general and administrative activities. General and administrative
activities reflect expenses we incur that are not directly related to the
operation of our clinics or provision of products and services.

During 2021 and 2020, our operating expenses as a percentage of net revenues
were as follows:

                                                          For the Years Ended
                                                              December 31,
                                                            2021              2020
          Material costs                                         31.6  %     31.5  %
          Personnel costs                                        35.5  %     35.1  %
          Other operating costs                                  12.1  %      9.9  %
          General and administrative expenses                    11.4  %     12.8  %
          Depreciation and amortization                           2.9  %      3.5  %
          Operating expenses                                     93.5  %     92.8  %

During the previous two years, the number of patient care clinics and satellite locations we operated or leased have been as follows:

                               As of December 31,
                             2021              2020
Patient care clinics        760               704
Satellite locations         115               112
Total                       875               816


Patient care clinics reflect locations that are licensed as a primary location
to provide O&P services and which are fully staffed and open throughout a
typical operating week. To facilitate patient convenience, we also operate
satellite clinics. These are remote locations associated with a primary care
clinic, utilized to see patients, and are open for operation on less than a
full-time basis during a typical operating week.


                                       47
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Relevance of Year Ended Results to Comparative and Future Periods. As discussed
in "Effects of the COVID-19 Pandemic" above, commencing late in the first
quarter of 2020, our revenues and operating results began to be adversely
affected by the COVID-19 pandemic, a trend that continued throughout 2020 and
into 2021. The effects of this public health emergency on our revenues and
earnings, particularly in 2020, impacted the comparison to our historical
financial results. As a result, our comparative financial and operational
results when viewed as a whole for the periods impacted by the COVID-19
pandemic, including temporary labor and other cost reduction measures largely in
place during the second and third quarters of 2020, may not be indicative of
future financial and operational performance. Please refer to the "Effects of
the COVID-19 Pandemic" section above and the "Financial Condition, Liquidity,
and Capital Resources" section below for additional forward-looking information
concerning our current expectations regarding the effect of the COVID-19
pandemic on our prospective results and financial condition.

Net revenues. Net revenues for the year ended December 31, 2021 were $1,120.5
million, an increase of $119.3 million, or 11.9%, from $1,001.2 million for the
year ended December 31, 2020. Net revenues by operating segment, after
elimination of intersegment activity, were as follows:

                                       For the Years Ended                                Percent
                                           December 31,                 Change             Change
    (dollars in thousands)            2021             2020          2021 

vs 2020 2021 vs 2020

    Patient Care                  $   943,328      $   831,603      $     111,725             13.4  %
    Products & Services               177,160          169,547             

7,613              4.5  %
    Net revenues                  $ 1,120,488      $ 1,001,150      $     119,338             11.9  %


Patient Care net revenues for the year ended December 31, 2021 were $943.3
million, an increase of $111.7 million, or 13.4%, from $831.6 million for the
same period in the prior year. Same clinic revenues increased $69.9 million for
the year ended December 31, 2021 compared to the same period in the prior year,
reflecting an increase in same clinic revenues of 9.1% on a per-day basis. We
estimate that approximately 8.3% of this increase related to growth in volume,
primarily associated with the recovery from the COVID-19 related impact on 2020
volumes, and the remaining 0.8% related to price growth and improvements in
disallowed and patient non-payment rates. Net revenues from acquired clinics and
consolidations increased $42.3 million, and revenues from other services
decreased $0.5 million. For the year ended December 31, 2021, we estimate that
our same clinic net revenues were approximately 97% of the level we reported for
the same period of 2019, prior to the pandemic, while our patient appointment
volumes were 93% of those we reported in the 2019 period. This increase in
revenue relative to patient volumes related primarily to reductions in patient
encounters for lower "off-the-shelf" orthotic devices, as well as increases in
volume of technology-related prosthetic devices during the year.

Prosthetics constituted approximately 55% of our total Patient Care revenues for
the year ended December 31, 2021 and 56% for the same period in the prior year,
excluding the impact of acquisitions. Prosthetic revenues were 6.1% higher on a
per-day basis than the same period in the prior year, excluding the impact of
acquisitions. Orthotics, shoes, inserts, and other products increased by 13.0%
on a per-day basis for the same comparative period, excluding the impact of
acquisitions. Revenues throughout 2020, particularly orthotic revenues, were
adversely affected due to a decline in patient appointment volumes as a result
of the COVID-19 pandemic, governmental suppression measures implemented in
response to the COVID-19 pandemic, and other factors impacting our business
volumes as discussed in the "Effects of the COVID-19 Pandemic" section.

Products & Services net revenues for the year ended December 31, 2021 were
$177.2 million, an increase of $7.6 million, or 4.5%, from $169.5 million for
the same period in the prior year. This was primarily attributable to an
increase of $9.6 million, or 7.7%, in the distribution of O&P componentry to
independent providers stemming largely from lower volumes in the comparative
period due to the COVID-19 pandemic, as discussed in the "Effects of the
COVID-19 Pandemic" section above, and a $2.0 million, or 4.3%, decrease in net
revenues from therapeutic solutions as a result of the impact of customer lease
cancellations, partially offset by lease installations.


                                       48
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Material costs. Material costs for the year ended December 31, 2021 were $354.3
million, an increase of $38.9 million or 12.3%, from $315.4 million for the same
period in the prior year. Total material costs as a percentage of net revenues
increased to 31.6% in 2021 from 31.5% in 2020 due primarily to changes in our
Patient Care segment business mix. Material costs by operating segment, after
elimination of intersegment activity, were as follows:

                                        For the Years Ended                              Percent
                                           December 31,                Change             Change
      (dollars in thousands)            2021           2020         2021 vs 2020       2021 vs 2020
      Patient Care                  $  287,204      $ 247,384      $      39,820             16.1  %
      Products & Services               67,138         68,026               (888)            (1.3) %
      Material costs                $  354,342      $ 315,410      $      38,932             12.3  %


Patient Care material costs increased $39.8 million, or 16.1%, for the year
ended December 31, 2021 compared to the same period in the prior year as a
result of the increase in segment net sales and changes in the segment product
mix. Patient Care material costs as a percent of segment net revenues was 30.4%
in 2021 and 29.7% in 2020. Our operations and clinic throughput were not
adversely affected due to the lack of availability of componentry in 2021.

Products & Services material costs decreased $0.9 million, or 1.3%, for the year
ended December 31, 2021 compared to the same period in the prior year. As a
percent of net revenues in the Products & Services segment, material costs were
37.9% in the year ended December 31, 2021 as compared to 40.1% in the same
period 2020. The decrease in material costs as a percentage of segment net
revenues was due to a change in business and product mix within the segment, in
part due to the discontinuation of our distribution of certain low-margin
orthotics products to podiatrists during 2020.

Personnel costs. Personnel costs for the year ended December 31, 2021 were
$397.6 million, an increase of $46.4 million, or 13.2%, from $351.2 million for
the same period in the prior year. Personnel costs by operating segment were as
follows:

                                        For the Years Ended                              Percent
                                           December 31,                Change             Change
      (dollars in thousands)            2021           2020         2021 vs 2020       2021 vs 2020
      Patient Care                  $  339,578      $ 302,206      $      37,372             12.4  %
      Products & Services               57,996         48,985              9,011             18.4  %
      Personnel costs               $  397,574      $ 351,191      $      46,383             13.2  %


Personnel costs for the Patient Care segment were $339.6 million for the year
ended December 31, 2021, an increase of $37.4 million, or 12.4%, from $302.2
million for the same period in the prior year. The increase in Patient Care
personnel costs during the year was primarily due to an increase in salary
expense of $40.3 million due to cost mitigation efforts in the prior year period
as a result of the COVID-19 pandemic as well as from acquisitions, and related
increases in benefits costs of $2.3 million, payroll taxes of $2.1 million, and
commissions by $1.0 million, offset by a decrease in incentive compensation and
other personnel costs of $8.3 million compared to the same period in the prior
year.

Personnel costs in the Products & Services segment were $58.0 million for the
year ended December 31, 2021, an increase of $9.0 million, or 18.4% compared to
the same period in the prior year. Salary expense increased $7.7 million
primarily due to cost mitigation efforts implemented in 2020 as a result of the
COVID-19 pandemic, and benefits, payroll taxes, and other personnel costs
increased $1.7 million, offset by a decrease in incentive compensation of $0.4
million for the year ended December 31, 2021 compared to the same period in the
prior year.

Other operating costs. Other operating costs for the year ended December 31,
2021 were $135.6 million, an increase of $35.6 million, or 35.6%, from $100.0
million for the same period in the prior year. Other expenses increased by $26.4
million primarily due to the benefit in the prior year period associated with
the recognition of $24.0 million in proceeds from Grants under the CARES Act
included in Other operating costs, as discussed in the "Effects of the COVID-19
Pandemic" section, and an approximate $1.9 million gain on the sale of property.
Professional fees increased $2.7 million, travel expenses increased $1.9
million, and other expenses increased $3.7 million primarily due to cost
mitigation efforts in the prior year as a result of the COVID-19 pandemic, and
an increase of $1.3 million in rent expense from new, renewed, and acquired
leases. The increases are partially offset by a decrease in bad debt expense of
$0.4 million as compared to the same period in the prior year.


                                       49
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General and administrative expenses. General and administrative expenses for the
year ended December 31, 2021 were $127.8 million, which is unchanged from the
same period in the prior year. This was primarily the result of an increase in
salary expense of $7.6 million and an increase in travel and other expenses of
$5.9 million, offset by decreases in share-based compensation of $5.7 million
due to the modification recognized in the prior year period of certain equity
awards granted in 2017, a decrease of $5.4 million in incentive compensation and
benefits, and a decrease of $2.4 million of qualified disaster relief payments
to employees in the prior year.

Depreciation and amortization. Depreciation and amortization for the year ended
December 31, 2021 was $32.5 million, a decrease of $2.3 million, or 6.7%, from
the same period in the prior year. Depreciation expense decreased $1.2 million
and amortization expense decreased $1.1 million when compared to the same period
in the prior year.

Interest expense, net. Interest expense for the year ended December 31, 2021 was
$28.9 million, a decrease of $3.6 million, or 11.0%, from $32.4 million for the
same period in the prior year.

Provision for income taxes. The provision for income taxes for the year ended
December 31, 2021 was $1.2 million, or 2.7% of income before taxes, compared to
a provision of $0.6 million, or 1.6% of income before taxes for the year ended
December 31, 2020. The effective tax rate in 2021 consisted principally of the
21% federal statutory tax rate and non-deductible expenses, offset by research
and development tax credits and the release of reserves for uncertain tax
positions. The increase in the effective tax rate for the year ended
December 31, 2021 compared with the year ended December 31, 2020 is primarily
attributable to the net tax benefit resulting from the loss carryback provisions
granted under the CARES Act for the year ended December 31, 2020, partially
offset by the release of reserves for uncertain tax positions for the year ended
December 31, 2021.

For the year ended December 31, 2020, we completed a formal study to identify
qualifying research and development expenses resulting in the recognition of
federal tax benefits of $3.3 million, net of tax reserves, related to 2020 and
$6.1 million, net of tax reserves, related to prior years. For the year ended
December 31, 2021, we recorded a federal tax benefit of $4.3 million, net of tax
reserves, as a deferred tax asset.

During the year ended December 31, 2021, we released $4.0 million of
unrecognized tax benefits and $1.3 million of interest expense due to lapse of
statute of limitations for the applicable tax years. We do not anticipate
further significant release of unrecognized tax benefits within the next twelve
months.

Net income. Our net income for year ended December 31, 2021 was $42.0 million as compared to net income of $38.2 million for year ended December 31, 2020.

Results of Operations - Year Ended December 31, 2020 Compared to Year Ended December 31, 2019

For the years ended December 31, 2020 and 2019, our consolidated results of operations were as follows:

                                                      For the Years Ended             Percent
                                                          December 31,                Change
   (dollars in thousands)                            2020             2019          2020 v 2019
   Net revenues                                  $ 1,001,150      $ 1,098,046            (8.8) %
   Material costs                                    315,410          357,771           (11.8) %
   Personnel costs                                   351,191          372,225            (5.7) %
   Other operating costs                             100,010          135,224           (26.0) %
   General and administrative expenses               127,785          131,473            (2.8) %
   Depreciation and amortization                      34,847           35,925            (3.0) %
   Operating expenses                                929,243        1,032,618           (10.0) %
   Income from operations                             71,907           65,428             9.9  %
   Interest expense, net                              32,445           34,258            (5.3) %
   Non-service defined benefit plan expense              632              691            (8.5) %
   Income before income taxes                         38,830           30,479            27.4  %
   Provision for income taxes                            638            2,954           (78.4) %
   Net income                                    $    38,192      $    27,525            38.8  %



                                       50

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Material costs, personnel costs, and other operating costs reflect expenses we
incur in connection with our delivery of care through our clinics and other
patient care operations, or through the distribution of products and services,
and exclude general and administrative activities. General and administrative
activities reflect expenses we incur that are not directly related to the
operation of our clinics or provision of products and services.

During 2020 and 2019, our operating expenses as a percentage of net revenues
were as follows:

                                                          For the Years Ended
                                                              December 31,
                                                            2020              2019
          Material costs                                         31.5  %     32.6  %
          Personnel costs                                        35.1  %     33.9  %
          Other operating costs                                   9.9  %     12.2  %
          General and administrative expenses                    12.8  %     12.0  %
          Depreciation and amortization                           3.5  %      3.3  %
          Operating expenses                                     92.8  %     94.0  %

During the previous two years, the number of patient care clinics and satellite locations we operated or leased have been as follows:

                               As of December 31,
                             2020              2019
Patient care clinics        704               701
Satellite locations         112               111
Total                       816               812


Patient care clinics reflect locations that are licensed as a primary location
to provide O&P services and which are fully staffed and open throughout a
typical operating week. To facilitate patient convenience, we also operate
satellite clinics. These are remote locations associated with a primary care
clinic, utilized to see patients, and are open for operation on less than a
full-time basis during a typical operating week.

Relevance of Year Ended Results to Comparative and Future Periods. As discussed
in "Effects of the COVID-19 Pandemic" above, commencing late in the first
quarter of 2020, our revenues and operating results began to be adversely
affected by the COVID-19 pandemic, a trend that continued throughout 2020 and
into 2021. The effects of this public health emergency on our revenues and
earnings in the year ended December 31, 2020 impacted the comparison to our
historical financial results. As a result, our comparative financial and
operational results when viewed as a whole for the periods impacted by the
COVID-19 pandemic, including temporary labor and other cost reduction measures
largely in place during the second and third quarters of 2020, may not be
indicative of future financial and operational performance. Please refer to the
"Effects of the COVID-19 Pandemic" section above and the "Financial Condition,
Liquidity, and Capital Resources" section below for additional forward-looking
information concerning our current expectations regarding the effect of the
COVID-19 pandemic on our prospective results and financial condition.

Net revenues. Net revenues for the year ended December 31, 2020 were $1,001.2
million, a decrease of $96.9 million, or 8.8%, from $1,098.0 million for the
year ended December 31, 2019. Net revenues by operating segment, after
elimination of intersegment activity, were as follows:

                                       For the Years Ended                                Percent
                                           December 31,                 Change             Change
    (dollars in thousands)            2020             2019          2020 vs 2019       2020 vs 2019
    Patient Care                  $   831,603      $   905,691      $     (74,088)            (8.2) %
    Products & Services               169,547          192,355            (22,808)           (11.9) %
    Net revenues                  $ 1,001,150      $ 1,098,046      $     (96,896)            (8.8) %


Patient Care net revenue for the year ended December 31, 2020 was $831.6
million, a decrease of $74.1 million, or 8.2%, from $905.7 million for the same
period in the prior year. Same clinic revenues decreased $91.9 million for the
year ended


                                       51

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December 31, 2020 compared to the same period in the prior year, reflecting a
decrease in same clinic revenues of 11.0% on a per-day basis. We estimate that
volumes decreased 12.8% and this decline was partially mitigated by a 0.7%
increase in pricing and a 1.1% increase from the improvement in disallowed
claims and patient non-payment. Net revenues from acquired clinics and
consolidations increased $18.6 million, and revenues from other services
decreased $0.8 million.

Prosthetics constituted approximately 56% of our total Patient Care revenues for
the year ended December 31, 2020 and 55% for the same period in the prior year,
excluding the impact of acquisitions. Prosthetic revenues were 8.3% lower on a
per-day basis than the same period in the prior year, excluding the impact of
acquisitions. Orthotics, shoes, inserts, and other products decreased by 14.2%
on a per-day basis for the same comparative period, excluding the impact of
acquisitions. Revenues were adversely affected during the period due to a
decline in patient appointment volumes beginning in the last two weeks of March
and continuing throughout 2020 as a result of the continuing spread of COVID-19
viral infections, governmental suppression measures implemented in response to
the COVID-19 pandemic, and other factors impacting our business volumes
discussed in the "Effects of the COVID-19 Pandemic" section.

Products & Services net revenues for the year ended December 31, 2020 were
$169.5 million, a decrease of $22.8 million, or 11.9%, from $192.4 million for
the same period in the prior year. This was primarily attributable to a decrease
of $19.4 million, or 13.5% in the distribution of O&P componentry to independent
providers stemming primarily from lower volumes due to the COVID-19 pandemic, as
discussed in the "Effects of the COVID-19 Pandemic" section above, and a $3.4
million, or 7.1%, decrease in net revenues from therapeutic solutions as a
result of the impact of historical customer lease cancellations, partially
offset by lease installations.

Beginning in the latter half of March 2020, our business volumes began to be
adversely affected by the COVID-19 pandemic, and business volumes were adversely
impacted throughout 2020. We believe that the decline in net revenues in the
year ended December 31, 2020 was primarily due to the continuing spread of
COVID-19 viral infections, state and local government restrictions, social
distancing and suppression measures adopted by our patients and customers, and
deferral of elective surgical procedures, all of which resulted in a decline in
physician referrals and patient appointments. For additional discussion, refer
to the "Effects of the COVID-19 Pandemic" section.

Material costs. Material costs for the year ended December 31, 2020 were $315.4
million, a decrease of $42.4 million, or 11.8%, from $357.8 million for the same
period in the prior year. Total material costs as a percentage of net revenue
decreased to 31.5% in 2020 from 32.6% in 2019 due primarily to changes in our
Patient Care segment business mix. Material costs by operating segment, after
elimination of intersegment activity, were as follows:

                                        For the Years Ended                              Percent
                                           December 31,                Change             Change
      (dollars in thousands)            2020           2019         2020 vs 2019       2020 vs 2019
      Patient Care                  $  247,384      $ 274,801      $     (27,417)           (10.0) %
      Products & Services               68,026         82,970            (14,944)           (18.0) %
      Material costs                $  315,410      $ 357,771      $     (42,361)           (11.8) %


Patient Care material costs decreased $27.4 million, or 10.0%, for the year
ended December 31, 2020 compared to the same period in the prior year as a
result of the reduction in segment net sales, offset by our acquisitions and
changes in the segment product mix. Patient Care material costs as a percent of
segment net revenues was 29.7% in 2020 from 30.3% in 2019.

Products & Services material costs decreased $14.9 million, or 18.0%, for the
year ended December 31, 2020 compared to the same period in the prior year. As a
percent of net revenues in the Products & Services segment, material costs were
40.1% in the year ended December 31, 2020 as compared to 43.1% in the same
period 2019. The decrease in material costs as a percentage of segment net
revenues was due to a change in business and product mix within the segment.


                                       52
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Personnel costs. Personnel costs for the year ended December 31, 2020 were
$351.2 million, a decrease of $21.0 million, or 5.7%, from $372.2 million for
the same period in the prior year. Personnel costs by operating segment were as
follows:

                                        For the Years Ended                              Percent
                                           December 31,                Change             Change
      (dollars in thousands)            2020           2019         2020 vs 2019       2020 vs 2019
      Patient Care                  $  302,206      $ 319,633      $     (17,427)            (5.5) %
      Products & Services               48,985         52,592             (3,607)            (6.9) %
      Personnel costs               $  351,191      $ 372,225      $     (21,034)            (5.7) %


Personnel costs for the Patient Care segment were $302.2 million for the year
ended December 31, 2020, a decrease of $17.4 million, or 5.5%, from $319.6
million for the same period in the prior year. The decrease in Patient Care
personnel costs during the year was primarily due to a decrease in salary
expense of $21.5 million due to cost mitigation efforts implemented as result of
the COVID-19 pandemic, and decreases in benefits costs of $1.5 million due to
reduced claims experience, payroll taxes of $0.9 million, and commissions by
$0.7 million, offset by increases in incentive compensation and other personnel
costs of $6.1 million and severance costs of $1.1 million compared to the same
period in the prior year.

Personnel costs in the Products & Services segment were $49.0 million for the
year ended December 31, 2020, a decrease of $3.6 million, or 6.9% compared to
the same period in the prior year. Salary expense decreased $3.2 million due to
cost mitigation efforts as a result of the COVID-19 pandemic, and bonus,
commissions, and other personnel costs decreased $0.4 million for the year ended
December 31, 2020 compared to the same period in the prior year.

Other operating costs. Other operating costs for the year ended December 31,
2020 were $100.0 million, a decrease of $35.2 million, or 26.0%, from $135.2
million for the same period in the prior year. Other expenses decreased by $26.3
million due to the benefit associated with the recognition of $24.0 million in
proceeds from Grants under the CARES Act included in Other operating costs, as
discussed in the "Effects of the COVID-19 Pandemic" section, and an approximate
$1.9 million gain on the sale of property. Travel and other expenses decreased
$11.9 million due to cost mitigation efforts as a result of the COVID-19
pandemic, and bad debt expense decreased $0.8 million. The decreases are offset
by a $3.8 million increase in rent expense from new, renewed, and acquired
leases as compared to the same period in the prior year.

General and administrative expenses. General and administrative expenses for the
year ended December 31, 2020 were $127.8 million, a decrease of $3.7 million, or
2.8%, from $131.5 million for the same period in the prior year. This was
primarily the result of a decrease in salary expense of $6.2 million, as well as
a decrease in professional fees of $5.7 million and travel and other expenses of
$1.9 million, offset by increases in share-based compensation of $4.4 million
due to the modification recognized in the second quarter of certain equity
awards granted in 2017, and from an increase of $1.4 million in incentive
compensation and benefits costs, $2.4 million of qualified disaster relief
payments to employees, and additional severance costs of $1.9 million.

Depreciation and amortization. Depreciation and amortization for the year ended
December 31, 2020 was $34.8 million, a decrease of $1.1 million, or 3.0%, from
the same period in the prior year. Depreciation expense decreased $2.5 million
and amortization expense increased $1.4 million when compared to the same period
in the prior year.

Interest expense, net. Interest expense for the year ended December 31, 2020 was
$32.4 million, a decrease of $1.8 million, or 5.3%, from $34.3 million for the
same period in the prior year.

Provision for income taxes. The provision for income taxes for the year ended
December 31, 2020 was $0.6 million, or 1.6% of income before taxes, compared to
a provision of $3.0 million, or 9.7% of income before taxes for the year ended
December 31, 2019. The effective tax rate in 2020 consisted principally of the
21% federal statutory tax rate and non-deductible expenses, offset by research
and development tax credits and the net tax benefit of the loss carryback claim
granted under the CARES Act. The decrease in the effective tax rate for the year
ended December 31, 2020 compared with the year ended December 31, 2019 is
primarily attributable to the recognition of research and development tax
credits for the current and prior years and the tax benefit resulting from the
loss carryback provisions granted under the CARES Act.

For the year ended December 31, 2020, we completed a formal study to identify
qualifying research and development expenses resulting in the recognition of tax
benefits of $2.2 million, net of tax reserves, related to the current year and
$6.1 million, net of tax reserves, related to prior years. We recorded the tax
benefit, before tax reserves, as a deferred tax asset.

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The CARES Act, which was enacted on March 27, 2020, included changes to certain
tax laws related to the deductibility of interest expense and depreciation, as
well as the provision to carryback net operating losses to five preceding years.
Accounting Standards Codification ("ASC") 740, Income Taxes, requires the
effects of changes in tax rates and laws on deferred tax balances to be
recognized in the period in which the legislation is enacted. As a result of the
CARES Act provisions, for the year ended December 31, 2020 we recognized a tax
benefit of $4.0 million resulting from the loss carryback claim to a prior
period with a higher statutory rate, which also decreased our current income
taxes payable by $17.2 million as of December 31, 2020.

During the year ended December 31, 2019, we determined that it was more likely
than not that we would be able to realize the benefit of certain state deferred
tax assets after we achieved twelve quarters of cumulative pretax income
adjusted for permanent differences, as well as forecasted future taxable income
and other positive evidence, and released $7.1 million of the valuation
allowance related to certain state deferred tax assets in the fourth quarter of
2019.

Net income. Our net income for year ended December 31, 2020 was $38.2 million as compared to a net income of $27.5 million for year ended December 31, 2019.

Financial Condition, Liquidity, and Capital Resources

Liquidity

To provide cash for our operations and capital expenditures, our immediate
source of liquidity is our cash and investment balances and any amounts we have
available for borrowing under our revolving credit facility. We refer to the sum
of these two amounts as our "liquidity."

As of December 31, 2021, we had total liquidity of $191.0 million, which
reflected a decrease of $48.4 million, from the $239.4 million in liquidity we
had as of December 31, 2020. Our liquidity as of December 31, 2021 was comprised
of cash and cash equivalents of $61.7 million and $129.3 million in available
borrowing capacity under our $135.0 million revolving credit facility. This
decrease in liquidity primarily relates to a decrease in cash of $82.9 million,
comprised of cash paid for acquisitions, net of cash acquired, of $80.1 million,
capital expenditures of $24.9 million, and net cash used in financing activities
of $16.6 million, partially offset by cash provided by operating activities of
$36.2 million.

Our Credit Agreement contains customary representations and warranties, as well
as financial covenants, including that we maintain compliance with certain
leverage and interest coverage ratios. If we are not compliant with our debt
covenants in any period, absent a waiver or amendment of our Credit Agreement,
we may be unable to access funds under our revolving credit facility. Due to the
additional borrowings under our revolving credit facility in March 2020, which
were repaid in full during the third quarter of 2020, and in anticipation of the
potential economic impact of the COVID-19 pandemic, we entered into an amendment
to the Credit Agreement that provided for, among other things, increases in the
allowable level of indebtedness we may carry relative to our earnings, changes
in the definition of EBITDA used to compute certain financial ratios, certain
restrictions regarding investments and payments we made until the completion of
the first quarter of 2021 and increases in the interest costs associated with
borrowings under our revolving credit facility. We were in compliance with our
debt covenants as of December 31, 2021.

For additional discussion, please refer to the Liquidity Outlook section below.

Working Capital and Days Sales Outstanding

As of December 31, 2021, we had working capital of $91.5 million compared to
working capital of $129.3 million as of December 31, 2020. Our working capital
decreased $37.8 million in 2021 when compared to 2020 due to a decrease in
current assets of $56.5 million and a decrease in current liabilities of $18.8
million.

The decrease in current assets was primarily attributable to a decrease in Cash
and cash equivalents of $82.9 million discussed in the "Liquidity" section above
and a decrease in Income taxes receivable of $12.3 million, which relates to
income tax relief under the CARES Act. The decreases were offset by increases in
Accounts receivable, net of $23.5 million, discussed further below, Inventories
of $11.0 million, and Other current assets of $4.2 million.

The decrease in current liabilities was primarily attributable to a decreases of
$18.1 million in Accrued compensation related costs attributable to current year
decreases in incentive compensation, $2.5 million in Accrued expenses and other
current


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liabilities, $1.5 million in Accounts payable, and $1.6 million in the Current
portion of operating lease liabilities, partially offset by an increase in the
Current portion of long-term debt of $4.9 million.

Days sales outstanding ("DSO") is a calculation that approximates the average
number of days between the billing for our services and the date of our receipt
of payment, which we estimate using a 90-day rolling period of net revenue. This
computation can provide a relative measure of the effectiveness of our billing
and collections activities. Clinics acquired during the past 90-day period are
excluded from the calculation. As of December 31, 2021, our DSO was 43 days, as
compared to 42 days and 48 days as of December 31, 2020 and 2019, respectively.
The increase compared to the December 31, 2020 DSO is primarily attributable to
an increase in sales at the end of 2021 as compared to 2020.

Sources and Uses of Cash in the Year Ended December 31, 2021 Compared to December 31, 2020

Cash flows provided by operating activities decreased $119.4 million to $36.2
million for the year ended December 31, 2021 from $155.6 million for year ended
December 31, 2020. The most significant decrease in cash provided by operating
activities was due to a $51.7 million decrease in cash provided by Accounts
receivable, net which is largely attributable to an increase in revenue in 2021
as compared to 2020, as discussed in the "Effects of the COVID-19 Pandemic"
section above. In addition, operating cash flows have also decreased on a
comparative basis due to a decrease in Accrued compensation related costs of
$29.8 million, a decrease in Accounts payable and Accrued expenses and other
current liabilities of $23.2 million, and other decreases in working capital of
$25.6 million; offset by an increase in operating cash flows resulting from
income taxes of $14.2 million.

Cash flows used in investing activities increased $56.6 million to $102.5
million for the year ended December 31, 2021 from $45.9 million for the year
ended December 31, 2020. The increase in cash used in investing activities was
primarily due to higher cash outflows of $58.3 million for acquisitions, net of
cash acquired, partially offset by lower capital expenditures of $3.2 million
during the year ended December 31, 2021.

Cash flows used in financing activities decreased $22.9 million to $16.6 million
for the year ended December 31, 2021 from $39.5 million for the year ended
December 31, 2020. This decrease in cash used in financing activities was
primarily due to lower cash outflows of $21.0 million related to payments on
sellers notes and additional consideration, of which $22.0 million relates to
acquisitions that closed in 2020, and a $2.7 million decrease from employee
taxes on stock-based compensation.

Capital Expenditures and Deferred Cloud Implementation Expenditures

During 2021, we expended a combined total of $24.9 million for the purchase of
property, plant, and equipment, and the purchase of therapeutic program
equipment. Our capital expenditures relate primarily to our investment in
leasehold and other machinery and equipment for our patient care clinics, for
equipment we use in providing therapeutic solutions, as well as for the purchase
or development of information technology assets that support our businesses and
corporate activities. In addition to this capital expenditure amount, we
incurred approximately $2 million in incremental expenditures related to the
implementation of cloud-based supply chain and financial systems that will be
deferred in accordance with ASU 2018-15 and will be included in future expense
over the periods of operation of these systems. These expenditures are
anticipated to be separate from and additional to the operating expenses
discussed in "New Systems Implementations" section above.

Effect of Indebtedness

On March 6, 2018, we entered into a new Credit Agreement in order to refinance
our indebtedness, as disclosed in Note M - "Debt and Other Obligations," in the
notes to the consolidated financial statements contained elsewhere in this
report. Our indebtedness bears reduced rates of interest compared with those
under our prior agreement, and as such, for the year ended December 31, 2021, we
incurred interest expense of $28.9 million compared with the $32.4 million
incurred in 2020 and the $34.3 million incurred in 2019. Cash paid for interest
totaled $25.7 million, $28.4 million, and $29.2 million for the years ended
December 31, 2021, 2020, and 2019 respectively.

In May 2020, we entered into an amendment to the Credit Agreement (the
"Amendment") that provided for, amongst other things, an increase in the maximum
Net Leverage Ratio to 5.25 to 1.00 for the fiscal quarter ended March 31, 2021;
5.00 to 1.00 for the fiscal quarters ended June 30, 2021 through September 30,
2021; and 4.75 to 1.00 for the quarter ended December 31, 2021 and the last day
of each fiscal quarter thereafter. In addition, the Amendment changed the
definition of EBITDA used in the Net Leverage Ratio and minimum interest
coverage ratio to adjust for declines in net revenue attributable to the
COVID-19 pandemic. Borrowings under the revolving credit facility will bear
interest at a variable rate


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equal to the greater of LIBOR or 1.00%, plus 3.75%. In addition, the Amendment
contained certain restrictions and covenants that further limit our ability, and
certain of our subsidiaries' ability, to consolidate or merge, create liens,
incur additional indebtedness, dispose of assets, or consummate acquisitions not
financed with the proceeds of an equity offering, except that certain
acquisitions are permitted after September 30, 2020, in the event we maintain
certain leverage and liquidity thresholds. During the fourth quarter of 2020, we
recommenced our acquisition of O&P providers as we met certain Amendment
parameters around leverage and liquidity thresholds.

On November 23, 2021, we entered into a Second Amendment to Credit Agreement
(the "Second Amendment") that revised certain provisions of the Existing Credit
Agreement to, among other things, (i) increase the aggregate amount of the
revolving loan commitments by $35 million to an aggregate total amount of
$135 million, (ii) extend the scheduled maturity date of the revolving loan
facility to November 23, 2026 (subject to a springing maturity if the term loans
outstanding under the Existing Credit Agreement are not repaid prior to the date
that is 91 days prior to the stated maturity thereof), (iii) decrease the
applicable margin on LIBOR and base rate revolving loan borrowings by 0.75% per
annum, (iv) decrease the LIBOR interest rate floor in respect of revolving loan
borrowings to 0.00% per annum, (v) decrease the revolving loan facility
commitment fee to 0.30% per annum, (vi) increase the maximum allowable leverage
ratio for covenant purposes such that the maximum consolidated first lien net
leverage ratio shall be up to (a) 5.00 to 1.00 for the fiscal quarters ending
December 31, 2021, March 31, 2022, June 30, 2022 and September 30, 2022 and (b)
4.75 to 1.00 for the fiscal quarter ending December 31, 2022 and the last day of
each fiscal quarter thereafter, and (vii) permit, at our election and up to
three times during the term of the Credit Agreement, the maximum allowable
leverage ratio for covenant purposes to be temporarily increased by an
additional 0.50 to 1.00 for four consecutive fiscal quarters in connection with
certain material acquisitions.

Scheduled maturities of debt as of December 31, 2021 were as follows (in
thousands):

 (in thousands)
 2022                                                                       $  15,281
 2023                                                                          15,243
 2024                                                                          14,703
 2025                                                                         474,246
 2026                                                                           2,603
 Thereafter                                                                     1,143

Total debt before unamortized discount and debt issuance costs, net

523,219

 Unamortized discount and debt issuance costs, net                             (5,974)
 Total debt                                                                 $ 517,245


Future Cash Requirements

Our primary future cash requirements will be for acquisitions of O&P providers,
debt payments, capital expenditures, payment of deferred payroll taxes, and to
fund operations.

We expect our primary cash requirements for 2022 to be as follows:

•Acquisitions of O&P providers - Our strategy is to achieve long-term growth
through disciplined diversification of our revenue streams, including geographic
expansion or the broadening of our continuum of care through the acquisitions of
high quality O&P providers. We anticipate that we will continue to pursue
acquisitions and other growth initiatives that provide value to our
shareholders.

•Debt - We are contractually obligated to make payments of $15.3 million on
principal and of $26.6 million in interest in 2022 associated with our Credit
Agreement and Seller Notes. In the ordinary course of business, we may from time
to time borrow and repay amounts under our revolving credit facility, as well as
make voluntary prepayments on Term Loan B.

•Capital expenditures and deferred cloud implementation expenditures - During
2022, we expect to continue to invest in capital expenditures, and in deferred
cloud implementation expenditures, in connection with our planned
reconfiguration of distribution facilities and our related implementation of
supply chain and financial systems. In 2022, due to these projects, we currently
estimate that our capital expenditures will increase to approximately $33
million. Of this amount, we estimate that approximately $4 million to $5 million
will relate to our distribution and


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fabrication facility leasehold and equipment expenditures. In addition to this
capital expenditure amount, we estimate that we will incur $4 million to $6
million in incremental expenditures related to the New Systems Implementations
that will be deferred in accordance with ASU 2018-15 and will be included in
future expense over the periods of operation of these systems. We currently
expect similar levels of expenditures related to our supply chain and financial
systems implementations through 2023.

•Deferred payroll taxes - We expect to make a payment of $5.9 million of deferred payroll taxes in 2022. Refer to the CARES Act discussion below for further discussion.

•Working capital - As business volumes return to more normal levels, it is likely that we will experience a natural corresponding increase in our investment in working capital.

Liquidity Outlook and Going Concern Evaluation

Our Credit Agreement has a term loan facility with $486.1 million in principal
outstanding at December 31, 2021, due in quarterly principal installments equal
to 0.25% of the original aggregate principal amount of $505 million, with all
remaining outstanding principal due at maturity in March 2025, and, as of
December 31, 2021, a revolving credit facility with no borrowings and a maximum
aggregate amount of availability of $135 million that matures in November 2026.

Our primary sources of liquidity are cash and cash equivalents, and available
borrowings under our revolving credit facility. Due to the economic and social
activity impacts outlined in the "Effects of the COVID-19 Pandemic" section
above, we expect the continuing disruption to have an unfavorable impact on our
operations, financial condition, and results of operations. While the duration
and extent of the impact from the COVID-19 pandemic on our operations and
liquidity depends on future developments which cannot be predicted with
certainty, we believe that our existing sources of liquidity, when combined with
our operating cash flows and other measures taken to enhance our liquidity
position and cost structure, will continue to allow us to finance our operations
throughout 2022 and the foreseeable future. Please refer to the "Effects of the
COVID-19 Pandemic" section above for additional discussion.

With these factors in mind, we continue to anticipate we will generate positive
operating cash flows that, together with our retained cash and revolving credit
facility, will allow us to invest in acquisitions and other growth opportunities
to provide value to our shareholders. From time to time, we may seek additional
funding through the issuance of debt or equity securities to provide additional
liquidity to fund acquisitions aligned with our strategic priorities and for
other general corporate purposes.

CARES Act

The CARES Act established the Public Health and Social Services Emergency Fund,
also referred to as the Cares Act Provider Relief Fund, which set aside $203.5
billion to be administered through grants and other mechanisms to hospitals,
public entities, not-for-profit entities and Medicare- and Medicaid- enrolled
suppliers and institutional providers. The purpose of these funds is to
reimburse providers for lost revenue and health-care related expenses that are
attributable to the COVID-19 pandemic. In April 2020, the U.S. Department of
Health and Human Services ("HHS") began making payments to healthcare providers
from the $203.5 billion appropriation. These are payments, rather than loans, to
healthcare providers, and will not need to be repaid.

During 2021 and 2020, we recognized a total benefit of $1.1 million and $24.0
million, respectively, in our consolidated statement of operations within Other
operating costs for the Grants from HHS. We recognize income related to grants
on a systematic and rational basis when it becomes probable that we have
complied with the terms and conditions of the grant and in the period in which
the corresponding costs or income related to the grant are recognized. We
recognized the benefit from the Grants within Other operating costs in our
Patient Care segment.

The CARES Act also provides for a deferral of the employer portion of payroll
taxes incurred during the COVID-19 pandemic through December 2020. The
provisions allow us to defer half of such payroll taxes until December 2021 and
the remaining half until December 2022. We paid the current portion of $5.9
million in September 2021, and deferred $5.9 million of payroll taxes within
Accrued compensation related costs in the consolidated balance sheet as of
December 31, 2021.


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Going Concern Evaluation

ASU 2014-15 Disclosure of Uncertainties about an Entity's Ability to Continue as
a Going Concern requires that we evaluate whether there is substantial doubt
about our ability to meet our financial obligations when they become due during
the twelve month period from the date these financial statements are available
to be issued.  We have performed such an evaluation considering the financial
and operational effects of the COVID-19 pandemic and, based on the results of
that assessment, we are not aware of any relevant conditions or events that
raise substantial doubt regarding our ability to continue as a going concern
within one year of the date the financial statements are issued.

Dividends

It is our policy to not pay cash dividends on our common stock, and, given our
capital needs, we currently do not foresee a change in this policy. Our Credit
Agreement limits our ability to pay dividends, and we currently anticipate that
these restrictions will continue to exist in future debt agreements that we may
enter.

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