SEGMENT AND RELATED INFORMATION

9 Months Ended

Sep. 30, 2012

SEGMENT AND RELATED INFORMATION

SEGMENT AND RELATED INFORMATION

NOTE L — SEGMENT AND RELATED INFORMATION

The Company has identified three reportable segments in which it operates based on the products and services it provides. The Company evaluates segment performance and allocates resources based on the segments’ income from operations. The reportable segments are: (i) Patient-Care Services (ii) Distribution, and (iii) Therapeutic solutions. The reportable segments are described further below:

Patient-Care Services—This segment consists of the Company’s owned and operated patient-care centers. The patient-care centers provide services to design and fit O&P devices to patients. These centers also instruct patients in the use, care and maintenance of the devices. The principal reimbursement sources for the Company’s services are:

·       Commercial and other, which consist of individuals, rehabilitation providers, private insurance companies, HMOs, PPOs, hospitals, vocational rehabilitation, workers’ compensation programs and similar sources;

·       Medicare, a federally funded health insurance program providing health insurance coverage for persons aged 65 or older and certain disabled persons, which provides reimbursement for O&P products and services based on prices set forth in fee schedules for 10 regional service areas;

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

·       U.S. Department of Veterans Affairs.

The Company estimates that government reimbursement, comprised of Medicare, Medicaid and the U.S. Department of Veterans Affairs, in the aggregate, accounted for approximately 40.8% and 40.4%, of the Company’s net sales for the nine months ended September 30, 2012 and 2011, respectively.

Distribution—This segment distributes O&P products and components to both the O&P industry and the Company’s own patient-care practices. This segment also includes the Company’s Fabrication centers which are involved in the fabrication of O&P components for both the O&P industry and the Company’s own patient-care centers.

Therapeutic Solutions—This segment consists of the leasing of rehabilitation equipment from, and the provision of clinical programs by ACP as well as the operations of IN, Inc. ACP is a developer of specialized rehabilitation technologies and provides evidence-based clinical programs for post-acute rehabilitation. IN, Inc. specializes in bringing emerging neuromuscular technologies to the O&P market.

Other—This consists of Hanger corporate and Linkia. Linkia is a national managed-care agent for O&P services and a patient referral clearing house.

The accounting policies of the segments are the same as those described in the summary of “Significant Accounting Policies” in Note B to the consolidated financial statements.

Summarized financial information concerning the Company’s reportable segments is shown in the following table. Intersegment sales mainly include sales of O&P components from the Distribution segment to the Patient-Care Services segment and were made at prices which approximate market values.

(In thousands)	Patient-Care Services		Distribution		Therapeutic Solutions			Other			Consolidating Adjustments			Total
	(Unaudited)		(Unaudited)		(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
Three Months Ended September 30, 2012
Net sales
Customers	$	200,294	$	27,373	$	15,664		$	172		$	—		$	243,503
Intersegments	—		52,770		1,171			—			(53,941		)	—
Depreciation and amortization	3,485		321		2,852			2,051			—			8,709
Income (loss) from operations	37,598		9,182		869			(11,463		)	(813		)	35,373
Interest (income) expense	7,519		814		1,422			(2,004		)	—			7,751
Income (loss) before taxes	30,079		8,368		(553		)	(9,459		)	(813		)	27,622
Three Months Ended September 30, 2011
Net sales
Customers	$	192,557	$	26,448	$	16,085		$	171		$	—		$	235,261
Intersegments	—		50,063		857			99			(51,019		)	—
Depreciation and amortization	3,139		307		2,673			1,745			—			7,864
Income (loss) from operations	35,437		7,398		1,350			(12,867		)	(76		)	31,242
Interest (income) expense	7,113		835		1,441			(1,593		)	—			7,796
Income (loss) before taxes	28,324		6,563		(91		)	(11,274		)	(76		)	23,446
Nine Months Ended September 30, 2012
Net sales
Customers	$	584,456	$	81,026	$	47,354		$	513		$	—		$	713,349
Intersegments	—		153,486		3,014			—			(156,500		)	—
Depreciation and amortization	10,282		970		8,237			5,943			—			25,432
Income (loss) from operations	102,921		27,197		2,077			(39,881		)	(1,259		)	91,055
Interest (income) expense	22,654		2,475		4,296			(6,213		)	—			23,212
Income (loss) before taxes	80,267		24,722		(2,219		)	(33,668		)	(1,259		)	67,843
Capital expenditures	9,181		319		1,914			13,463			—			24,877
Nine Months Ended September 30, 2011
Net sales
Customers	$	546,084	$	75,487	$	48,408		$	472		$	—		$	670,451
Intersegments	—		140,630		2,589			99			(143,318		)	—
Depreciation and amortization	9,129		889		7,750			5,084			—			22,852
Income (loss) from operations	96,815		21,763		2,912			(38,964		)	(17		)	82,509
Interest (income) expense	21,322		2,532		4,321			(4,209		)	—			23,966
Income (loss) before taxes	75,493		19,231		(1,409		)	(34,755		)	(17		)	58,543
Capital Expenditures	9,299		1,057		3,372			8,026			—			21,754
Total Assets
September 30, 2012	1,382,551		198,587		135,017			—			(528,901		)	1,187,253
December 31, 2011	1,279,481		170,077		135,781			—			(456,839		)	1,128,500