SEGMENT AND RELATED INFORMATION

3 Months Ended

Mar. 31, 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 41.2% and 40.4%, of the Company’s net sales for the three months ended March 31, 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 program by, ACP as well 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. The Patient-Care Services segment results below are restated as described in footnote B.

(In thousands)	Patient-Care Services		Distribution		Therapeutic Solutions			Other			Consolidating Adjustments			Total
	(Unaudited)		(Unaudited)		(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
Three Months Ended March 31, 2012
Net sales
Customers	$	176,369	$	26,241	$	15,333		$	148		$	—		$	218,091
Intersegments	—		47,569		844			—			(48,413		)	—
Depreciation and amortization	3,417		324		2,673			1,871			—			8,285
Income (loss) from operations	26,651		8,542		268			(13,447		)	(277		)	21,737
Interest (income) expense	7,582		832		1,440			(2,077		)	—			7,777
Income (loss) before taxes	19,069		7,710		(1,172		)	(11,370		)	(277		)	13,960
Capital Expenditures	2,541		90		624			2,061			—			5,316
Three Months Ended March 31, 2011
Net sales
Customers	$	160,551	$	23,461	$	16,257		$	170		$	—		$	200,439
Intersegments	—		41,627		745			—			(42,372		)	—
Depreciation and amortization	2,961		284		2,474			1,573			—			7,292
Income (loss) from operations	23,282		6,887		751			(11,728		)	101			19,293
Interest (income) expense	7,116		849		1,440			(1,026		)	—			8,379
Income (loss) before taxes	16,166		6,038		(689		)	(10,702		)	101			10,914
Capital Expenditures	3,082		168		90			2,047			—			5,387
Total Assets
March 31, 2012	1,292,294		178,481		134,733			(479,061		)	—			1,126,447
December 31, 2011	1,277,700		170,077		135,781			(456,839		)	—			1,126,719