SEGMENT AND RELATED INFORMATION

3 Months Ended

Mar. 31, 2013

SEGMENT AND RELATED INFORMATION

SEGMENT AND RELATED INFORMATION

NOTE L — SEGMENT AND RELATED INFORMATION

During the quarter, management changed its internal structure to align with their end-market customers. Due to the change, the Company assessed its operating segment structure and determined it has two operating segments: (i) Patient Care and (ii) Products & Services and that its reportable segments are the same as its operating segments.  Because management had previously identified three operating segments; all prior periods have been retroactively adjusted to reflect this change. The Company evaluates segment performance and allocates resources based on each segment’s income from operations. The operating segments are described further below:

Patient Care —This segment consists of (i) the Company’s owned and operated patient care clinics and (ii) its contracting and network management business.  The patient care clinics provide services to design and fit O&P devices to patients. These clinics also instruct patients in the use, care and maintenance of the devices. The principal reimbursement sources for the Company’s services are:

· 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 40.2% and 41.2%, of the Company’s net sales for the three months ended March 31, 2013 and 2012, respectively.

Our contract and network management business is the only network management company dedicated solely to serving the O&P market and is focused on managing the O&P services of national and regional insurance companies. We partner with healthcare insurance companies by securing a national or regional contract either as a preferred provider or to manage their O&P network of providers. Our network now includes approximately 1,130 O&P provider locations, including over 400 independent providers. As of March 31, 2013, we had 56 contracts with national and regional providers.

Products & Services—This segment consists of its distribution business, which distributes and fabricates O&P products and components for both the O&P industry and the Company’s own patient care clinics, and its rehabilitation solutions business. Rehabilitation solutions leases rehabilitation equipment and provides evidence-based clinical programs to post-acute rehabilitation service providers. This segment also develops emerging neuromuscular technologies for the O&P and rehabilitation markets.

Other — This consists of corporate overhead and includes unallocated expense such as personnel costs, professional fees and corporate offices expenses.

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

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

			Products and					Consolidating
(In thousands)	Patient Care		Services		Other			Adjustments			Total
Three Months Ended March 31, 2013
Net sales
Customers	$	193,212	$	40,323	$	—		$	—		$	233,535
Intersegments	—		51,083		—			(51,083		)	—
Depreciation and amortization	4,066		3,203		2,016			—			9,285
Income (loss) from operations	25,389		9,475		(11,885		)	(263		)	22,716
Interest (income) expense	7,750		3,335		(3,308		)	—			7,777
Income (loss) before taxes	17,639		6,140		(8,577		)	(263		)	14,939
Capital expenditures	2,903		107		2,388			—			5,398
Three Months Ended March 31, 2012
Net sales
Customers	$	176,518	$	41,573	$	—		$	—		$	218,091
Intersegments	—		48,413		—			(48,413		)	—
Depreciation and amortization	3,427		2,997		1,861			—			8,285
Income (loss) from operations	25,279		8,810		(12,075		)	(277		)	21,737
Interest (income) expense	7,582		2,272		(2,077		)	—			7,777
Income (loss) before taxes	17,697		6,538		(9,998		)	(277		)	13,960
Capital expenditures	2,543		714		2,059				—		5,316
Total Assets
March 31, 2013	1,398,550		341,005		—			(510,634		)	1,228,921
December 31, 2012	1,389,223		336,318		—			(488,214		)	1,237,327