SEGMENT AND RELATED INFORMATION

6 Months Ended

Jun. 30, 2013

SEGMENT AND RELATED INFORMATION

SEGMENT AND RELATED INFORMATION

NOTE K — SEGMENT AND RELATED INFORMATION

The Company has identified two operating segments and both performance evaluation and resource allocation decisions are determined based on each operating segment’s income from operations. The operating segments are described further below:

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

· 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 40.6% and 41.3%, of the Company’s net sales for the six months ended June 30, 2013 and 2012, respectively.

The Company’s 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. The Company partners with healthcare insurance companies by securing a national or regional contract either as a preferred provider or to manage their O&P network of providers. The Company’s network now includes approximately 1,135 O&P provider locations, including over 400 independent providers. As of June 30, 2013, the Company had 57 contracts with national and regional providers.

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

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

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

Summarized financial information concerning the Company’s operating segments is shown in the following table. 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.

(In thousands)	Patient Care		Products & Services		Other			Consolidating Adjustments			Total
Three Months Ended June 30, 2013
Net sales
Customers	$	231,090	$	42,645	$	—		$	—		$	273,735
Intersegments	—		58,849		—			(58,849		)	—
Depreciation and amortization	4,067		3,343		2,100			—			9,510
Income (loss) from operations	41,620		11,065		(15,763		)	(278		)	36,644
Interest (income) expense	7,674		3,337		(3,303		)	—			7,708
Extinguishment of debt	—		—		6,645			—			6,645
Income (loss) before taxes	33,946		7,728		(19,105		)	(278		)	22,291
Three Months Ended June 30, 2012
Net sales
Customers	$	207,985	$	43,769	$	—		$	—		$	251,754
Intersegments	—		54,147		—			(54,147		)	—
Depreciation and amortization	3,388		3,036		2,014			—			8,438
Income (loss) from operations	39,054		10,414		(13,574		)	(168		)	35,726
Interest (income) expense	7,552		2,265		(2,133		)	—			7,684
Income (loss) before taxes	31,502		8,149		(11,441		)	(168		)	28,042
Six Months Ended June 30, 2013
Net sales
Customers	$	424,303	$	82,967	$	—		$	—		$	507,270
Intersegments	—		109,933		—			(109,933		)	—
Depreciation and amortization	8,133		6,546		4,116			—			18,795
Income (loss) from operations	67,008		20,540		(27,647		)	(541		)	59,360
Interest (income) expense	15,424		6,673		(6,612		)	—			15,485
Extinguishment of debt	—		—		6,645			—			6,645
Income (loss) before taxes	51,584		13,867		(27,680		)	(541		)	37,230
Capital expenditures	6,944		1,221		9,880			—			18,045
Six Months Ended June 30, 2012
Net sales
Customers	$	384,504	$	85,341	$	—		$	—		$	469,845
Intersegments	—		102,560		—			(102,560		)	—
Depreciation and amortization	6,814		6,034		3,875			—			16,723
Income (loss) from operations	64,331		19,224		(25,648		)	(445		)	57,462
Interest (income) expense	15,135		4,537		(4,211		)	—			15,461
Income (loss) before taxes	49,196		14,687		(21,437		)	(445		)	42,001
Capital expenditures	4,677		1,579		9,714			—			15,970
Total Assets
June 30, 2013	1,442,160		358,399		—			(560,935		)	1,239,624
December 31, 2012	1,389,223		336,318		—			(488,214		)	1,237,327