SEGMENT AND RELATED INFORMATION

6 Months Ended

Jun. 30, 2014

SEGMENT AND RELATED INFORMATION

SEGMENT AND RELATED INFORMATION

NOTE N — SEGMENT AND RELATED INFORMATION

During the first quarter of 2013, the Company assessed and updated their operating segments to align with how the business is managed and determined their reportable segments are the same as their operating segments.  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 (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 published fee schedules with 10 regional pricing areas for prosthetics & orthotics and by state for DME;

· 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, composed of Medicare, Medicaid and the U.S. Department of Veterans Affairs, in the aggregate, accounted for approximately 40.7% and 40.6%, of the Company’s net sales for the six months ended June 30, 2014 and 2013, 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. It 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 network now includes approximately 1,170 O&P provider locations, including over 400 independent providers. As of June 30, 2014, the Company had 58 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 its rehabilitation solutions business. The rehabilitation solutions business 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 office expenses.

The accounting policies of the segments are the same as the Company’s accounting policies which are located in the audited consolidated financial statements included in the Company’s Form 10-K for the year ended December 31, 2013 filed with the SEC.

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 that approximate market values.

(In thousands)	Patient Care		Products & Services		Other			Consolidating Adjustments			Total
Three Months Ended June 30, 2014
Net Sales
Customers	$	231,894	$	43,960	$	—		$	—		$	275,854
Intersegment	—		48,372		—			(48,372		)	—
Depreciation and amortization	6,597		3,081		2,455			—			12,133
Income (loss) from operations	33,605		12,309		(19,200		)	(311		)	26,403
Interest (income) expense	7,968		3,684		(5,451		)	—			6,201
Income (loss) before taxes	25,637		8,625		(13,749		)	(311		)	20,202
Three Months Ended June 30, 2013
Net Sales
Customers	$	225,154	$	42,644	$	—		$	—		$	267,798
Intersegment	—		58,850		—			(58,850		)	—
Depreciation and amortization	4,067		3,343		2,100			—			9,510
Income (loss) from operations	41,621		11,064		(15,762		)	(279		)	36,644
Interest (income) expense	7,674		3,338		(3,304		)	—			7,708
Extinguishment of Debt	—		—		6,645			—			6,645
Income (loss) before taxes	33,947		7,726		(19,103		)	(279		)	22,291
Six Months Ended June 30, 2014
Net Sales
Customers	$	427,524	$	83,935	$	—		$	—		$	511,459
Intersegment	—		97,927		—			(97,927		)	—
Depreciation and amortization	11,476		6,036		4,820			—			22,332
Income (loss) from operations	55,880		22,977		(35,895		)	(529		)	42,433
Interest (income) expense	15,924		7,375		(11,000		)	—			12,299
Income (loss) before taxes	39,956		15,602		(24,895		)	(529		)	30,134
PP&E Additions	9,336		3,251		9,099			—			21,686
Six Months ended June 30, 2013
Net Sales
Customers	$	414,181	$	82,967	$	—		$	—		$	497,148
Intersegment	—		109,933		—			(109,933		)	—
Depreciation and amortization	8,133		6,546		4,116			—			18,795
Income (loss) from operations	67,010		20,539		(27,647		)	(542		)	59,360
Interest (income) expense	15,424		6,673		(6,612		)	—			15,485
Extinguishment of Debt	—		—		6,645			—			6,645
Income (loss) before taxes	51,586		13,866		(27,680		)	(542		)	37,230
PP&E Additions	6,944		1,221		9,880			—			18,045
Total Assets
June 30, 2014	1,567,564		430,910		—			(633,915		)	1,364,559
December 31, 2013	1,502,721		408,628		—			(639,689		)	1,271,660