NOTE R — SEGMENT AND RELATED INFORMATION

We have 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) our owned and operated patient care clinics, Dosteon, and CARES, and (ii) our contracting and network management business. Dosteon is presented as a discontinued operation and has therefore been excluded from the summarized financial information below. See Note S- “Discontinued Operations” within these consolidated financial statements. CARES was closed in 2015. 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 our services are:

Commercial private payors and other, which consist of individuals, rehabilitation providers, commercial 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 and orthotics and by state for durable medical equipment;

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.

Our contract and network management business, known as Linkia, 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.

Products & Services - This segment consists of our distribution business, which distributes and fabricates O&P products and components to sell to both the O&P industry and our own patient care clinics, and our therapeutic solutions business. The therapeutic solutions business leases and sells rehabilitation equipment and ancillary consumable supplies combined with equipment maintenance, education, and training. This segment also develops emerging neuromuscular technologies for the O&P and rehabilitation markets.

Corporate & 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 Note B - “Significant Accounting Policies”.

Summarized financial information concerning our reporting segments is shown in the following tables. Segment performance is evaluated based on each segment’s earnings before interest expense, income taxes, and depreciation & amortization expenses (“EBITDA”).

Intersegment revenue primarily relates to sales of O&P components from the Products & Services segment to the Patient Care segment. The sales are priced at the cost of the related materials plus overhead.

In 2014, intersegment revenue was made at prices which we believe approximate market values but has been reclassified to eliminate intercompany profit to be consistent with intersegment revenue in 2016 and 2015. The reclassification adjustment to eliminate intersegment profit in 2014 is approximately $21.0 million.

We had no foreign and export sales and assets for the years ended December 31, 2016 and 2015. Our foreign and export sales and assets located outside of the United States of America were not significant as of December 31, 2014.

For the Patient Care segment, government reimbursement, comprised of Medicare, Medicaid and the U.S. Department of Veterans Affairs, in the aggregate, accounted for approximately, 54.1%, 53.4% and 50.9% of their net revenue in 2016, 2015 and 2014, respectively.

Additionally, for the Products & Services segment, no single customer accounted for more than 10% of net revenues in 2016, 2015 or 2014, respectively.

(in thousands)	Patient Care		Products & Services			Corporate & Other			Consolidating Adjustments			Total
2016
Net revenue
Third party	$	840,130	$	201,924		$	—		$	—		$	1,042,054
Intersegments	—		175,539			—			(175,539		)	—

Total net revenue	840,130		377,463			—			(175,539		)	1,042,054

Material costs
Third party suppliers	230,957		101,114			—			—			332,071
Intersegments	25,055		150,484			—			(175,539		)	—

Total material costs	256,012		251,598			—			(175,539		)	332,071

Personnel costs	315,892		47,645			—			—			363,537
Other expenses	150,604		32,228			104,649			—			287,481
Depreciation & amortization	24,873		11,600			8,414			—			44,887
Impairment of intangible assets	—		86,164			—			—			86,164

Income (loss) from operations	92,749		(51,772		)	(113,063		)	—			(72,086		)

Interest expense (income), net	33,081		13,097			(979		)	—			45,199
Extinguishment of debt	—		—			6,031			—			6,031

Income (loss) from continuing operations before income taxes	59,668		(64,869		)	(118,115		)	—			(123,316		)

Benefit for income taxes	—		—			(15,910		)	—			(15,910		)

Income (loss) from continuing operations	$	59,668	$	(64,869	)	$	(102,205	)	$	—		$	(107,406	)


EBITDA	$	117,622	$	(40,172	)	$	(104,649	)	$	—		$	(27,199	)
Total assets	419,895		159,354			175,855			—			755,104
Capital expenditures	14,581		820			5,747			—			21,148

(in thousands)	Patient Care			Products & Services		Corporate & Other			Consolidating Adjustments			Total
2015
Net revenue
Third party	$	874,960		$	192,212	$	—		$	—		$	1,067,172
Intersegments	—			137,282		—			(137,282		)	—

Total net revenue	874,960			329,494		—			(137,282		)	1,067,172

Material costs
Third party suppliers	242,714			93,569		—			—			336,283
Intersegments	19,613			117,669		—			(137,282		)	—

Total material costs	262,327			211,238		—			(137,282		)	336,283

Personnel costs	317,927			49,167		—			—			367,094
Other expenses	163,240			25,487		92,520			—			281,247
Depreciation and amortization	25,674			11,883		8,786			—			46,343
Impairment of intangible assets	382,860			2,947								385,807

(Loss) income from operations	(277,068		)	28,772		(101,306		)	—			(349,602		)

Interest expense (income), net	33,677			13,114		(16,899		)	—			29,892
Extinguishment of debt	—			—		7,237			—			7,237

(Loss) income from continuing operations before income taxes	(310,745		)	15,658		(91,644		)	—			(386,731		)

Benefit for income taxes	—			—		(67,614		)	—			(67,614		)

(Loss) income from continuing operations	$	(310,745	)	$	15,658	$	(24,030	)	$	—		$	(319,117	)


EBITDA	$	(251,394	)	$	40,655	$	(92,520	)	$	—		$	(303,259	)
Total assets	468,575			257,640		246,869			—			973,084
Capital expenditures	16,505			2,937		8,178			—			27,620

(in thousands)	Patient Care		Products & Services		Corporate & Other			Consolidating Adjustments			Total
2014
Net revenue
Third party	$	837,080	$	175,020	$	—		$	—		$	1,012,100
Intersegments	—		162,636		—			(162,636		)	—

Total net revenue	837,080		337,656		—			(162,636		)	1,012,100

Material costs
Third party suppliers	240,685		83,599		—			—			324,284
Intersegments	19,587		143,049		—			(162,636		)	—

Total material costs	260,272		226,648		—			(162,636		)	324,284

Personnel costs	305,651		47,935		—			—			353,586
Other expenses	152,176		27,498		88,124			—			267,798
Depreciation and amortization	18,769		12,022		8,138			—			38,929
Impairment of intangible assets	—		223		—			—			223

Income (loss) from operations	100,212		23,330		(96,262		)	—			27,280

Interest expense (income), net	33,465		13,079		(18,267		)	—			28,277

Income (loss) from continuing operations before income taxes	66,747		10,251		(77,995		)	—			(997		)

Provision for income taxes	—		—		2,023			—			2,023

Income (loss) from continuing operations	$	66,747	$	10,251	$	(80,018	)	$	—		$	(3,020	)


EBITDA	$	118,981	$	35,352	$	(88,124	)	$	—		$	66,209
Total assets	848,092		262,721		124,920			—			1,235,733
Capital expenditures	14,067		1,305		11,724			—			27,096