NOTE P — 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, and (ii) our 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 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 services 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 provides 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” in our 2017 Form 10-K.

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.

Summarized financial information concerning our reporting segments is shown in the following tables.

Total assets for each of the segments has not materially changed from December 31, 2017.

(in thousands)	Patient Care		Products & Services		Corporate & Other			Consolidating Adjustments			Total
Three Months Ended June 30, 2018
Net revenue
Third party	$	218,158	$	48,808	$	—		$	—		$	266,966
Intersegments	—		49,835		—			(49,835		)	—

Total net revenue	218,158		98,643		—			(49,835		)	266,966
Material costs
Third party suppliers	59,989		26,527		—			—			86,516
Intersegments	5,920		43,915		—			(49,835		)	—

Total material costs	65,909		70,442		—			(49,835		)	86,516
Personnel expenses	76,792		12,762		—			—			89,554
Other expenses	35,439		5,483		20,373			—			61,295
Depreciation & amortization	4,998		2,503		1,771			—			9,272

Income (loss) from operations	35,020		7,453		(22,144		)	—			20,329
Interest expense, net	6,456		3,247		(2,386		)	—			7,317
Loss on extinguishment of debt	—		—		—			—			—
Non-service defined benefit plan expense	—		—		176			—			176

Income (loss) before income taxes	28,564		4,206		(19,934		)	—			12,836
Benefit for income taxes	—		—		(92		)	—			(92		)

Net income (loss)	$	28,564	$	4,206	$	(19,842	)	$	—		$	12,928

(in thousands)	Patient Care		Products & Services		Corporate & Other			Consolidating Adjustments			Total
Three Months Ended June 30, 2017
Net revenue
Third Party	$	216,221	$	47,165	$	—		$	—		$	263,386
Intersegments	—		45,169		—			(45,169		)	—

Total net revenue	216,221		92,334		—			(45,169		)	263,386
Material costs
Third party suppliers	58,322		25,335		—			—			83,657
Intersegments	5,923		39,246		—			(45,169		)	—

Total material costs	64,245		64,581		—			(45,169		)	83,657
Personnel expenses	75,906		11,925		—			—			87,831
Other expenses	35,546		6,061		24,002			—			65,609
Depreciation & amortization	5,370		2,592		1,863			—			9,825

Income (loss) from operations	35,154		7,175		(25,865		)	—			16,464
Interest expense, net	8,124		3,300		2,667			—			14,091
Loss on extinguishment of debt	—		—		—			—			—
Non-service defined benefit plan expense	—		—		184			—			184

Income (loss) before income taxes	27,030		3,875		(28,716		)	—			2,189
Provision for income taxes	—		—		552			—			552

Net income (loss)	$	27,030	$	3,875	$	(29,268	)	$	—		$	1,637

(in thousands)	Patient Care		Products & Services		Corporate & Other			Consolidating Adjustments			Total
Six Months Ended June 30, 2018
Net revenue
Third party	$	406,665	$	94,296	$	—		$	—		$	500,961
Intersegments	—		92,357		—			(92,357		)	—

Total net revenue	406,665		186,653		—			(92,357		)	500,961
Material costs											—
Third party suppliers	112,164		50,708		—			—			162,872
Intersegments	11,644		80,713		—			(92,357		)	—

Total material costs	123,808		131,421		—			(92,357		)	162,872
Personnel expenses	150,405		25,257		—			—			175,662
Other expenses	70,443		11,638		40,792			—			122,873
Depreciation & amortization	9,896		5,005		3,701			—			18,602

Income (loss) from operations	52,113		13,332		(44,493		)	—			20,952
Interest expense, net	14,445		6,512		(1,377		)	—			19,580
Loss on extinguishment of debt	—		—		16,998			—			16,998
Non-service defined benefit plan expense	—		—		352			—			352

Income (loss) before income taxes	37,668		6,820		(60,466		)	—			(15,978		)
Benefit for income taxes	—		—		(6,288		)	—			(6,288		)

Net income (loss)	$	37,668	$	6,820	$	(54,178	)	$	—		$	(9,690	)

(in thousands)	Patient Care		Products & Services		Corporate & Other			Consolidating Adjustments			Total
Six Months Ended June 30, 2017
Net revenue
Third Party	$	403,858	$	93,209	$	—		$	—		$	497,067
Intersegments	—		86,369		—			(86,369		)	—

Total net revenue	403,858		179,578		—			(86,369		)	497,067
Material costs											—
Third party suppliers	108,933		49,129		—			—			158,062
Intersegments	11,745		74,624		—			(86,369		)	—

Total material costs	120,678		123,753		—			(86,369		)	158,062
Personnel expenses	151,421		24,365		—			—			175,786
Other expenses	71,262		12,955		52,117			—			136,334
Depreciation & amortization	10,799		5,262		3,901			—			19,962

Income (loss) from operations	49,698		13,243		(56,018		)	—			6,923
Interest expense, net	16,286		6,633		5,181			—			28,100
Loss on extinguishment of debt	—		—		—			—			—
Non-service defined benefit plan expense	—		—		368			—			368

Income (loss) before income taxes	33,412		6,610		(61,567		)	—			(21,545		)
Benefit for income taxes	—		—		(5,448		)	—			(5,448		)

Net income (loss)	$	33,412	$	6,610	$	(56,119	)	$	—		$	(16,097	)