Note S — 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 our owned and operated patient care clinics. 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, health management organizations (“HMOs”), preferred provider organizations (“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 persons aged 65 or older in financial need; 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 A - “Organization and Summary of Significant Accounting Policies” in our 2018 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, 2018.


	Patient Care				Products & Services
	For the Three Months Ended				For the Three Months Ended
	June 30,				June 30,
(in thousands)	2019		2018		2019		2018
Net revenues
Third party	$	231,168	$	218,158	$	49,930	$	48,808
Intersegments		—		—		51,696		49,835
Total net revenues		231,168		218,158		101,626		98,643
Material costs
Third party suppliers		62,948		59,989		28,451		26,527
Intersegments		6,189		5,920		45,507		43,915
Total material costs		69,137		65,909		73,958		70,442
Personnel expenses		78,419		76,792		13,071		12,762
Other expenses		37,336		35,439		7,077		5,483
Depreciation & amortization		4,502		4,998		2,596		2,503
Segment income from operations	$	41,774	$	35,020	$	4,924	$	7,453


	Patient Care				Products & Services
	For the Six Months Ended				For the Six Months Ended
	June 30,				June 30,
(in thousands)	2019		2018		2019		2018
Net revenues
Third party	$	421,769	$	406,665	$	95,748	$	94,296
Intersegments		—		—		96,575		92,357
Total net revenues		421,769		406,665		192,323		186,653
Material costs
Third party suppliers		116,303		112,164		53,473		50,708
Intersegments		11,984		11,644		84,591		80,713
Total material costs		128,287		123,808		138,064		131,421
Personnel expenses		152,128		150,405		26,073		25,257
Other expenses		74,769		70,443		14,025		11,638
Depreciation & amortization		9,054		9,896		5,139		5,005
Segment income from operations	$	57,531	$	52,113	$	9,022	$	13,332

A reconciliation of the total of the reportable segments’ income from operations to consolidated net income (loss) is as follows:


	For the Three Months Ended				For the Six Months Ended
	June 30,				June 30,
(in thousands)	2019		2018		2019		2018
Income from operations:
Patient Care	$	41,774	$	35,020	$	57,531	$	52,113
Products & Services		4,924		7,453		9,022		13,332
Corporate & other		(23,595)		(22,144)		(45,429)		(44,493)
Income from operations		23,103		20,329		21,124		20,952
Interest expense, net		8,481		7,317		17,019		19,580
Loss on extinguishment of debt		—		—		—		16,998
Non-service defined benefit plan expense		173		176		346		352
Income (loss) before income taxes		14,449		12,836		3,759		(15,978)
Provision (benefit) for income taxes		4,414		(92)		675		(6,288)
Net income (loss)	$	10,035	$	12,928	$	3,084	$	(9,690)

A reconciliation of the reportable segment net revenues to consolidated net revenues is as follows:


	For the Three Months Ended				For the Six Months Ended
	June 30,				June 30,
(in thousands)	2019		2018		2019		2018
Net revenues
Patient Care	$	231,168	$	218,158	$	421,769	$	406,665
Products & Services		101,626		98,643		192,323		186,653
Corporate & other		—		—		—		—
Consolidating adjustments		(51,696)		(49,835)		(96,575)		(92,357)
Consolidated net revenues	$	281,098	$	266,966	$	517,517	$	500,961

A reconciliation of the reportable segment material costs to consolidated material costs is as follows:


	For the Three Months Ended				For the Six Months Ended
	June 30,				June 30,
(in thousands)	2019		2018		2019		2018
Material costs
Patient Care	$	69,137	$	65,909	$	128,287	$	123,808
Products & Services		73,958		70,442		138,064		131,421
Corporate & other		—		—		—		—
Consolidating adjustments		(51,696)		(49,835)		(96,575)		(92,357)
Consolidated material costs	$	91,399	$	86,516	$	169,776	$	162,872