SEGMENT AND RELATED INFORMATION

12 Months Ended

Dec. 31, 2014

SEGMENT AND RELATED INFORMATION

SEGMENT AND RELATED INFORMATION

NOTE S - 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, Dosteon, and CARES, and (ii) its contracting and network management business.  Dosteon is being presented as a discontinued operation and has therefore been excluded from the summarized financial information below. See Note T - “Discontinued Operations” for further information regarding the discontinuance of this 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 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.

The Company’s 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.  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.

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 rehabilitation solutions business.  Rehabilitation solutions 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 C - “Significant Accounting Policies”.

Summarized financial information concerning the Company’s 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 or EBITDA.  Dosteon’s discontinued operations have been removed from the Patient Care segment for all periods presented, see Note T - “Discontinued Operations” for further discussion.

Intersegment revenue primarily include sales of O&P components from the Products & Services segment to the Patient Care segment and were made at prices which the Company believes approximate market values.  The Company’s foreign and export sales and assets located outside of the United States of America are not significant.

For the Patient Care segment, net revenues generated directly from Medicare program represented approximately 29%, 31% and 29% of the Company’s net revenues for the years ended December 31, 2014, 2013, and 2012, respectively.

Additionally, for the Products & Services segment, no single customer accounted for more than 10% of net revenues in 2014, 2013 or 2012, respectively.

(in thousands)	Patient Care		Products &  Services		Corporate & Other			Consolidating Adjustments			Total
2014
Net revenue
Third Party	$	837,080	$	175,020	$	—		$	—		$	1,012,100
Intersegments	—		183,640		—			(183,640		)	—
Total net revenue	837,080		358,660		—			(183,640		)	1,012,100
Material costs
Third party suppliers	240,685		83,599		—			—			324,284
Intersegments	40,591		143,049		—			(183,640		)	—
Total material costs	281,276		226,648		—			(183,640		)	324,284
Personnel costs	305,651		47,935		—			—			353,586
Other expenses	152,176		27,721		88,124			—			268,021
Depreciation and amortization	18,769		12,022		8,138			—			38,929
Income from continuing operations	79,208		44,334		(96,262		)	—			27,280
Interest expense (income)	33,465		13,079		(18,267		)	—			28,277
Income (loss) from continuing operations before income taxes	45,743		31,255		(77,995		)	—			(997		)
Provision for income taxes	—		—		2,023			—			2,023
Net income (loss) from continuing operations	$	45,743	$	31,255	$	(80,018	)	$	—		$	(3,020	)
EBITDA	97,977		56,356		(88,124		)	—			66,209
Total assets	848,051		262,721		191,533			—			1,302,305
Capital expenditures	14,067		1,305		11,724			—			27,096

(in thousands)	Patient Care		Products &  Services		Corporate & Other			Consolidating Adjustments			Total
2013 (As Restated)
Net revenue
Third Party	$	803,180	$	172,589	$	—		$	—		$	975,769
Intersegments	—		222,899		—			(222,899		)	—
Total net revenue	803,180		395,488		—			(222,899		)	975,769
Material costs
Third party suppliers	226,646		75,357		—			—			302,003
Intersegments	37,914		184,985		—			(222,899		)	—
Total material costs	264,560		260,342		—			(222,899		)	302,003
Personnel costs	279,089		46,691		—			—			325,780
Other expenses	129,090		25,660		45,496			—			200,246
Depreciation and amortization	14,468		12,548		7,169			—			34,185
Income from continuing operations	115,973		50,247		(52,665		)	—			113,555
Interest expense (income)	33,198		14,470		(17,092		)	—			30,576
Extinguishment of debt	—		—		6,645			—			6,645
Income from continuing operations before income taxes	82,775		35,777		(42,218		)	—			76,334
Provision for income taxes	—		—		30,455			—			30,455
Net income from continuing operations	$	82,775	$	35,777	$	(72,673	)	$	—		$	45,879
EBITDA	130,441		62,795		(45,496		)	—			147,740
Total assets	805,248		259,955		149,785			—			1,214,988
Capital expenditures	10,821		535		14,551			—			25,907

(in thousands)	Patient Care		Products &  Services		Corporate & Other			Consolidating Adjustments			Total
2012 (As Restated)
Net revenue
Third Party	$	752,425	$	171,096	$	—		$	—		$	923,521
Intersegments	—		208,823		—			(208,823		)	—
Total net revenue	752,425		379,919		—			(208,823		)	923,521
Material costs
Third party suppliers	205,538		80,335		—			—			285,873
Intersegments	35,933		172,890		—			(208,823		)	—
Total material costs	241,471		253,225		—			(208,823		)	285,873
Personnel costs	252,568		46,436		—			—			299,004
Other expenses	120,934		28,292		47,744			—			196,970
Depreciation and amortization	13,030		12,688		6,871			—			32,589
Income from continuing operations	124,422		39,278		(54,615		)	—			109,085
Interest expense (income)	32,476		9,325		(7,181		)	—			34,620
Income from continuing operations before income taxes	91,946		29,953		(47,434		)	—			74,465
Provision for income taxes	—		—		26,206			—			26,206
Net income from continuing operations	$	91,946	$	29,953	$	(73,640	)	$	—		$	48,259
EBITDA	137,452		51,966		(47,744		)	—			141,674
Total assets	794,698		258,915		147,675			—			1,201,288
Capital expenditures	7,460		2,745		14,298			—			24,503