Business Segment Information

3 Months Ended

Mar. 31, 2015

Business Segment Information

Business Segment Information

NOTE C—Business Segment Information

        The accounting policies of the Company's segments are the same as those described in Note 1—"General." The Company evaluates performance of its segments based on profit or loss from operations before stock compensation expense, depreciation and amortization, interest expense, interest and other income, changes in the fair value of contingent consideration recorded in relation to acquisitions, gain on sale of assets, special charges or benefits, and income taxes ("Segment Profit"). Management uses Segment Profit information for internal reporting and control purposes and considers it important in making decisions regarding the allocation of capital and other resources, risk assessment and employee compensation, among other matters. Public Sector subcontracts with Pharmacy Management and Specialty Solutions to provide pharmacy benefits management services and radiology benefits management services for certain of Public Sector's customers. In addition, Pharmacy Management provides pharmacy benefits management for the Company's employees covered under its medical plan. As such, revenue, cost of care, cost of goods sold and direct service costs and other related to these arrangements are eliminated. The Company's segments are defined above.

        The following tables summarize, for the periods indicated, operating results by business segment (in thousands):

	Commercial			Public Sector			Specialty Solutions			Pharmacy Management			Corporate and Elimination			Consolidated
Three Months Ended March 31, 2014
Managed care and other revenue	$	188,891		$	497,943		$	105,434		$	55,378		$	(18,055	)	$	829,591
PBM and dispensing revenue		—			—			—			139,624			(2,740	)		136,884
Cost of care		(111,202	)		(422,518	)		(73,652	)		(16,391	)		18,055			(605,708	)
Cost of goods sold		—			—			—			(128,031	)		2,733			(125,298	)
Direct service costs and other		(40,276	)		(42,958	)		(15,141	)		(35,551	)		(30,796	)		(164,722	)
Stock compensation expense(1)		155			274			414			303			3,326			4,472
Less: non-controlling interest segment profit (loss)(2)		—			(1,330	)		—			—			—			(1,330	)
Segment profit (loss)	$	37,568		$	34,071		$	17,055		$	15,332		$	(27,477	)	$	76,549

	Commercial			Public Sector			Specialty Solutions			Pharmacy Management			Corporate and Elimination			Consolidated
Three Months Ended March 31, 2015
Managed care and other revenue	$	152,525		$	422,977		$	124,342		$	49,068		$	(262	)	$	748,650
PBM and dispensing revenue		—			—			—			258,793			(26,475	)		232,318
Cost of care		(82,130	)		(346,930	)		(93,273	)		5			—			(522,328	)
Cost of goods sold		—			—			—			(243,538	)		25,331			(218,207	)
Direct service costs and other		(39,210	)		(51,387	)		(20,174	)		(63,548	)		(30,131	)		(204,450	)
Stock compensation expense(1)		171			309			509			8,856			4,056			13,901
Changes in fair value of contingent consideration		100									14,869						14,969
Less: non-controlling interest segment profit (loss)(2)		—			(120	)		—			—			26			(94	)
Segment profit (loss)	$	31,456		$	25,089		$	11,404		$	24,505		$	(27,507	)	$	64,947

(1)	Stock compensation expense and changes in the fair value of contingent consideration recorded in relation to the acquisitions are included in direct service costs and other operating expenses, however this amount is excluded from the computation of Segment Profit.
(2)	The non-controlling portion of AlphaCare's segment profit (loss) is excluded from the computation of Segment Profit.

        The following table reconciles Segment Profit to income before income taxes (in thousands):

	Three Months Ended March 31,
	2014			2015
Segment profit	$	76,549		$	64,947
Stock compensation expense		(4,472	)		(13,901	)
Changes in fair value of contingent consideration		—			(14,969	)
Non-controlling interest segment profit (loss)		(1,330	)		(94	)
Depreciation and amortization		(20,229	)		(23,496	)
Interest expense		(836	)		(1,626	)
Interest income		311			466
Income before income taxes	$	49,993		$	11,327