Business Segment Information

6 Months Ended

Jun. 30, 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 June 30, 2014
Managed care and other revenue	$	198,025		$	319,954		$	119,326		$	44,969		$	—		$	682,274
PBM and dispensing revenue		—			—			—			209,265			(3,525	)		205,740
Cost of care		(116,852	)		(275,108	)		(89,753	)		96			—			(481,617	)
Cost of goods sold		—			—			—			(196,080	)		3,514			(192,566	)
Direct service costs and other		(42,530	)		(45,391	)		(17,897	)		(41,605	)		(31,611	)		(179,034	)
Stock compensation expense(1)		157			230			354			5,556			3,253			9,550
Less: non-controlling interest segment profit (loss)(2)		—			(648	)		—			—			—			(648	)
Segment profit (loss)	$	38,800		$	333		$	12,030		$	22,201		$	(28,369	)	$	44,995

	Commercial			Public Sector			Specialty Solutions			Pharmacy Management			Corporate and Elimination			Consolidated
Three Months Ended June 30, 2015
Managed care and other revenue	$	150,658		$	439,858		$	132,227		$	53,782		$	(285	)	$	776,240
PBM and dispensing revenue		—			—			—			408,924			(27,557	)		381,367
Cost of care		(88,200	)		(380,580	)		(99,508	)		—			—			(568,288	)
Cost of goods sold		—			—			—			(387,828	)		26,419			(361,409	)
Direct service costs and other		(37,915	)		(49,944	)		(19,913	)		(56,430	)		(27,253	)		(191,455	)
Stock compensation expense(1)		233			240			21			10,016			3,285			13,795
Changes in fair value of contingent consideration(1)		71			—			—			2,496			—			2,567
Less: non-controlling interest segment profit (loss)(2)		—			(273	)		—			—			(77	)		(350	)
Segment profit (loss)	$	24,847		$	9,847		$	12,827		$	30,960		$	(25,314	)	$	53,167

	Commercial			Public Sector			Specialty Solutions			Pharmacy Management			Corporate and Elimination			Consolidated
Six Months Ended June 30, 2014
Managed care and other revenue	$	386,916		$	817,897		$	224,760		$	100,347		$	(18,055	)	$	1,511,865
PBM and dispensing revenue		—			—			—			348,889			(6,265	)		342,624
Cost of care		(228,054	)		(697,626	)		(163,405	)		(16,295	)		18,055			(1,087,325	)
Cost of goods sold		—			—			—			(324,111	)		6,247			(317,864	)
Direct service costs and other		(82,806	)		(88,349	)		(33,038	)		(77,156	)		(62,407	)		(343,756	)
Stock compensation expense(1)		312			504			768			5,859			6,579			14,022
Less: non-controlling interest segment profit (loss)(2)		—			(1,978	)		—			—			—			(1,978	)
Segment profit (loss)	$	76,368		$	34,404		$	29,085		$	37,533		$	(55,846	)	$	121,544

	Commercial			Public Sector			Specialty Solutions			Pharmacy Management			Corporate and Elimination			Consolidated
Six Months Ended June 30, 2015
Managed care and other revenue	$	303,183		$	862,835		$	256,569		$	102,850		$	(547	)	$	1,524,890
PBM and dispensing revenue		—			—			—			667,717			(54,032	)		613,685
Cost of care		(170,330	)		(727,510	)		(192,781	)		5			—			(1,090,616	)
Cost of goods sold		—			—			—			(631,366	)		51,750			(579,616	)
Direct service costs and other		(77,125	)		(101,331	)		(40,087	)		(119,978	)		(57,384	)		(395,905	)
Stock compensation expense(1)		404			549			530			18,872			7,341			27,696
Changes in fair value of contingent consideration(1)		171			—			—			17,365			—			17,536
Less: non-controlling interest segment profit (loss)(2)		—			(393	)		—			—			(51	)		(444	)
Segment profit (loss)	$	56,303		$	34,936		$	24,231		$	55,465		$	(52,821	)	$	118,114

(1)	Stock compensation expense, as well as 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, these amounts are 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 June 30,						Six Months Ended June 30,
	2014			2015			2014			2015
Segment profit	$	44,995		$	53,167		$	121,544		$	118,114
Stock compensation expense		(9,550	)		(13,795	)		(14,022	)		(27,696	)
Changes in fair value of contingent consideration		—			(2,567	)		—			(17,536	)
Non-controlling interest segment profit (loss)		(648	)		(350	)		(1,978	)		(444	)
Depreciation and amortization		(22,480	)		(25,022	)		(42,709	)		(48,518	)
Interest expense		(2,004	)		(1,653	)		(2,840	)		(3,279	)
Interest income		275			500			586			966
Income before income taxes	$	10,588		$	10,280		$	60,581		$	21,607