Business Segment Information

3 Months Ended

Mar. 31, 2016

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 A—"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. Healthcare subcontracts with Pharmacy Management to provide pharmacy benefits management services for certain of Healthcare'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 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):

	Healthcare			Pharmacy Management			Corporate and Elimination			Consolidated
Three Months Ended March 31, 2015
Managed care and other revenue	$	699,593		$	49,068		$	(11	)	$	748,650
PBM and dispensing revenue		—			258,793			(26,475	)		232,318
Cost of care		(522,333	)		5			—			(522,328	)
Cost of goods sold		—			(243,538	)		25,331			(218,207	)
Direct service costs and other(3)		(128,468	)		(68,233	)		(7,749	)		(204,450	)
Stock compensation expense(1)(3)		3,188			9,405			1,308			13,901
Changes in fair value of contingent consideration(1)		100			14,869			—			14,969
Less: non-controlling interest segment (loss) profit(2)		(120	)		—			26			(94	)
Segment profit (loss)	$	52,200		$	20,369		$	(7,622	)	$	64,947

	Healthcare			Pharmacy Management			Corporate and Elimination			Consolidated
Three Months Ended March 31, 2016
Managed care and other revenue	$	618,928		$	57,577		$	(44	)	$	676,461
PBM and dispensing revenue		—			470,234			(29,673	)		440,561
Cost of care		(457,631	)		—			—			(457,631	)
Cost of goods sold		—			(443,949	)		28,490			(415,459	)
Direct service costs and other(3)		(125,617	)		(60,841	)		(5,998	)		(192,456	)
Stock compensation expense(1)(3)		2,019			5,422			1,446			8,887
Changes in fair value of contingent consideration(1)		(320	)		54			—			(266	)
Less: non-controlling interest segment profit (loss)(2)		169			—			(4	)		165
Segment profit (loss)	$	37,210		$	28,497		$	(5,775	)	$	59,932

(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.
(3)	Effective January 1, 2016 the Company implemented changes related to the allocation of Corporate operational and support functions. These changes were applied retrospectively. The following tables summarize, for the periods indicated, the changes by business segment (in thousands):

	Healthcare			Pharmacy Management			Corporate and Elimination			Consolidated
Three Months Ended March 31, 2015
Segment profit (loss) before Corporate allocations	$	67,948		$	24,505		$	(27,506	)	$	64,947
Allocated Corporate costs		(17,947	)		(4,685	)		22,632			—
Allocated Corporate stock compensation expense		2,199			549			(2,748	)		—
Segment profit (loss)	$	52,200		$	20,369		$	(7,622	)	$	64,947
Three Months Ended March 31, 2016
Segment profit (loss) before Corporate allocations	$	53,527		$	32,707		$	(26,302	)	$	59,932
Allocated Corporate costs		(17,641	)		(4,541	)		22,182			—
Allocated Corporate stock compensation expense		1,324			331			(1,655	)		—
Segment profit (loss)	$	37,210		$	28,497		$	(5,775	)	$	59,932

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

	Three Months Ended March 31,
	2015			2016
Segment profit	$	64,947		$	59,932
Stock compensation expense		(13,901	)		(8,887	)
Changes in fair value of contingent consideration		(14,969	)		266
Non-controlling interest segment (loss) profit		(94	)		165
Depreciation and amortization		(23,496	)		(25,007	)
Interest expense		(1,626	)		(1,748	)
Interest income		466			683
Income before income taxes	$	11,327		$	25,404