Business Segment Information

3 Months Ended

Mar. 31, 2017

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 in Note A—“General”.

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

					Corporate
			Pharmacy		and
	Healthcare		Management		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		(125,617)		(60,841)		(5,998)		(192,456)
Stock compensation expense (1)		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

					Corporate
			Pharmacy		and
	Healthcare		Management		Elimination		Consolidated
Three Months Ended March 31, 2017
Managed care and other revenue	$	665,376	$	64,180	$	(216)	$	729,340
PBM and dispensing revenue		—		606,746		(30,463)		576,283
Cost of care		(482,054)		—		—		(482,054)
Cost of goods sold		—		(571,837)		29,204		(542,633)
Direct service costs and other		(138,968)		(75,853)		(6,665)		(221,486)
Stock compensation expense (1)		2,659		5,730		1,751		10,140
Changes in fair value of contingent consideration (1)		(49)		—		—		(49)
Less: non-controlling interest segment profit (loss) (2)		(277)		—		(1)		(278)
Segment profit (loss)	$	47,241	$	28,966	$	(6,388)	$	69,819

(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, 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 income before income taxes to Segment Profit (in thousands):

	Three Months Ended
	March 31,
	2016		2017
Income before income taxes	$	25,404	$	29,275
Stock compensation expense		8,887		10,140
Changes in fair value of contingent consideration		(266)		(49)
Non-controlling interest segment profit (loss)		(165)		278
Depreciation and amortization		25,007		26,976
Interest expense		1,748		4,148
Interest and other income		(683)		(949)
Segment Profit	$	59,932	$	69,819