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, 2017
Managed care and other revenue	$	665,376	$	64,180	$	(216)	$	729,340
PBM 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 loss (2)		(277)		—		(1)		(278)
Segment profit (loss)	$	47,241	$	28,966	$	(6,388)	$	69,819


					Corporate
			Pharmacy		and
	Healthcare		Management		Elimination		Consolidated
Three Months Ended March 31, 2018
Managed care and other revenue	$	1,157,601	$	62,307	$	(145)	$	1,219,763
PBM revenue		—		632,198		(46,884)		585,314
Cost of care		(928,661)		—		—		(928,661)
Cost of goods sold		—		(604,913)		45,248		(559,665)
Direct service costs and other		(186,246)		(75,586)		(7,245)		(269,077)
Stock compensation expense (1)		2,950		1,485		3,211		7,646
Changes in fair value of contingent consideration (1)		233		—		—		233
Segment profit (loss)	$	45,877	$	15,491	$	(5,815)	$	55,553

(1)

Stock compensation expense, changes in the fair value of contingent consideration recorded in relation to acquisitions and impairment of intangible assets 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 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,
	2017		2018
Income before income taxes	$	29,275	$	11,377
Stock compensation expense		10,140		7,646
Changes in fair value of contingent consideration		(49)		233
Non-controlling interest segment loss		278		—
Depreciation and amortization		26,976		30,407
Interest expense		4,148		8,366
Interest and other income		(949)		(2,476)
Segment Profit	$	69,819	$	55,553