Business Segment Information

6 Months Ended

Jun. 30, 2020

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 June 30, 2019
Managed care and other revenue	$	546,113	$	62,648	$	(147)	$	608,614
PBM revenue		—		550,010		(4,335)		545,675
Cost of care		(408,911)		—		—		(408,911)
Cost of goods sold		—		(505,203)		4,122		(501,081)
Direct service costs and other		(98,314)		(78,776)		(18,817)		(195,907)
Stock compensation expense (1)		2,237		2,124		846		5,207
Segment Profit (Loss)	$	41,125	$	30,803	$	(18,331)	$	53,597

					Corporate
			Pharmacy		and
	Healthcare		Management		Elimination		Consolidated
Three Months Ended June 30, 2020
Managed care and other revenue	$	481,021	$	67,867	$	(177)	$	548,711
PBM revenue		—		556,195		(4,831)		551,364
Cost of care		(321,831)		—		—		(321,831)
Cost of goods sold		—		(532,685)		4,618		(528,067)
Direct service costs and other		(100,450)		(80,082)		(19,224)		(199,756)
Stock compensation expense (1)		2,102		1,939		2,551		6,592
Segment Profit (Loss)	$	60,842	$	13,234	$	(17,063)	$	57,013

					Corporate
			Pharmacy		and
	Healthcare		Management		Elimination		Consolidated
Six Months Ended June 30, 2019
Managed care and other revenue	$	1,052,935	$	122,543	$	(316)	$	1,175,162
PBM revenue		—		1,106,575		(8,442)		1,098,133
Cost of care		(778,008)		—		—		(778,008)
Cost of goods sold		—		(1,035,410)		8,015		(1,027,395)
Direct service costs and other (1)		(198,424)		(158,411)		(41,372)		(398,207)
Stock compensation expense (1)		3,780		3,796		7,031		14,607
Segment Profit (Loss)	$	80,283	$	39,093	$	(35,084)	$	84,292

					Corporate
			Pharmacy		and
	Healthcare		Management		Elimination		Consolidated
Six Months Ended June 30, 2020
Managed care and other revenue	$	969,927	$	132,302	$	(350)	$	1,101,879
PBM revenue		—		1,129,973		(9,398)		1,120,575
Cost of care		(670,939)		—		—		(670,939)
Cost of goods sold		—		(1,070,259)		8,951		(1,061,308)
Direct service costs and other (1)		(206,386)		(161,948)		(35,663)		(403,997)
Stock compensation expense (1)		3,863		4,046		4,480		12,389
Segment Profit (Loss)	$	96,465	$	34,114	$	(31,980)	$	98,599

(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.

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

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2019		2020		2019		2020
Income from continuing operations before income taxes	$	12,950	$	10,780	$	1,550	$	15,472
Stock compensation expense		5,207		6,592		14,607		12,389
Depreciation and amortization		28,191		23,888		53,608		47,246
Interest expense		9,070		7,995		18,107		16,953
Interest and other income		(1,821)		(551)		(3,580)		(1,770)
Special charges		—		8,309		—		8,309
Segment Profit from continuing operations	$	53,597	$	57,013	$	84,292	$	98,599