Business Segment Information

6 Months Ended

Jun. 30, 2014

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 segment profit attributable to Magellan shareholders, which is defined as income before taxes, excluding stock compensation expense, non-controlling interest segment profit (loss), depreciation and amortization, interest expense, interest income, gain on sale of assets, and special charges or benefits ("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 to provide pharmacy 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, 2013
Managed care and other revenue	$	199,538		$	414,859		$	92,715		$	55,829		$	(16,221	)	$	746,720
PBM and dispensing revenue		—			—			—			96,028			—			96,028
Cost of care		(123,227	)		(357,402	)		(58,742	)		(14,480	)		16,221			(537,630	)
Cost of goods sold		—			—			—			(90,175	)		—			(90,175	)
Direct service costs and other		(41,399	)		(28,934	)		(13,863	)		(31,374	)		(28,927	)		(144,497	)
Stock compensation expense(1)		133			267			457			380			3,365			4,602
Segment profit (loss)	$	35,045		$	28,790		$	20,567		$	16,208		$	(25,562	)	$	75,048

	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
Six Months Ended June 30, 2013
Managed care and other revenue	$	387,375		$	821,479		$	182,993		$	108,928		$	(31,466	)	$	1,469,309
PBM and dispensing revenue		—			—			—			195,200			—			195,200
Cost of care		(236,498	)		(712,781	)		(116,809	)		(28,035	)		31,466			(1,062,657	)
Cost of goods sold		—			—			—			(183,687	)		—			(183,687	)
Direct service costs and other		(82,791	)		(54,577	)		(27,234	)		(60,935	)		(58,587	)		(284,124	)
Stock compensation expense(1)		266			574			891			700			7,809			10,240
Segment profit (loss)	$	68,352		$	54,695		$	39,841		$	32,171		$	(50,778	)	$	144,281

	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

(1)

Stock compensation expense is included in direct service costs and other operating expenses, however this amount is excluded from the computation of Segment Profit since it is managed on a consolidated basis.

(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,
	2013			2014			2013			2014
Segment profit	$	75,048		$	44,995		$	144,281		$	121,544
Stock compensation expense		(4,602	)		(9,550	)		(10,240	)		(14,022	)
Non-controlling interest segment profit (loss)		—			(648	)		—			(1,978	)
Depreciation and amortization		(16,946	)		(22,480	)		(33,116	)		(42,709	)
Interest expense		(792	)		(2,004	)		(1,402	)		(2,840	)
Interest income		358			275			711			586
Income before income taxes	$	53,066		$	10,588		$	100,234		$	60,581

        The following tables summarize those assets that are used in the operations of each segment. The remainder of the Company's assets cannot be specifically identified by segment (in thousands):

	Commercial		Public Sector		Specialty Solutions		Pharmacy Management		Corporate and Elimination		Consolidated
Year Ended December 31, 2013
Restricted cash	$	25,107	$	196,651	$	—	$	—	$	14,938	$	236,696
Net accounts receivable		50,407		62,977		7,368		115,527		1,906		238,185
Investments		16,491		92,966		—		—		98,856		208,313
Pharmaceutical inventory		—		—		—		49,609		—		49,609
Goodwill		120,485		20,882		104,549		242,290		—		488,206
Other intangible assets, net		3,513		4,590		3,686		57,905		—		69,694

	Commercial		Public Sector		Specialty Solutions		Pharmacy Management		Corporate and Elimination		Consolidated
Six Months Ended June 30, 2014
Restricted cash	$	11,630	$	148,316	$	—	$	—	$	7,367	$	167,313
Net accounts receivable		52,625		71,993		9,839		160,916		6,496		301,869
Investments		35,838		129,575		—		—		5,942		171,355
Pharmaceutical inventory		—		—		—		44,277		—		44,277
Goodwill		120,485		20,879		104,549		311,512		—		557,425
Other intangible assets, net		2,772		6,831		3,012		134,370		—		146,985