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, 2017
Managed care and other revenue	$	755,270	$	66,659	$	(230)	$	821,699
PBM revenue		—		631,932		(34,492)		597,440
Cost of care		(583,264)		—		—		(583,264)
Cost of goods sold		—		(595,446)		33,091		(562,355)
Direct service costs and other		(145,914)		(74,953)		(10,505)		(231,372)
Stock compensation expense (1)		3,106		5,684		2,581		11,371
Changes in fair value of contingent consideration (1)		252		—		—		252
Less: non-controlling interest segment loss (2)		(568)		—		(1)		(569)
Segment profit (loss)	$	30,018	$	33,876	$	(9,554)	$	54,340


					Corporate
			Pharmacy		and
	Healthcare		Management		Elimination		Consolidated
Three Months Ended June 30, 2018
Managed care and other revenue	$	1,154,888	$	60,603	$	(151)	$	1,215,340
PBM revenue		—		642,794		(47,211)		595,583
Cost of care		(935,814)		—		—		(935,814)
Cost of goods sold		—		(603,951)		45,532		(558,419)
Direct service costs and other		(177,990)		(70,941)		(10,221)		(259,152)
Stock compensation expense (1)		2,742		1,408		6,289		10,439
Changes in fair value of contingent consideration (1)		70		—		—		70
Segment profit (loss)	$	43,896	$	29,913	$	(5,762)	$	68,047


					Corporate
			Pharmacy		and
	Healthcare		Management		Elimination		Consolidated
Six Months Ended June 30, 2017
Managed care and other revenue	$	1,420,646	$	130,839	$	(446)	$	1,551,039
PBM revenue		—		1,238,678		(64,955)		1,173,723
Cost of care		(1,065,318)		—		—		(1,065,318)
Cost of goods sold		—		(1,167,283)		62,295		(1,104,988)
Direct service costs and other		(284,882)		(150,806)		(17,170)		(452,858)
Stock compensation expense (1)		5,765		11,414		4,332		21,511
Changes in fair value of contingent consideration (1)		203		—		—		203
Less: non-controlling interest segment profit (loss) (2)		(845)		—		(2)		(847)
Segment profit (loss)	$	77,259	$	62,842	$	(15,942)	$	124,159


					Corporate
			Pharmacy		and
	Healthcare		Management		Elimination		Consolidated
Six Months Ended June 30, 2018
Managed care and other revenue	$	2,312,489	$	122,910	$	(296)	$	2,435,103
PBM revenue		—		1,274,992		(94,095)		1,180,897
Cost of care		(1,864,475)		—		—		(1,864,475)
Cost of goods sold		—		(1,208,864)		90,780		(1,118,084)
Direct service costs and other		(364,236)		(146,527)		(17,466)		(528,229)
Stock compensation expense (1)		5,692		2,893		9,500		18,085
Changes in fair value of contingent consideration (1)		303		—		—		303
Segment profit (loss)	$	89,773	$	45,404	$	(11,577)	$	123,600

(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				Six Months Ended
	June 30,				June 30,
	2017		2018		2017		2018
Income before income taxes	$	10,588	$	18,375	$	39,863	$	29,752
Stock compensation expense		11,371		10,439		21,511		18,085
Changes in fair value of contingent consideration		252		70		203		303
Non-controlling interest segment loss		569		—		847		—
Depreciation and amortization		27,731		33,848		54,707		64,255
Interest expense		4,900		8,678		9,048		17,044
Interest and other income		(1,071)		(3,363)		(2,020)		(5,839)
Segment Profit	$	54,340	$	68,047	$	124,159	$	123,600