Document_and_Entity_Informatio
Document and Entity Information | 9 Months Ended |
Sep. 30, 2013 | |
Document and Entity Information | |
Entity Registrant Name | MAGELLAN HEALTH SERVICES INC |
Entity Central Index Key | 19411 |
Document Type | 10-Q |
Document Period End Date | 30-Sep-13 |
Amendment Flag | FALSE |
Current Fiscal Year End Date | -19 |
Entity Current Reporting Status | Yes |
Entity Filer Category | Large Accelerated Filer |
Entity Common Stock, Shares Outstanding | 27,067,781 |
Document Fiscal Year Focus | 2013 |
Document Fiscal Period Focus | Q3 |
CONSOLIDATED_BALANCE_SHEETS
CONSOLIDATED BALANCE SHEETS (USD $) | Sep. 30, 2013 | Dec. 31, 2012 |
In Thousands, unless otherwise specified | ||
Current Assets: | ||
Cash and cash equivalents | $281,792 | $189,464 |
Restricted cash | 208,567 | 226,554 |
Accounts receivable, less allowance for doubtful accounts of $4,612 and $4,621 at December 31, 2012 and September 30, 2013, respectively | 157,248 | 138,253 |
Short-term investments (restricted investments of $88,332 and $139,758 at December 31, 2012 and September 30, 2013, respectively) | 212,949 | 201,127 |
Deferred income taxes | 29,546 | 31,698 |
Pharmaceutical inventory | 47,407 | 45,727 |
Other current assets (restricted deposits of $20,846 and $26,563 at December 31, 2012 and September 30, 2013, respectively) | 48,244 | 38,595 |
Total Current Assets | 985,753 | 871,418 |
Property and equipment, net | 163,552 | 136,548 |
Long-term investments (restricted investments of $32,563 and $14,747 at December 31, 2012 and September 30, 2013, respectively) | 15,629 | 32,563 |
Other long-term assets | 15,052 | 9,730 |
Goodwill | 426,939 | 426,939 |
Other intangible assets, net | 28,072 | 34,935 |
Total Assets | 1,634,997 | 1,512,133 |
Current Liabilities: | ||
Accounts payable | 15,930 | 17,081 |
Accrued liabilities | 107,190 | 100,778 |
Medical claims payable | 217,290 | 198,429 |
Other medical liabilities | 74,197 | 76,914 |
Current maturities of long-term capital lease obligations | 2,846 | |
Total Current Liabilities | 417,453 | 393,202 |
Long-term capital lease obligations | 24,167 | |
Deferred income taxes | 32,766 | 34,086 |
Tax contingencies | 32,846 | 60,697 |
Deferred credits and other long-term liabilities | 9,036 | 6,815 |
Total Liabilities | 516,268 | 494,800 |
STOCKHOLDERS' EQUITY | ||
Preferred stock, par value $.01 per share Authorized - 10,000 shares at December 31, 2012 and September 30, 2013 - Issued and outstanding - none | ||
Other Stockholders' Equity: | ||
Additional paid-in capital | 890,932 | 848,238 |
Retained earnings | 1,082,002 | 975,232 |
Accumulated other comprehensive loss | -72 | -35 |
Ordinary common stock in treasury, at cost, 18,575 and 19,531 shares at December 31, 2012 and September 30, 2013, respectively | -854,599 | -806,561 |
Total Stockholders' Equity | 1,118,729 | 1,017,333 |
Total Liabilities and Stockholders' Equity | 1,634,997 | 1,512,133 |
Ordinary common stock | ||
STOCKHOLDERS' EQUITY | ||
Common stock | 466 | 459 |
Multi-Vote common stock | ||
STOCKHOLDERS' EQUITY | ||
Common stock |
CONSOLIDATED_BALANCE_SHEETS_Pa
CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $) | Sep. 30, 2013 | Dec. 31, 2012 |
In Thousands, except Per Share data, unless otherwise specified | ||
Accounts receivable, allowance for doubtful accounts (in dollars) | $4,621 | $4,612 |
Short-term restricted investments (in dollars) | 139,758 | 88,332 |
Other current assets, restricted deposits (in dollars) | 26,563 | 20,846 |
Restricted long-term investments | $14,747 | $32,563 |
Preferred stock, par value (in dollars per share) | $0.01 | $0.01 |
Preferred stock, Authorized shares | 10,000 | 10,000 |
Preferred stock, Issued shares | 0 | 0 |
Preferred stock, outstanding shares | 0 | 0 |
Ordinary common stock in treasury, shares | 19,531 | 18,575 |
Ordinary common stock | ||
Common stock, par value (in dollars per share) | $0.01 | $0.01 |
Common stock, Authorized shares | 100,000 | 100,000 |
Common stock, Issued shares | 46,599 | 45,928 |
Common stock, outstanding shares | 27,068 | 27,353 |
Multi-Vote common stock | ||
Common stock, par value (in dollars per share) | $0.01 | $0.01 |
Common stock, Authorized shares | 40,000 | 40,000 |
Common stock, Issued shares | 0 | 0 |
Common stock, outstanding shares | 0 | 0 |
CONSOLIDATED_STATEMENTS_OF_COM
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (USD $) | 3 Months Ended | 9 Months Ended | ||||||
In Thousands, except Per Share data, unless otherwise specified | Sep. 30, 2013 | Sep. 30, 2012 | Sep. 30, 2013 | Sep. 30, 2012 | ||||
Net revenue: | ||||||||
Managed care and other | $775,957 | $711,092 | $2,255,748 | $2,114,149 | ||||
Dispensing | 97,641 | 87,345 | 282,359 | 262,974 | ||||
Total net revenue | 873,598 | 798,437 | 2,538,107 | 2,377,123 | ||||
Cost and expenses: | ||||||||
Cost of care | 570,187 | 516,238 | 1,642,944 | 1,543,361 | ||||
Cost of goods sold | 91,853 | 81,662 | 265,440 | 245,555 | ||||
Direct service costs and other operating expenses | 156,834 | [1] | 135,574 | [1] | 440,958 | [1] | 412,496 | [1] |
Depreciation and amortization | 17,654 | 15,239 | 50,770 | 45,172 | ||||
Interest expense | 789 | 537 | 2,191 | 1,713 | ||||
Interest income | -291 | -350 | -1,002 | -1,619 | ||||
Total cost and expenses | 837,026 | 748,900 | 2,401,301 | 2,246,678 | ||||
Income before income taxes | 36,572 | 49,537 | 136,806 | 130,445 | ||||
(Benefit) provision for income taxes | -10,660 | -16,725 | 30,036 | 16,420 | ||||
Net income | 47,232 | 66,262 | 106,770 | 114,025 | ||||
Net income per common share -basic (See Note B) (in dollars per share) | $1.75 | $2.41 | $3.96 | $4.17 | ||||
Net income per common share -diluted (See Note B) (in dollars per share) | $1.70 | $2.36 | $3.87 | $4.10 | ||||
Other comprehensive income: | ||||||||
Unrealized gains (losses) on available-for-sale securities | 110 | [2] | 120 | [2] | -37 | [2] | 208 | [2] |
Comprehensive income | $47,342 | $66,382 | $106,733 | $114,233 | ||||
[1] | Includes stock compensation expense of $4,468 and $4,524 for the three months ended September 30, 2012 and 2013, respectively, and $13,935 and $14,764 for the nine months ended September 30, 2012 and 2013, respectively. | |||||||
[2] | Net of income tax provision (benefit) of $78 and $74 for the three months ended September 30, 2012 and 2013, respectively, and $134 and $(25) for the nine months ended September 30, 2012 and 2013, respectively. |
CONSOLIDATED_STATEMENTS_OF_COM1
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Parenthetical) (USD $) | 3 Months Ended | 9 Months Ended | ||
In Thousands, unless otherwise specified | Sep. 30, 2013 | Sep. 30, 2012 | Sep. 30, 2013 | Sep. 30, 2012 |
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME | ||||
Stock compensation expense | $4,524 | $4,468 | $14,764 | $13,935 |
Net of income tax provision (benefit) | $74 | $78 | ($25) | $134 |
CONSOLIDATED_STATEMENTS_OF_CAS
CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $) | 9 Months Ended | |
In Thousands, unless otherwise specified | Sep. 30, 2013 | Sep. 30, 2012 |
Cash flows from operating activities: | ||
Net income | $106,770 | $114,025 |
Adjustments to reconcile net income to net cash provided by operating activities: | ||
Depreciation and amortization | 50,770 | 45,172 |
Non-cash interest expense | 552 | 544 |
Non-cash stock compensation expense | 14,764 | 13,935 |
Non-cash income tax expense (benefit) | -164 | 12,395 |
Non-cash amortization on investments | 7,273 | 5,373 |
Cash flows from changes in assets and liabilities, net of effects from acquisitions of businesses: | ||
Restricted cash | 17,987 | -59,777 |
Accounts receivable, net | -19,231 | 604 |
Pharmaceutical inventory | -1,680 | -2,002 |
Other assets | -9,781 | -4,218 |
Accounts payable and accrued liabilities | 6,685 | -17,854 |
Medical claims payable and other medical liabilities | 16,144 | 37,422 |
Tax contingencies | -22,981 | -34,616 |
Other | 4,174 | 654 |
Net cash provided by operating activities | 171,282 | 111,657 |
Cash flows from investing activities: | ||
Capital expenditures | -42,091 | -53,049 |
Purchase of investments | -235,946 | -197,525 |
Maturity of investments | 233,723 | 215,150 |
Other | -7,900 | |
Net cash used in investing activities | -52,214 | -35,424 |
Cash flows from financing activities: | ||
Payments to acquire treasury stock | -49,462 | |
Proceeds from exercise of stock options and warrants | 24,548 | 13,092 |
Payments on capital lease obligations | -2,310 | |
Other | 484 | 135 |
Net cash provided by (used in) financing activities | -26,740 | 13,227 |
Net increase in cash and cash equivalents | 92,328 | 89,460 |
Cash and cash equivalents at beginning of period | 189,464 | 119,862 |
Cash and cash equivalents at end of period | 281,792 | 209,322 |
Non-cash investing activities: | ||
Property and equipment acquired under capital leases | $29,323 |
General
General | 9 Months Ended | |||||||||||||
Sep. 30, 2013 | ||||||||||||||
General | ||||||||||||||
General | NOTE A—General | |||||||||||||
Basis of Presentation | ||||||||||||||
The accompanying unaudited consolidated financial statements of Magellan Health Services, Inc., a Delaware corporation ("Magellan"), include the accounts of Magellan, its majority owned subsidiaries, and all variable interest entities ("VIEs") for which Magellan is the primary beneficiary (together with Magellan, the "Company"). The financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the Securities and Exchange Commission's (the "SEC") instructions to Form 10-Q. Accordingly, the financial statements do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments, consisting of normal recurring adjustments considered necessary for a fair presentation, have been included. The results of operations for the three and nine months ended September 30, 2013 are not necessarily indicative of the results to be expected for the full year. All significant intercompany accounts and transactions have been eliminated in consolidation. | ||||||||||||||
The Company has evaluated subsequent events for recognition or disclosure in the consolidated financial statements filed on this Form 10-Q. Other than as described in Note E—"Subsequent Events", the Company did not have any material recognizable subsequent events during this period. | ||||||||||||||
These unaudited consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements for the year ended December 31, 2012 and the notes thereto, which are included in the Company's Annual Report on Form 10-K filed with the SEC on February 28, 2013. | ||||||||||||||
Business Overview | ||||||||||||||
The Company is engaged in the specialty managed healthcare business. Through 2005, the Company predominantly operated in the managed behavioral healthcare business. As a result of certain acquisitions, the Company expanded into radiology benefits management and specialty pharmaceutical management during 2006, and into Medicaid administration during 2009. The Company provides services to health plans, insurance companies, employers, labor unions and various governmental agencies. The Company's business is divided into the following five segments, based on the services it provides and/or the customers that it serves, as described below. | ||||||||||||||
Managed Behavioral Healthcare | ||||||||||||||
Two of the Company's segments are in the managed behavioral healthcare business. This line of business generally reflects the Company's coordination and management of the delivery of behavioral healthcare treatment services that are provided through its contracted network of third-party treatment providers, which includes psychiatrists, psychologists, other behavioral health professionals, psychiatric hospitals, general medical facilities with psychiatric beds, residential treatment centers and other treatment facilities. The treatment services provided through the Company's provider network include outpatient programs (such as counseling or therapy), intermediate care programs (such as intensive outpatient programs and partial hospitalization services), inpatient treatment and crisis intervention services. The Company generally does not directly provide or own any provider of treatment services, although it does employ licensed behavioral health counselors to deliver non-medical counseling under certain government contracts. | ||||||||||||||
The Company provides its management services primarily through: (i) risk-based products, where the Company assumes all or a substantial portion of the responsibility for the cost of providing treatment services in exchange for a fixed per member per month fee, (ii) administrative services only ("ASO") products, where the Company provides services such as utilization review, claims administration and/or provider network management, but does not assume responsibility for the cost of the treatment services, and (iii) employee assistance programs ("EAPs") where the Company provides short-term outpatient behavioral counseling services. | ||||||||||||||
The managed behavioral healthcare business is managed based on the services provided and/or the customers served, through the following two segments: | ||||||||||||||
Commercial. The Managed Behavioral Healthcare Commercial segment ("Commercial") generally reflects managed behavioral healthcare services and EAP services provided under contracts with health plans and insurance companies for some or all of their commercial, Medicaid and Medicare members, as well as with employers, including corporations, governmental agencies, and labor unions. Commercial's contracts encompass risk-based, ASO and EAP arrangements. | ||||||||||||||
Public Sector. The Managed Behavioral Healthcare Public Sector segment ("Public Sector") generally reflects the management of behavioral health services provided to recipients under Medicaid and other state sponsored programs under contracts with state and local governmental agencies. Public Sector contracts also include management services for the integrated physical, behavioral and pharmaceutical care for special populations covered under Medicaid and other government sponsored programs. Public Sector contracts encompass either risk-based or ASO arrangements. | ||||||||||||||
Radiology Benefits Management | ||||||||||||||
The Radiology Benefits Management segment ("Radiology Benefits Management") generally reflects the management of the delivery of diagnostic imaging and other therapeutic services to ensure that such services are clinically appropriate and cost effective. The Company's radiology benefits management services currently are provided under contracts with health plans and insurance companies for some or all of their commercial, Medicaid and Medicare members. The Company also contracts with state and local governmental agencies for the provision of such services to Medicaid recipients. The Company offers its radiology benefits management services through risk-based contracts, where the Company assumes all or a substantial portion of the responsibility for the cost of providing diagnostic imaging services, and through ASO contracts, where the Company provides services such as utilization review and claims administration, but does not assume responsibility for the cost of the imaging services. | ||||||||||||||
Pharmacy Solutions | ||||||||||||||
The Pharmacy Solutions segment ("Pharmacy Solutions") comprises products and solutions that provide clinical and financial management of drugs paid under medical and pharmacy benefit programs. The Company's Pharmacy Solutions services include (i) pharmacy benefit management ("PBM") programs; (ii) specialty contracting and formulary optimization programs; (iii) specialty pharmaceutical dispensing operations; (iv) medical pharmacy management programs; and (v) programs for the integrated management of drugs that treat complex conditions, regardless of site of service or benefit reimbursement. The Company's pharmacy solutions are provided under contracts with health plans, employers, Medicaid managed care organizations ("MCOs"), state Medicaid programs, and other government agencies, and encompass risk-based and fee-for-service ("FFS") arrangements. | ||||||||||||||
Beginning in the first quarter of 2013, the Company underwent organizational changes. As a result of these changes, the Company concluded that changes to its reportable segments were warranted. This segment contains the operating segments previously defined as the Specialty Pharmaceutical Management segment and the Medicaid Administration segment. Prior period balances have been reclassified to reflect this change. | ||||||||||||||
Corporate | ||||||||||||||
This segment of the Company is comprised primarily of operational support functions such as sales and marketing and information technology, as well as corporate support functions such as executive, finance, human resources and legal. | ||||||||||||||
Summary of Significant Accounting Policies | ||||||||||||||
Recent Accounting Pronouncements | ||||||||||||||
In October 2012, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2012-04, "Technical Corrections and Improvements" ("ASC 2012-04"). The amendments in this update cover a wide range of Topics in the Accounting Standards Codification. These amendments include technical corrections and improvements to the Accounting Standards Codification and conforming amendments related to fair value measurements. The amendments in this guidance that will not have transition guidance are effective upon issuance. The amendments that are subject to transition guidance are effective for fiscal periods beginning after December 15, 2012 and were adopted by the Company during the quarter ended March 31, 2013. The guidance did not impact the Company's consolidated results of operations, financial position, or cash flows. | ||||||||||||||
In February 2013, the FASB issued ASU No. 2013-02, "Comprehensive Income (Topic 220): Reporting of Amounts Reclassified out of Accumulated Comprehensive Income" ("ASU 2013-02"). ASU 2013-02 requires companies to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required under generally accepted accounting principles ("GAAP") to be reclassified in its entirety to net income. Entities are required to provide information about significant reclassifications by component, and to present those reclassifications either on the face of the statement where net income is presented or in the notes. For other amounts that are not required to be reclassified in their entirety to net income, entities are required to cross-reference other disclosures that provide additional details about those amounts. The amendments in this ASU do not change the current requirements for reporting net income or other comprehensive income in financial statements. The amendments in this ASU are effective prospectively for reporting periods beginning after December 15, 2012 and were adopted by the Company during the quarter ended March 31, 2013. The guidance did not impact the Company's consolidated results of operations, financial position, or cash flows. | ||||||||||||||
In July 2013, the FASB issued ASU No. 2013-11, "Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Carryforward Exists" ("ASU 2013-11"). ASU 2013-11 provides guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. An unrecognized tax benefit should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward with certain exceptions, in which case such an unrecognized tax benefit should be presented in the financial statements as a liability. The amendments in this ASU do not require new recurring disclosures. The amendments in this ASU are effective for reporting periods beginning after December 15, 2013. The guidance is not expected to materially impact the Company's consolidated results of operations, financial position, or cash flows. | ||||||||||||||
Use of Estimates | ||||||||||||||
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Significant estimates of the Company include, among other things, accounts receivable realization, valuation allowances for deferred tax assets, valuation of goodwill and intangible assets, medical claims payable, other medical liabilities, stock compensation assumptions, tax contingencies and legal liabilities. Actual results could differ from those estimates. | ||||||||||||||
Managed Care and Other Revenue | ||||||||||||||
Managed Care Revenue. Managed care revenue, inclusive of revenue from the Company's risk, EAP and ASO contracts, is recognized over the applicable coverage period on a per member basis for covered members. The Company is paid a per member fee for all enrolled members, and this fee is recorded as revenue in the month in which members are entitled to service. The Company adjusts its revenue for retroactive membership terminations, additions and other changes, when such adjustments are identified, with the exception of retroactivity that can be reasonably estimated. The impact of retroactive rate amendments is generally recorded in the accounting period that terms to the amendment are finalized, and that the amendment is executed. Any fees paid prior to the month of service are recorded as deferred revenue. Managed care revenues approximated $631.6 million and $1,871.4 million for the three and nine months ended September 30, 2012, respectively, and $673.6 million and $1,957.9 million for the three and nine months ended September 30, 2013, respectively. | ||||||||||||||
Fee-For-Service and Cost-Plus Contracts. The Company has certain fee-for-service contracts, including cost-plus contracts, with customers under which the Company recognizes revenue as services are performed and as costs are incurred. Revenues from these contracts approximated $33.8 million and $104.8 million for the three and nine months ended September 30, 2012, respectively, and $52.6 million and $152.9 million for the three and nine months ended September 30, 2013, respectively. | ||||||||||||||
Block Grant Revenues. Public Sector has a contract that is partially funded by federal, state and county block grant money, which represents annual appropriations. The Company recognizes revenue from block grant activity ratably over the period to which the block grant funding applies. Block grant revenues were approximately $32.6 million and $90.5 million for the three and nine months ended September 30, 2012, respectively, and $32.3 million and $96.9 million for the three and nine months ended September 30, 2013, respectively. | ||||||||||||||
Performance-Based Revenue. The Company has the ability to earn performance-based revenue under certain risk and non-risk contracts. Performance-based revenue generally is based on either the ability of the Company to manage care for its clients below specified targets, or on other operating metrics. For each such contract, the Company estimates and records performance-based revenue after considering the relevant contractual terms and the data available for the performance-based revenue calculation. Pro-rata performance-based revenue may be recognized on an interim basis pursuant to the rights and obligations of each party upon termination of the contracts. Performance-based revenues were $2.6 million and $14.5 million for the three and nine months ended September 30, 2012, respectively, and $2.7 million and $6.1 million for the three and nine months ended September 30, 2013, respectively. | ||||||||||||||
Rebate Revenue. The Company administers a rebate program for certain clients through which the Company coordinates the achievement, calculation and collection of rebates and administrative fees from pharmaceutical manufacturers on behalf of clients. Each period, the Company estimates the total rebates earned based on actual volumes of pharmaceutical purchases by the Company's clients, as well as historical and/or anticipated sharing percentages. The Company earns fees based upon the volume of rebates generated for its clients. The Company does not record as rebate revenue any rebates that are passed through to its clients. Total rebate revenues were $10.3 million and $29.3 million for the three and nine months ended September 30, 2012, respectively, and $8.8 million and $25.6 million for the three and nine months ended September 30, 2013, respectively. | ||||||||||||||
Dispensing Revenue | ||||||||||||||
The Company recognizes dispensing revenue, which includes the co-payments received from members of the health plans the Company serves, when the specialty pharmaceutical drugs are shipped. At the time of shipment, the earnings process is complete; the obligation of the Company's customer to pay for the specialty pharmaceutical drugs is fixed, and, due to the nature of the product, the member may neither return the specialty pharmaceutical drugs nor receive a refund. Revenues from the dispensing of specialty pharmaceutical drugs on behalf of health plans were $87.3 million and $263.0 million for the three and nine months ended September 30, 2012, respectively, and $97.6 million and $282.4 million for the three and nine months ended September 30, 2013, respectively. | ||||||||||||||
Significant Customers | ||||||||||||||
Consolidated Company | ||||||||||||||
The Company provides behavioral healthcare management and other related services to approximately 685,000 members in Maricopa County, Arizona as the Regional Behavioral Health Authority ("RHBA") for GSA6 ("Maricopa County") pursuant to a contract with the State of Arizona (the "Maricopa Contract"). | ||||||||||||||
The Maricopa Contract is for the management of the publicly funded behavioral health system that delivers mental health, substance abuse and crisis services for adults, youth, and children. Under the Maricopa Contract, the Company is responsible for providing covered behavioral health services to persons eligible under Title XIX (Medicaid) and Title XXI (State Children's Health Insurance Program) of the Social Security Act, non-Title XIX and non-Title XXI eligible children and adults with a serious mental illness, and to certain non-Title XIX and non-Title XXI adults with behavioral health or substance abuse disorders. The Maricopa Contract began on September 1, 2007 and was scheduled to expire on October 1, 2013. The Company and the State of Arizona have agreed to extend the Maricopa Contract through March 31, 2014. The State of Arizona has the right to terminate the Maricopa Contract for cause, as defined, upon ten days' notice with an opportunity to cure, and, after January 1, 2014, without cause upon 30 days prior notice to the Company. The Maricopa Contract generated net revenues of $566.2 million and $557.6 million for the nine months ended September 30, 2012 and 2013, respectively. | ||||||||||||||
The State of Arizona had previously issued a Solicitation for a new RBHA for Maricopa County (the "New Contract") to replace the current contract with the Company to be effective on October 1, 2013. The New Contract is for the management of the publicly funded behavioral health system currently provided by the Company under the Maricopa Contract, and also includes an integrated behavioral and physical health care system for a small number of individuals with serious mental illness. Magellan Complete Care of Arizona, a joint venture owned 80% by the Company and 20% by Vanguard/Phoenix Health Plan, previously submitted a bid for the Contract. | ||||||||||||||
On March 25, 2013, the Company was notified that Magellan Complete Care of Arizona was not selected as the RBHA for the New Contract. On April 3, 2013, the Company filed a formal protest regarding the State's decision to award the RBHA in Maricopa County to another vendor. On April 17, 2013, the Arizona Department of Health Services denied the Company's protest. On May 9, 2013, the Company filed an appeal of the denial of its protest (the "Appeal") with the Arizona Department of Administration (the "DOA"), the agency responsible for considering appeals of procurement protest denials. The Company also filed with the DOA a motion to stay the award and implementation of the contract pending a decision on the Appeal. On May 21, 2013, the DOA granted the Company's motion and issued a stay of the award and implementation of the contract pending resolution of the Appeal by the DOA (the "Stay"). | ||||||||||||||
On June 13, 2013 the DOA referred the Appeal for a hearing before an independent administrative law judge in the Arizona Office of Administrative Hearings (the "OAH"). The OAH held an evidentiary hearing on the Appeal on September 18-27, 2013. Post-hearing briefing will be completed by October 29, 2013 and the Company anticipates the administrative law judge will issue her decision and recommendation to DOA on or before November 18, 2013. The DOA will then have 30 days to review the administrative law judge's decision and recommendation and issue its decision on Magellan's appeal of the protest denial. There is no assurance that the Company will prevail on the Appeal or that the Stay will remain in effect. | ||||||||||||||
By Segment | ||||||||||||||
In addition to the Maricopa Contract previously discussed, the following customers generated in excess of ten percent of net revenues for the respective segment for the nine months ended September 30, 2012 and 2013 (in thousands): | ||||||||||||||
Segment | Term Date | 2012 | 2013 | |||||||||||
Commercial | ||||||||||||||
Customer A | Mid-2014(1) | $ | 144,499 | $ | 156,269 | |||||||||
Customer B | December 31, 2019 | 101,249 | 106,433 | |||||||||||
Customer C | December 31, 2012 to December 14, 2013(2)(3) | 89,592 | 58,246 | |||||||||||
Public Sector | ||||||||||||||
Customer D | June 30, 2014(4) | 175,440 | 209,266 | |||||||||||
Radiology Benefits Management | ||||||||||||||
Customer E | December 31, 2015 | 83,158 | 96,402 | |||||||||||
Customer F | June 30, 2014 | 44,959 | 43,490 | |||||||||||
Customer G | July 31, 2015 | 42,458 | 47,161 | |||||||||||
Customer H | January 31, 2014 | 27,824 | 34,338 | |||||||||||
Pharmacy Solutions | ||||||||||||||
Customer I | November 30, 2013 to December 31, 2013(2) | 98,128 | 99,599 | |||||||||||
Customer J | December 31, 2013(5) | 45,018 | 43,315 | * | ||||||||||
Customer K | December 31, 2013(5) | 53,640 | 68,166 | |||||||||||
Customer L | September 30, 2013(6) | 53,259 | 48,527 | |||||||||||
* | ||||||||||||||
Revenue amount did not exceed ten percent of net revenues for the respective segment for the period presented. Amount is shown for comparative purposes only. | ||||||||||||||
-1 | ||||||||||||||
The customer has informed the Company that, after a competitive evaluation process, it has decided not to renew its contract after the contract expires on December 31, 2013. The Company anticipates the contract will extend through mid-2014 to allow for transition to new vendor. | ||||||||||||||
-2 | ||||||||||||||
The customer has more than one contract. The individual contracts are scheduled to terminate at various points during the time period indicated above. | ||||||||||||||
-3 | ||||||||||||||
Revenues for the nine months ended September 30, 2012 of $38.0 million relate to a contract that terminated as of December 31, 2012. The customer has informed the Company that is has decided not to renew the remaining contract after the contract expires on December 14, 2013. | ||||||||||||||
-4 | ||||||||||||||
Contract has options for the customer to extend the term for two additional one-year periods. | ||||||||||||||
-5 | ||||||||||||||
The Company has received notification that the customer will not renew its contracts for specialty pharmacy and related services. The Company has multiple contracts that are currently scheduled to terminate on December 31, 2013. | ||||||||||||||
-6 | ||||||||||||||
This customer represents a subcontract with a Public Sector customer and is eliminated in consolidation. | ||||||||||||||
Concentration of Business | ||||||||||||||
The Company also has a significant concentration of business with various counties in the State of Pennsylvania (the "Pennsylvania Counties") which are part of the Pennsylvania Medicaid program, and with various areas in the State of Florida (the "Florida Areas") which are part of the Florida Medicaid program. Net revenues from the Pennsylvania Counties in the aggregate totaled $269.8 million and $269.1 million for the nine months ended September 30, 2012 and 2013, respectively. Net revenues from the Florida Areas in the aggregate totaled $100.6 million and $97.8 million for the nine months ended September 30, 2012 and 2013, respectively. | ||||||||||||||
The Company's contracts with customers typically have terms of one to three years, and in certain cases contain renewal provisions (at the customer's option) for successive terms of between one and two years (unless terminated earlier). Substantially all of these contracts may be immediately terminated with cause and many of the Company's contracts are terminable without cause by the customer or the Company either upon the giving of requisite notice and the passage of a specified period of time (typically between 60 and 180 days) or upon the occurrence of other specified events. In addition, the Company's contracts with federal, state and local governmental agencies generally are conditioned on legislative appropriations. These contracts generally can be terminated or modified by the customer if such appropriations are not made. | ||||||||||||||
Fair Value Measurements | ||||||||||||||
The Company currently does not have non-financial assets and non-financial liabilities that are required to be measured at fair value on a recurring basis. Financial assets and liabilities are to be measured using inputs from the three levels of the fair value hierarchy, which are as follows: | ||||||||||||||
Level 1—Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. | ||||||||||||||
Level 2—Inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (i.e., interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs). | ||||||||||||||
Level 3—Unobservable inputs that reflect the Company's assumptions about the assumptions that market participants would use in pricing the asset or liability. The Company develops these inputs based on the best information available, including the Company's data. | ||||||||||||||
In accordance with the fair value hierarchy described above, the following table shows the fair value of the Company's financial assets and liabilities that are required to be measured at fair value as of December 31, 2012 and September 30, 2013 (in thousands): | ||||||||||||||
December 31, 2012 | ||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||
Cash and cash equivalents(1) | $ | — | $ | 102,137 | $ | — | $ | 102,137 | ||||||
Restricted cash(2) | — | 82,839 | — | 82,839 | ||||||||||
Investments: | ||||||||||||||
U.S. government and agency securities | 1,065 | — | — | 1,065 | ||||||||||
Obligations of government-sponsored enterprises(3) | — | 6,128 | — | 6,128 | ||||||||||
Corporate debt securities | — | 214,547 | — | 214,547 | ||||||||||
Taxable municipal bonds | — | 11,800 | — | 11,800 | ||||||||||
Certificates of deposit | — | 150 | — | 150 | ||||||||||
December 31, 2012 | $ | 1,065 | $ | 417,601 | $ | — | $ | 418,666 | ||||||
September 30, 2013 | ||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||
Cash and cash equivalents(4) | $ | — | $ | 75,861 | $ | — | $ | 75,861 | ||||||
Restricted cash(5) | — | 117,611 | — | 117,611 | ||||||||||
Investments: | ||||||||||||||
U.S. government and agency securities | 1,130 | — | — | 1,130 | ||||||||||
Obligations of government-sponsored enterprises(3) | — | 8,410 | — | 8,410 | ||||||||||
Corporate debt securities | — | 218,288 | — | 218,288 | ||||||||||
Taxable municipal bonds | — | 600 | — | 600 | ||||||||||
Certificates of deposit | — | 150 | — | 150 | ||||||||||
September 30, 2013 | $ | 1,130 | $ | 420,920 | $ | — | $ | 422,050 | ||||||
-1 | ||||||||||||||
Excludes $87.3 million of cash held in bank accounts by the Company. | ||||||||||||||
-2 | ||||||||||||||
Excludes $143.7 million of restricted cash held in bank accounts by the Company. | ||||||||||||||
-3 | ||||||||||||||
Includes investments in notes issued by the Federal Home Loan Bank. | ||||||||||||||
-4 | ||||||||||||||
Excludes $205.9 million of cash held in bank accounts by the Company. | ||||||||||||||
-5 | ||||||||||||||
Excludes $91.0 million of restricted cash held in bank accounts by the Company. | ||||||||||||||
For the nine months ended September 30, 2013, the Company has not transferred any assets between fair value measurement levels. | ||||||||||||||
All of the Company's investments are classified as "available-for- sale" and are carried at fair value. | ||||||||||||||
If a debt security is in an unrealized loss position and the Company has the intent to sell the debt security, or it is more likely than not that the Company will have to sell the debt security before recovery of its amortized cost basis, the decline in value is deemed to be other-than-temporary and is recorded to other-than-temporary impairment losses recognized in income in the consolidated statements of comprehensive income. For impaired debt securities that the Company does not intend to sell or it is more likely than not that the Company will not have to sell such securities, but the Company expects that it will not fully recover the amortized cost basis, the credit component of the other-than-temporary impairment is recognized in other-than-temporary impairment losses recognized in income in the consolidated statements of comprehensive income and the non-credit component of the other-than-temporary impairment is recognized in other comprehensive income. | ||||||||||||||
As of December 31, 2012 and September 30, 2013, there were no unrealized losses that the Company believed to be other-than-temporary. No realized gains or losses were recorded for the nine months ended September 30, 2012 or 2013. The following is a summary of short-term and long-term investments at December 31, 2012 and September 30, 2013 (in thousands): | ||||||||||||||
December 31, 2012 | ||||||||||||||
Amortized | Gross | Gross | Estimated | |||||||||||
Cost | Unrealized | Unrealized | Fair | |||||||||||
Gains | Losses | Value | ||||||||||||
U.S. government and agency securities | $ | 1,065 | $ | — | $ | — | $ | 1,065 | ||||||
Obligations of government-sponsored enterprises(1) | 6,126 | 4 | (2 | ) | 6,128 | |||||||||
Corporate debt securities | 214,603 | 66 | (122 | ) | 214,547 | |||||||||
Taxable municipal bonds | 11,805 | — | (5 | ) | 11,800 | |||||||||
Certificates of deposit | 150 | — | — | 150 | ||||||||||
Total investments at December 31, 2012 | $ | 233,749 | $ | 70 | $ | (129 | ) | $ | 233,690 | |||||
September 30, 2013 | ||||||||||||||
Amortized | Gross | Gross | Estimated | |||||||||||
Cost | Unrealized | Unrealized | Fair Value | |||||||||||
Gains | Losses | |||||||||||||
U.S. government and agency securities | $ | 1,130 | $ | — | $ | — | $ | 1,130 | ||||||
Obligations of government-sponsored enterprises(1) | 8,408 | 3 | (1 | ) | 8,410 | |||||||||
Corporate debt securities | 218,411 | 28 | (151 | ) | 218,288 | |||||||||
Taxable municipal bonds | 600 | — | — | 600 | ||||||||||
Certificates of deposit | 150 | — | — | 150 | ||||||||||
Total investments at September 30, 2013 | $ | 228,699 | $ | 31 | $ | (152 | ) | $ | 228,578 | |||||
-1 | ||||||||||||||
Includes investments in notes issued by the Federal Home Loan Bank. | ||||||||||||||
The maturity dates of the Company's investments as of September 30, 2013 are summarized below (in thousands): | ||||||||||||||
Amortized | Estimated | |||||||||||||
Cost | Fair Value | |||||||||||||
2013 | $ | 99,253 | $ | 99,211 | ||||||||||
2014 | 121,593 | 121,522 | ||||||||||||
2015 | 7,853 | 7,845 | ||||||||||||
Total investments at September 30, 2013 | $ | 228,699 | $ | 228,578 | ||||||||||
Note Receivable and Preferred Stock | ||||||||||||||
The Company holds a 7% equity interest in AlphaCare of New York, Inc. ('AlphaCare") through an equity investment of $2.0 million in preferred membership units of AlphaCare's current holding company, AlphaCare Holdings, LLC on May 17, 2013. During the current year, the Company also loaned $5.9 million to AlphaCare Holdings, LLC pursuant to a promissory note (the "Note") which was secured by a pledge of all of the outstanding stock of AlphaCare. AlphaCare is a newly licensed HMO in New York that operates a New York Managed Long-Term Care Plan ("MLTCP") in Bronx, New York, Queens, Kings and Westchester Counties, and Medicare Plans in Bronx, New York, Queens and Kings Counties. | ||||||||||||||
On August 13, 2013, the Company entered into a stock purchase agreement (the "Stock Purchase Agreement") under which it agreed to acquire a 65% equity interest in AlphaCare through an investment in its holding company. | ||||||||||||||
As contemplated by the Stock Purchase Agreement, AlphaCare Holdings, LLC will merge with and into AlphaCare Holdings, Inc. ("AlphaCare Holdings"), a recently-formed Delaware holding corporation, and the Company's 7% equity interest and the Note will be converted into shares of Series A Participating Preferred Stock ("Series A Preferred") of AlphaCare Holdings. The Company will also purchase additional shares of Series A Preferred stock such that it will own 65% of the outstanding shares of AlphaCare Holdings for an aggregate acquisition price of $25.5 million, including its original investment of $7.9 million. | ||||||||||||||
The closing of the Stock Purchase Agreement is subject to various conditions, including approval of the New York State Department of Health. The Company expects that the closing of the Stock Purchase Agreement will occur in late 2013 or early 2014. | ||||||||||||||
Income Taxes | ||||||||||||||
The Company's effective income tax rates were 12.6 percent and 22.0 percent for the nine months ended September 30, 2012 and 2013, respectively. These rates differ from the federal statutory income tax rate primarily due to state income taxes, permanent differences between book and tax income, and changes to recorded tax contingencies. The Company also accrues interest and penalties related to unrecognized tax benefits in its provision for income taxes. The effective income tax rate for the nine months ended September 30, 2012 is lower than the effective rate for the nine months ended September 30, 2013 mainly due to lower reversals of tax contingencies in the current year from the closure of statutes of limitation. | ||||||||||||||
The Company files a consolidated federal income tax return for the Company and its eighty percent or more owned subsidiaries, and the Company and its subsidiaries file income tax returns in various states and local jurisdictions. With few exceptions, the Company is no longer subject to state or local income tax assessments by tax authorities for years ended prior to 2009. Further, the statutes of limitation regarding the assessment of federal and certain state and local income taxes for 2009 closed during the current quarter. As a result, $27.2 million of unrecognized tax benefits (excluding interest costs) recorded as of December 31, 2012 were reversed in the current quarter, of which $22.7 million is reflected as a discrete reduction to income tax expense, $3.9 million as an increase to additional paid-in capital, and the remainder as a decrease to deferred tax assets. Additionally, $2.1 million of accrued interest was reversed in the current quarter and reflected as a reduction to income tax expense due to the closing of statutes of limitation on tax assessments. | ||||||||||||||
Stock Compensation | ||||||||||||||
At December 31, 2012 and September 30, 2013, the Company had equity-based employee incentive plans, which are described more fully in Note 6 in the Company's Annual Report on Form 10-K for the year ended December 31, 2012. The Company recorded stock compensation expense of $4.5 million and $13.9 million for the three and nine months ended September 30, 2012, respectively, and $4.5 million and $14.8 million for the three and nine months ended September 30, 2013, respectively. Stock compensation expense recognized in the consolidated statements of comprehensive income for the three and nine months ended September 30, 2012 and 2013 has been reduced for estimated forfeitures, estimated at four percent for both periods. | ||||||||||||||
The weighted average grant date fair value of all stock options granted during the nine months ended September 30, 2013 was $12.10 as estimated using the Black-Scholes-Merton option pricing model, which also assumed an expected volatility of 27.86 percent based on the historical volatility of the Company's stock price. | ||||||||||||||
The benefits of tax deductions in excess of recognized stock compensation expense are reported as a financing cash flow, rather than as an operating cash flow. In the nine months ended September 30, 2012 and 2013, $0.9 million and $1.1 million, respectively, of benefits of such tax deductions related to stock compensation expense were realized and as such were reported as financing cash flows. For the nine months ended September 30, 2012 the net change to additional paid in capital related to tax benefits (deficiencies) was $0.6 million, which includes the $0.9 million of excess tax benefits offset by $(0.3) million of tax deficiencies. For the nine months ended September 30, 2013, the net change to additional paid in capital related to tax benefits (deficiencies) was $0.4 million, which includes the $1.1 million of excess tax benefits offset by $(0.7) million of excess tax deficiencies. | ||||||||||||||
Summarized information related to the Company's stock options for the nine months ended September 30, 2013 is as follows: | ||||||||||||||
Options | Weighted | |||||||||||||
Average | ||||||||||||||
Exercise | ||||||||||||||
Price | ||||||||||||||
Outstanding, beginning of period | 4,268,240 | $ | 44.35 | |||||||||||
Granted | 981,133 | 52.65 | ||||||||||||
Forfeited | (101,476 | ) | 49.02 | |||||||||||
Exercised | (562,554 | ) | 43.22 | |||||||||||
Outstanding, end of period | 4,585,343 | $ | 46.16 | |||||||||||
Vested and expected to vest at end of period | 4,538,122 | $ | 46.11 | |||||||||||
Exercisable, end of period | 2,519,497 | $ | 42.84 | |||||||||||
With the exception of options granted to the Company's CEO, generally all of the Company's options granted during the nine months ended September 30, 2013 vest ratably on each anniversary date over the three years subsequent to grant. During the nine months ended September 30, 2013, the Company granted options to the Company's CEO which vest over four year annual installments, with 16.7 percent, 33.3 percent, 33.3 percent, and 16.7 percent vesting in 2014, 2015, 2016, and 2017, respectively. All options granted during the nine months ended September 30, 2013 have a ten year life. | ||||||||||||||
Summarized information related to the Company's nonvested restricted stock awards for the nine months ended September 30, 2013 is as follows: | ||||||||||||||
Shares | Weighted | |||||||||||||
Average | ||||||||||||||
Grant Date | ||||||||||||||
Fair Value | ||||||||||||||
Outstanding, beginning of period | 23,672 | $ | 42.25 | |||||||||||
Awarded | 16,569 | 52.82 | ||||||||||||
Vested | (23,672 | ) | 42.25 | |||||||||||
Forfeited | — | — | ||||||||||||
Outstanding, ending of period | 16,569 | $ | 52.82 | |||||||||||
Summarized information related to the Company's nonvested restricted stock units for the nine months ended September 30, 2013 is as follows: | ||||||||||||||
Shares | Weighted | |||||||||||||
Average | ||||||||||||||
Grant Date | ||||||||||||||
Fair Value | ||||||||||||||
Outstanding, beginning of period | 202,690 | $ | 47.38 | |||||||||||
Awarded | 98,580 | 52.62 | ||||||||||||
Vested | (95,138 | ) | 46.72 | |||||||||||
Forfeited | (5,935 | ) | 49.39 | |||||||||||
Outstanding, ending of period | 200,197 | $ | 50.21 | |||||||||||
Grants of restricted stock awards vest on the anniversary of the grant. With the exception of restricted stock units awarded to the Company's CEO during the nine months ended September 30, 2013, generally all of the Company's restricted stock units vest ratably on each anniversary over the three years subsequent to grant, assuming that the associated performance hurdle(s) for that vesting year are met. During the nine months ended September 30, 2013, the Company granted restricted stock units to the Company's CEO which vest over four year annual installments, with 16.7 percent, 33.3 percent, 33.3 percent, and 16.7 percent vesting in 2014, 2015, 2016, and 2017, respectively, assuming the associated performance hurdle(s) for that vesting year are met. | ||||||||||||||
Long Term Debt and Capital Lease Obligations | ||||||||||||||
On December 9, 2011, the Company entered into a Senior Secured Revolving Credit Facility Credit Agreement with Citibank, N.A., Wells Fargo Bank, N.A., Bank of America, N.A., and U.S. Bank, N.A. that provides for up to $230.0 million of revolving loans with a sublimit of up to $70.0 million for the issuance of letters of credit for the account of the Company (the "2011 Credit Facility"). Citibank, N.A., has assigned a portion of its interest in the 2011 Credit Facility to Bank of Tokyo. The 2011 Credit Facility is guaranteed by substantially all of the subsidiaries of the Company and is secured by substantially all of the assets of the Company and the subsidiary guarantors. The 2011 Credit Facility will mature on December 9, 2014. | ||||||||||||||
Under the 2011 Credit Facility, the annual interest rate on revolving loan borrowings is equal to (i) in the case of U.S. dollar denominated loans, the sum of a borrowing margin of 0.75 percent plus the higher of the prime rate, one-half of one percent in excess of the overnight "federal funds" rate, or the Eurodollar rate for one month plus 1.00 percent, or (ii) in the case of Eurodollar denominated loans, the sum of a borrowing margin of 1.75 percent plus the Eurodollar rate for the selected interest period. The Company has the option to borrow in U.S. dollar denominated loans or Eurodollar denominated loans at its discretion. Letters of credit issued under the Revolving Loan Commitment bear interest at the rate of 1.875 percent. The commitment commission on the 2011 Credit Facility is 0.375 percent of the unused Revolving Loan Commitment. | ||||||||||||||
There were no capital lease obligations at December 31, 2012 and $27.0 million of capital lease obligations at September 30, 2013. The Company had $32.0 million and $32.4 million of letters of credit outstanding at December 31, 2012 and September 30, 2013, respectively, and no revolving loan borrowings at December 31, 2012 or September 30, 2013. | ||||||||||||||
Reclassifications | ||||||||||||||
Certain prior year amounts have been reclassified to conform with the current year presentation. | ||||||||||||||
Net_Income_per_Common_Share
Net Income per Common Share | 9 Months Ended | |||||||||||||
Sep. 30, 2013 | ||||||||||||||
Net Income per Common Share | ||||||||||||||
Net Income per Common Share | ||||||||||||||
NOTE B—Net Income per Common Share | ||||||||||||||
The following tables reconcile income (numerator) and shares (denominator) used in the computations of net income per common share (in thousands, except per share data): | ||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||
September 30, | September 30, | |||||||||||||
2012 | 2013 | 2012 | 2013 | |||||||||||
Numerator: | ||||||||||||||
Net income | $ | 66,262 | $ | 47,232 | $ | 114,025 | $ | 106,770 | ||||||
Denominator: | ||||||||||||||
Weighted average number of common shares outstanding—basic | 27,521 | 26,990 | 27,346 | 26,976 | ||||||||||
Common stock equivalents—stock options | 426 | 655 | 395 | 539 | ||||||||||
Common stock equivalents—restricted stock | 7 | 4 | 10 | 11 | ||||||||||
Common stock equivalents—restricted stock units | 87 | 54 | 83 | 35 | ||||||||||
Common stock equivalents—employee stock purchase plan | 1 | 1 | 1 | 2 | ||||||||||
Weighted average number of common shares outstanding—diluted | 28,042 | 27,704 | 27,835 | 27,563 | ||||||||||
Net income per common share—basic | $ | 2.41 | $ | 1.75 | $ | 4.17 | $ | 3.96 | ||||||
Net income per common share—diluted | $ | 2.36 | $ | 1.7 | $ | 4.1 | $ | 3.87 | ||||||
The weighted average number of common shares outstanding for the three and nine months ended September 30, 2012 and 2013 were calculated using outstanding shares of the Company's common stock. Common stock equivalents included in the calculation of diluted weighted average common shares outstanding for the three and nine months ended September 30, 2012 and 2013 represent stock options to purchase shares of the Company's common stock, restricted stock awards and restricted stock units, and stock purchased under the Employee Stock Purchase Plan. | ||||||||||||||
The Company had additional potential dilutive securities outstanding representing 2.3 million and 2.2 million options for the three and nine months ended September 30, 2012, respectively, and 0.9 million and 0.9 million for the three and nine months ended September 30, 2013, respectively, that were not included in the computation of dilutive securities because they were anti-dilutive for the period. Had these shares not been anti-dilutive, all of these shares would not have been included in the net income per common share calculation as the Company uses the treasury stock method of calculating diluted shares. | ||||||||||||||
Business_Segment_Information
Business Segment Information | 9 Months Ended | |||||||||||||||||||
Sep. 30, 2013 | ||||||||||||||||||||
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 income before income taxes, before stock compensation expense, 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. Effective September 1, 2010, Public Sector has subcontracted with Pharmacy Solutions to provide pharmacy benefits management services on a risk basis for one of Public Sector's customers. As such, revenue and cost of care related to this intersegment arrangement are eliminated. The Company's segments are defined above. The Pharmacy Solutions segment contains the operating segments previously defined as the Specialty Pharmaceutical Management segment and the Medicaid Administration segment. Prior period balances have been reclassified to reflect this change. | ||||||||||||||||||||
The following tables summarize, for the periods indicated, operating results by business segment (in thousands): | ||||||||||||||||||||
Commercial | Public Sector | Radiology | Pharmacy | Corporate | Consolidated | |||||||||||||||
Benefits | Solutions | and | ||||||||||||||||||
Management | Elimination | |||||||||||||||||||
Three Months Ended September 30, 2012 | ||||||||||||||||||||
Managed care and other revenue | $ | 176,713 | $ | 407,265 | $ | 88,126 | $ | 54,421 | $ | (15,433 | ) | $ | 711,092 | |||||||
Dispensing revenue | — | — | — | 87,345 | — | 87,345 | ||||||||||||||
Cost of care | (100,973 | ) | (358,959 | ) | (58,080 | ) | (13,659 | ) | 15,433 | (516,238 | ) | |||||||||
Cost of goods sold | — | — | — | (81,662 | ) | — | (81,662 | ) | ||||||||||||
Direct service costs and other | (43,007 | ) | (22,948 | ) | (14,045 | ) | (27,565 | ) | (28,009 | ) | (135,574 | ) | ||||||||
Stock compensation expense(1) | 293 | 278 | 419 | 238 | 3,240 | 4,468 | ||||||||||||||
Segment profit (loss) | $ | 33,026 | $ | 25,636 | $ | 16,420 | $ | 19,118 | $ | (24,769 | ) | $ | 69,431 | |||||||
Commercial | Public Sector | Radiology | Pharmacy | Corporate | Consolidated | |||||||||||||||
Benefits | Solutions | and | ||||||||||||||||||
Management | Elimination | |||||||||||||||||||
Three Months Ended September 30, 2013 | ||||||||||||||||||||
Managed care and other revenue | $ | 190,655 | $ | 445,260 | $ | 94,125 | $ | 63,008 | $ | (17,091 | ) | $ | 775,957 | |||||||
Dispensing revenue | — | — | — | 97,641 | — | 97,641 | ||||||||||||||
Cost of care | (118,022 | ) | (382,913 | ) | (65,403 | ) | (20,940 | ) | 17,091 | (570,187 | ) | |||||||||
Cost of goods sold | — | — | — | (91,853 | ) | — | (91,853 | ) | ||||||||||||
Direct service costs and other | (47,032 | ) | (27,826 | ) | (13,990 | ) | (32,281 | ) | (35,705 | ) | (156,834 | ) | ||||||||
Stock compensation expense(1) | 124 | 259 | 384 | 198 | 3,559 | 4,524 | ||||||||||||||
Segment profit (loss) | $ | 25,725 | $ | 34,780 | $ | 15,116 | $ | 15,773 | $ | (32,146 | ) | $ | 59,248 | |||||||
Commercial | Public Sector | Radiology | Pharmacy | Corporate | Consolidated | |||||||||||||||
Benefits | Solutions | and | ||||||||||||||||||
Management | Elimination | |||||||||||||||||||
Nine Months Ended September 30, 2012 | ||||||||||||||||||||
Managed care and other revenue | $ | 535,464 | $ | 1,206,289 | $ | 253,809 | $ | 171,846 | $ | (53,259 | ) | $ | 2,114,149 | |||||||
Dispensing revenue | — | — | — | 262,974 | — | 262,974 | ||||||||||||||
Cost of care | (323,992 | ) | (1,058,384 | ) | (166,364 | ) | (47,880 | ) | 53,259 | (1,543,361 | ) | |||||||||
Cost of goods sold | — | — | — | (245,555 | ) | — | (245,555 | ) | ||||||||||||
Direct service costs and other | (127,825 | ) | (66,850 | ) | (41,113 | ) | (83,532 | ) | (93,176 | ) | (412,496 | ) | ||||||||
Stock compensation expense(1) | 830 | 835 | 1,179 | 704 | 10,387 | 13,935 | ||||||||||||||
Segment profit (loss) | $ | 84,477 | $ | 81,890 | $ | 47,511 | $ | 58,557 | $ | (82,789 | ) | $ | 189,646 | |||||||
Commercial | Public Sector | Radiology | Pharmacy | Corporate | Consolidated | |||||||||||||||
Benefits | Solutions | and | ||||||||||||||||||
Management | Elimination | |||||||||||||||||||
Nine Months Ended September 30, 2013 | ||||||||||||||||||||
Managed care and other revenue | $ | 578,030 | $ | 1,266,739 | $ | 277,118 | $ | 182,418 | $ | (48,557 | ) | $ | 2,255,748 | |||||||
Dispensing revenue | — | — | — | 282,359 | — | 282,359 | ||||||||||||||
Cost of care | (354,520 | ) | (1,095,694 | ) | (182,212 | ) | (59,075 | ) | 48,557 | (1,642,944 | ) | |||||||||
Cost of goods sold | — | — | — | (265,440 | ) | — | (265,440 | ) | ||||||||||||
Direct service costs and other | (129,823 | ) | (82,403 | ) | (41,224 | ) | (93,216 | ) | (94,292 | ) | (440,958 | ) | ||||||||
Stock compensation expense(1) | 390 | 833 | 1,275 | 898 | 11,368 | 14,764 | ||||||||||||||
Segment profit (loss) | $ | 94,077 | $ | 89,475 | $ | 54,957 | $ | 47,944 | $ | (82,924 | ) | $ | 203,529 | |||||||
-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. | ||||||||||||||||||||
The following table reconciles Segment Profit to income before income taxes (in thousands): | ||||||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||||||
September 30, | September 30, | |||||||||||||||||||
2012 | 2013 | 2012 | 2013 | |||||||||||||||||
Segment profit | $ | 69,431 | $ | 59,248 | $ | 189,646 | $ | 203,529 | ||||||||||||
Stock compensation expense | (4,468 | ) | (4,524 | ) | (13,935 | ) | (14,764 | ) | ||||||||||||
Depreciation and amortization | (15,239 | ) | (17,654 | ) | (45,172 | ) | (50,770 | ) | ||||||||||||
Interest expense | (537 | ) | (789 | ) | (1,713 | ) | (2,191 | ) | ||||||||||||
Interest income | 350 | 291 | 1,619 | 1,002 | ||||||||||||||||
Income before income taxes | $ | 49,537 | $ | 36,572 | $ | 130,445 | $ | 136,806 | ||||||||||||
Commitments_and_Contingencies
Commitments and Contingencies | 9 Months Ended |
Sep. 30, 2013 | |
Commitments and Contingencies | |
Commitments and Contingencies | |
NOTE D—Commitments and Contingencies | |
Legal | |
The management and administration of the delivery of specialty managed healthcare entails significant risks of liability. From time to time, the Company is subject to various actions and claims arising from the acts or omissions of its employees, network providers or other parties. In the normal course of business, the Company receives reports relating to deaths and other serious incidents involving patients whose care is being managed by the Company. Such incidents occasionally give rise to malpractice, professional negligence and other related actions and claims against the Company or its network providers. Many of these actions and claims received by the Company seek substantial damages and therefore require the Company to incur significant fees and costs related to their defense. | |
On July 25, 2012, the Company filed a lawsuit currently pending in the United States District Court for the District of Connecticut against two former employees and a corporation partially-owned by one of such former employees asserting claims for violation of contractual restrictive covenants and common law obligations owed to the Company arising from actions of such former employees in connection with their employment by the defendant corporation. The Company's complaint alleges claims for breach of contract and breach of the covenant of good dealing against the individual former employees; tortious interference with contract against the defendant corporation; and violation of the Connecticut Uniform Trade Secrets Act, civil conspiracy, and violation of the Connecticut Unfair Trade Practices Act against all defendants arising out of activity undertaken by the former employees on behalf of the defendant corporation in competition with the Company's specialty pharmacy business. The Company is seeking a permanent injunction and recovery of compensatory and punitive damages and an award of attorneys' fees and costs. On December 18, 2012, the defendant corporation filed counterclaims against the Company in which it asserts tortious interference with business expectancy, abuse of process, and violation of the Connecticut Unfair Trade Practices Act arising out of the Company's efforts to enforce its contractual and legal rights. On June 10, 2013, the defendant corporation disclosed an alleged damages computation in the amount of $155 million in lost profits plus unspecified business diminution damages. The Company believes the counterclaims and damages calculations of the defendant corporation are without merit and is defending them vigorously. | |
The Company is also subject to or party to certain class actions and other litigation and claims relating to its operations or business practices. In the opinion of management, the Company has recorded reserves that are adequate to cover litigation, claims or assessments that have been or may be asserted against the Company, and for which the outcome is probable and reasonably estimable. Management believes that the resolution of such litigation and claims will not have a material adverse effect on the Company's financial condition or results of operations; however, there can be no assurance in this regard. | |
Stock Repurchases | |
On October 25, 2011 the Company's board of directors approved a stock repurchase plan which authorized the Company to purchase up to $200 million of its outstanding common stock through October 25, 2013. On July 24, 2013 the Company's board of directors approved an increase and extension of the stock repurchase plan which authorizes the Company to purchase up to $300 million of its outstanding stock through October 25, 2015. | |
Stock repurchases under the program may be purchased from time to time in open market transactions (including blocks) or in privately negotiated transactions. The timing of repurchases and the actual amount purchased will depend on a variety of factors including the market price of the Company's shares, general market and economic conditions, and other corporate considerations. Repurchases may be made pursuant to plans intended to comply with Rule 10b5-1 under the Securities Exchange Act of 1934, which could allow the Company to purchase its shares during periods when it otherwise might be prevented from doing so under insider trading laws or because of self-imposed trading blackout periods. Repurchases are expected to be funded from working capital and anticipated cash from operations. The repurchase authorization does not require the purchase of a specific number of shares and is subject to suspension or termination by the Company's board of directors at any time. Pursuant to this program, the Company made open market purchases of 671,776 shares of the Company's common stock at an average price of $48.72 per share for an aggregate cost of $32.7 million (excluding broker commissions) during the period from November 11, 2011 through December 31, 2011. Pursuant to this program, the Company made open market purchases of 459,252 shares of the Company's common stock at an average price of $50.27 per share for an aggregate cost of $23.1 million (excluding broker commissions) during 2012. Pursuant to this program, the Company made open market purchases of 955,776 shares of the Company's common stock at an average price of $50.23 per share for an aggregate cost of $48.0 million (excluding broker commissions) during the nine months ended September 30, 2013. As of September 30, 2013, the total dollar value remaining under the current authorization was $196.2 million. | |
The Company made no open market purchases for the period from October 1, 2013 through October 21, 2013. | |
Subsequent_Events
Subsequent Events | 9 Months Ended |
Sep. 30, 2013 | |
Subsequent Events | |
Subsequent Events | NOTE E—Subsequent Events |
Acquisition of Partners Rx Management LLC | |
Pursuant to the September 6, 2013 Agreement and Plan of Merger (the "Merger Agreement") with Partners Rx Management, LLC ("Partners Rx"), on October 1, 2013 the Company acquired (the "Acquisition") all of the outstanding ownership interests of Partners Rx. Partners Rx is a privately held, full-service commercial PBM with a strong focus on health plans and self-funded employers primarily through sales through third party administrators ("TPAs"), consultants and brokers. As consideration for the Acquisition, the Company paid $100 million in cash, subject to working capital adjustments. The Company funded the Acquisition with cash on hand. | |
Pursuant to the Merger Agreement, certain principal owners of Partners Rx purchased a total of $10 million in the Company's restricted stock at a price equal to the average of the closing prices of the Company's stock for the five trading day period ended on the day prior to the execution of the Merger Agreement. The shares received by such principal owners of Partners Rx are subject to vesting over three years with 50% vesting on the second anniversary of the Acquisition and 50% vesting on the third anniversary of the Acquisition, conditioned on continued employment with the Company on the applicable vesting dates. | |
The Company will report the results of Partners Rx within its Pharmacy Solutions segment. | |
General_Policies
General (Policies) | 9 Months Ended | |||||||||||||
Sep. 30, 2013 | ||||||||||||||
General | ||||||||||||||
Use of Estimates | Use of Estimates | |||||||||||||
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Significant estimates of the Company include, among other things, accounts receivable realization, valuation allowances for deferred tax assets, valuation of goodwill and intangible assets, medical claims payable, other medical liabilities, stock compensation assumptions, tax contingencies and legal liabilities. Actual results could differ from those estimates. | ||||||||||||||
Revenue recognition | Managed Care and Other Revenue | |||||||||||||
Managed Care Revenue. Managed care revenue, inclusive of revenue from the Company's risk, EAP and ASO contracts, is recognized over the applicable coverage period on a per member basis for covered members. The Company is paid a per member fee for all enrolled members, and this fee is recorded as revenue in the month in which members are entitled to service. The Company adjusts its revenue for retroactive membership terminations, additions and other changes, when such adjustments are identified, with the exception of retroactivity that can be reasonably estimated. The impact of retroactive rate amendments is generally recorded in the accounting period that terms to the amendment are finalized, and that the amendment is executed. Any fees paid prior to the month of service are recorded as deferred revenue. Managed care revenues approximated $631.6 million and $1,871.4 million for the three and nine months ended September 30, 2012, respectively, and $673.6 million and $1,957.9 million for the three and nine months ended September 30, 2013, respectively. | ||||||||||||||
Fee-For-Service and Cost-Plus Contracts. The Company has certain fee-for-service contracts, including cost-plus contracts, with customers under which the Company recognizes revenue as services are performed and as costs are incurred. Revenues from these contracts approximated $33.8 million and $104.8 million for the three and nine months ended September 30, 2012, respectively, and $52.6 million and $152.9 million for the three and nine months ended September 30, 2013, respectively. | ||||||||||||||
Block Grant Revenues. Public Sector has a contract that is partially funded by federal, state and county block grant money, which represents annual appropriations. The Company recognizes revenue from block grant activity ratably over the period to which the block grant funding applies. Block grant revenues were approximately $32.6 million and $90.5 million for the three and nine months ended September 30, 2012, respectively, and $32.3 million and $96.9 million for the three and nine months ended September 30, 2013, respectively. | ||||||||||||||
Performance-Based Revenue. The Company has the ability to earn performance-based revenue under certain risk and non-risk contracts. Performance-based revenue generally is based on either the ability of the Company to manage care for its clients below specified targets, or on other operating metrics. For each such contract, the Company estimates and records performance-based revenue after considering the relevant contractual terms and the data available for the performance-based revenue calculation. Pro-rata performance-based revenue may be recognized on an interim basis pursuant to the rights and obligations of each party upon termination of the contracts. Performance-based revenues were $2.6 million and $14.5 million for the three and nine months ended September 30, 2012, respectively, and $2.7 million and $6.1 million for the three and nine months ended September 30, 2013, respectively. | ||||||||||||||
Rebate Revenue. The Company administers a rebate program for certain clients through which the Company coordinates the achievement, calculation and collection of rebates and administrative fees from pharmaceutical manufacturers on behalf of clients. Each period, the Company estimates the total rebates earned based on actual volumes of pharmaceutical purchases by the Company's clients, as well as historical and/or anticipated sharing percentages. The Company earns fees based upon the volume of rebates generated for its clients. The Company does not record as rebate revenue any rebates that are passed through to its clients. Total rebate revenues were $10.3 million and $29.3 million for the three and nine months ended September 30, 2012, respectively, and $8.8 million and $25.6 million for the three and nine months ended September 30, 2013, respectively. | ||||||||||||||
Dispensing Revenue | ||||||||||||||
The Company recognizes dispensing revenue, which includes the co-payments received from members of the health plans the Company serves, when the specialty pharmaceutical drugs are shipped. At the time of shipment, the earnings process is complete; the obligation of the Company's customer to pay for the specialty pharmaceutical drugs is fixed, and, due to the nature of the product, the member may neither return the specialty pharmaceutical drugs nor receive a refund. Revenues from the dispensing of specialty pharmaceutical drugs on behalf of health plans were $87.3 million and $263.0 million for the three and nine months ended September 30, 2012, respectively, and $97.6 million and $282.4 million for the three and nine months ended September 30, 2013, respectively. | ||||||||||||||
Significant Customers | ||||||||||||||
Consolidated Company | ||||||||||||||
The Company provides behavioral healthcare management and other related services to approximately 685,000 members in Maricopa County, Arizona as the Regional Behavioral Health Authority ("RHBA") for GSA6 ("Maricopa County") pursuant to a contract with the State of Arizona (the "Maricopa Contract"). | ||||||||||||||
The Maricopa Contract is for the management of the publicly funded behavioral health system that delivers mental health, substance abuse and crisis services for adults, youth, and children. Under the Maricopa Contract, the Company is responsible for providing covered behavioral health services to persons eligible under Title XIX (Medicaid) and Title XXI (State Children's Health Insurance Program) of the Social Security Act, non-Title XIX and non-Title XXI eligible children and adults with a serious mental illness, and to certain non-Title XIX and non-Title XXI adults with behavioral health or substance abuse disorders. The Maricopa Contract began on September 1, 2007 and was scheduled to expire on October 1, 2013. The Company and the State of Arizona have agreed to extend the Maricopa Contract through March 31, 2014. The State of Arizona has the right to terminate the Maricopa Contract for cause, as defined, upon ten days' notice with an opportunity to cure, and, after January 1, 2014, without cause upon 30 days prior notice to the Company. The Maricopa Contract generated net revenues of $566.2 million and $557.6 million for the nine months ended September 30, 2012 and 2013, respectively. | ||||||||||||||
The State of Arizona had previously issued a Solicitation for a new RBHA for Maricopa County (the "New Contract") to replace the current contract with the Company to be effective on October 1, 2013. The New Contract is for the management of the publicly funded behavioral health system currently provided by the Company under the Maricopa Contract, and also includes an integrated behavioral and physical health care system for a small number of individuals with serious mental illness. Magellan Complete Care of Arizona, a joint venture owned 80% by the Company and 20% by Vanguard/Phoenix Health Plan, previously submitted a bid for the Contract. | ||||||||||||||
On March 25, 2013, the Company was notified that Magellan Complete Care of Arizona was not selected as the RBHA for the New Contract. On April 3, 2013, the Company filed a formal protest regarding the State's decision to award the RBHA in Maricopa County to another vendor. On April 17, 2013, the Arizona Department of Health Services denied the Company's protest. On May 9, 2013, the Company filed an appeal of the denial of its protest (the "Appeal") with the Arizona Department of Administration (the "DOA"), the agency responsible for considering appeals of procurement protest denials. The Company also filed with the DOA a motion to stay the award and implementation of the contract pending a decision on the Appeal. On May 21, 2013, the DOA granted the Company's motion and issued a stay of the award and implementation of the contract pending resolution of the Appeal by the DOA (the "Stay"). | ||||||||||||||
On June 13, 2013 the DOA referred the Appeal for a hearing before an independent administrative law judge in the Arizona Office of Administrative Hearings (the "OAH"). The OAH held an evidentiary hearing on the Appeal on September 18-27, 2013. Post-hearing briefing will be completed by October 29, 2013 and the Company anticipates the administrative law judge will issue her decision and recommendation to DOA on or before November 18, 2013. The DOA will then have 30 days to review the administrative law judge's decision and recommendation and issue its decision on Magellan's appeal of the protest denial. There is no assurance that the Company will prevail on the Appeal or that the Stay will remain in effect. | ||||||||||||||
By Segment | ||||||||||||||
In addition to the Maricopa Contract previously discussed, the following customers generated in excess of ten percent of net revenues for the respective segment for the nine months ended September 30, 2012 and 2013 (in thousands): | ||||||||||||||
Segment | Term Date | 2012 | 2013 | |||||||||||
Commercial | ||||||||||||||
Customer A | Mid-2014(1) | $ | 144,499 | $ | 156,269 | |||||||||
Customer B | December 31, 2019 | 101,249 | 106,433 | |||||||||||
Customer C | December 31, 2012 to December 14, 2013(2)(3) | 89,592 | 58,246 | |||||||||||
Public Sector | ||||||||||||||
Customer D | June 30, 2014(4) | 175,440 | 209,266 | |||||||||||
Radiology Benefits Management | ||||||||||||||
Customer E | December 31, 2015 | 83,158 | 96,402 | |||||||||||
Customer F | June 30, 2014 | 44,959 | 43,490 | |||||||||||
Customer G | July 31, 2015 | 42,458 | 47,161 | |||||||||||
Customer H | January 31, 2014 | 27,824 | 34,338 | |||||||||||
Pharmacy Solutions | ||||||||||||||
Customer I | November 30, 2013 to December 31, 2013(2) | 98,128 | 99,599 | |||||||||||
Customer J | December 31, 2013(5) | 45,018 | 43,315 | * | ||||||||||
Customer K | December 31, 2013(5) | 53,640 | 68,166 | |||||||||||
Customer L | September 30, 2013(6) | 53,259 | 48,527 | |||||||||||
* | ||||||||||||||
Revenue amount did not exceed ten percent of net revenues for the respective segment for the period presented. Amount is shown for comparative purposes only. | ||||||||||||||
-1 | ||||||||||||||
The customer has informed the Company that, after a competitive evaluation process, it has decided not to renew its contract after the contract expires on December 31, 2013. The Company anticipates the contract will extend through mid-2014 to allow for transition to new vendor. | ||||||||||||||
-2 | ||||||||||||||
The customer has more than one contract. The individual contracts are scheduled to terminate at various points during the time period indicated above. | ||||||||||||||
-3 | ||||||||||||||
Revenues for the nine months ended September 30, 2012 of $38.0 million relate to a contract that terminated as of December 31, 2012. The customer has informed the Company that is has decided not to renew the remaining contract after the contract expires on December 14, 2013. | ||||||||||||||
-4 | ||||||||||||||
Contract has options for the customer to extend the term for two additional one-year periods. | ||||||||||||||
-5 | ||||||||||||||
The Company has received notification that the customer will not renew its contracts for specialty pharmacy and related services. The Company has multiple contracts that are currently scheduled to terminate on December 31, 2013. | ||||||||||||||
-6 | ||||||||||||||
This customer represents a subcontract with a Public Sector customer and is eliminated in consolidation. | ||||||||||||||
Concentration of Business | ||||||||||||||
The Company also has a significant concentration of business with various counties in the State of Pennsylvania (the "Pennsylvania Counties") which are part of the Pennsylvania Medicaid program, and with various areas in the State of Florida (the "Florida Areas") which are part of the Florida Medicaid program. Net revenues from the Pennsylvania Counties in the aggregate totaled $269.8 million and $269.1 million for the nine months ended September 30, 2012 and 2013, respectively. Net revenues from the Florida Areas in the aggregate totaled $100.6 million and $97.8 million for the nine months ended September 30, 2012 and 2013, respectively. | ||||||||||||||
The Company's contracts with customers typically have terms of one to three years, and in certain cases contain renewal provisions (at the customer's option) for successive terms of between one and two years (unless terminated earlier). Substantially all of these contracts may be immediately terminated with cause and many of the Company's contracts are terminable without cause by the customer or the Company either upon the giving of requisite notice and the passage of a specified period of time (typically between 60 and 180 days) or upon the occurrence of other specified events. In addition, the Company's contracts with federal, state and local governmental agencies generally are conditioned on legislative appropriations. These contracts generally can be terminated or modified by the customer if such appropriations are not made. | ||||||||||||||
Fair Value Measurements | Fair Value Measurements | |||||||||||||
The Company currently does not have non-financial assets and non-financial liabilities that are required to be measured at fair value on a recurring basis. Financial assets and liabilities are to be measured using inputs from the three levels of the fair value hierarchy, which are as follows: | ||||||||||||||
Level 1—Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. | ||||||||||||||
Level 2—Inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (i.e., interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs). | ||||||||||||||
Level 3—Unobservable inputs that reflect the Company's assumptions about the assumptions that market participants would use in pricing the asset or liability. The Company develops these inputs based on the best information available, including the Company's data. | ||||||||||||||
In accordance with the fair value hierarchy described above, the following table shows the fair value of the Company's financial assets and liabilities that are required to be measured at fair value as of December 31, 2012 and September 30, 2013 (in thousands): | ||||||||||||||
December 31, 2012 | ||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||
Cash and cash equivalents(1) | $ | — | $ | 102,137 | $ | — | $ | 102,137 | ||||||
Restricted cash(2) | — | 82,839 | — | 82,839 | ||||||||||
Investments: | ||||||||||||||
U.S. government and agency securities | 1,065 | — | — | 1,065 | ||||||||||
Obligations of government-sponsored enterprises(3) | — | 6,128 | — | 6,128 | ||||||||||
Corporate debt securities | — | 214,547 | — | 214,547 | ||||||||||
Taxable municipal bonds | — | 11,800 | — | 11,800 | ||||||||||
Certificates of deposit | — | 150 | — | 150 | ||||||||||
December 31, 2012 | $ | 1,065 | $ | 417,601 | $ | — | $ | 418,666 | ||||||
September 30, 2013 | ||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||
Cash and cash equivalents(4) | $ | — | $ | 75,861 | $ | — | $ | 75,861 | ||||||
Restricted cash(5) | — | 117,611 | — | 117,611 | ||||||||||
Investments: | ||||||||||||||
U.S. government and agency securities | 1,130 | — | — | 1,130 | ||||||||||
Obligations of government-sponsored enterprises(3) | — | 8,410 | — | 8,410 | ||||||||||
Corporate debt securities | — | 218,288 | — | 218,288 | ||||||||||
Taxable municipal bonds | — | 600 | — | 600 | ||||||||||
Certificates of deposit | — | 150 | — | 150 | ||||||||||
September 30, 2013 | $ | 1,130 | $ | 420,920 | $ | — | $ | 422,050 | ||||||
-1 | ||||||||||||||
Excludes $87.3 million of cash held in bank accounts by the Company. | ||||||||||||||
-2 | ||||||||||||||
Excludes $143.7 million of restricted cash held in bank accounts by the Company. | ||||||||||||||
-3 | ||||||||||||||
Includes investments in notes issued by the Federal Home Loan Bank. | ||||||||||||||
-4 | ||||||||||||||
Excludes $205.9 million of cash held in bank accounts by the Company. | ||||||||||||||
-5 | ||||||||||||||
Excludes $91.0 million of restricted cash held in bank accounts by the Company. | ||||||||||||||
For the nine months ended September 30, 2013, the Company has not transferred any assets between fair value measurement levels. | ||||||||||||||
All of the Company's investments are classified as "available-for- sale" and are carried at fair value. | ||||||||||||||
If a debt security is in an unrealized loss position and the Company has the intent to sell the debt security, or it is more likely than not that the Company will have to sell the debt security before recovery of its amortized cost basis, the decline in value is deemed to be other-than-temporary and is recorded to other-than-temporary impairment losses recognized in income in the consolidated statements of comprehensive income. For impaired debt securities that the Company does not intend to sell or it is more likely than not that the Company will not have to sell such securities, but the Company expects that it will not fully recover the amortized cost basis, the credit component of the other-than-temporary impairment is recognized in other-than-temporary impairment losses recognized in income in the consolidated statements of comprehensive income and the non-credit component of the other-than-temporary impairment is recognized in other comprehensive income. | ||||||||||||||
As of December 31, 2012 and September 30, 2013, there were no unrealized losses that the Company believed to be other-than-temporary. No realized gains or losses were recorded for the nine months ended September 30, 2012 or 2013. The following is a summary of short-term and long-term investments at December 31, 2012 and September 30, 2013 (in thousands): | ||||||||||||||
December 31, 2012 | ||||||||||||||
Amortized | Gross | Gross | Estimated | |||||||||||
Cost | Unrealized | Unrealized | Fair | |||||||||||
Gains | Losses | Value | ||||||||||||
U.S. government and agency securities | $ | 1,065 | $ | — | $ | — | $ | 1,065 | ||||||
Obligations of government-sponsored enterprises(1) | 6,126 | 4 | (2 | ) | 6,128 | |||||||||
Corporate debt securities | 214,603 | 66 | (122 | ) | 214,547 | |||||||||
Taxable municipal bonds | 11,805 | — | (5 | ) | 11,800 | |||||||||
Certificates of deposit | 150 | — | — | 150 | ||||||||||
Total investments at December 31, 2012 | $ | 233,749 | $ | 70 | $ | (129 | ) | $ | 233,690 | |||||
September 30, 2013 | ||||||||||||||
Amortized | Gross | Gross | Estimated | |||||||||||
Cost | Unrealized | Unrealized | Fair Value | |||||||||||
Gains | Losses | |||||||||||||
U.S. government and agency securities | $ | 1,130 | $ | — | $ | — | $ | 1,130 | ||||||
Obligations of government-sponsored enterprises(1) | 8,408 | 3 | (1 | ) | 8,410 | |||||||||
Corporate debt securities | 218,411 | 28 | (151 | ) | 218,288 | |||||||||
Taxable municipal bonds | 600 | — | — | 600 | ||||||||||
Certificates of deposit | 150 | — | — | 150 | ||||||||||
Total investments at September 30, 2013 | $ | 228,699 | $ | 31 | $ | (152 | ) | $ | 228,578 | |||||
-1 | ||||||||||||||
Includes investments in notes issued by the Federal Home Loan Bank. | ||||||||||||||
The maturity dates of the Company's investments as of September 30, 2013 are summarized below (in thousands): | ||||||||||||||
Amortized | Estimated | |||||||||||||
Cost | Fair Value | |||||||||||||
2013 | $ | 99,253 | $ | 99,211 | ||||||||||
2014 | 121,593 | 121,522 | ||||||||||||
2015 | 7,853 | 7,845 | ||||||||||||
Total investments at September 30, 2013 | $ | 228,699 | $ | 228,578 | ||||||||||
Note Receivable and Preferred Stock | Note Receivable and Preferred Stock | |||||||||||||
The Company holds a 7% equity interest in AlphaCare of New York, Inc. ('AlphaCare") through an equity investment of $2.0 million in preferred membership units of AlphaCare's current holding company, AlphaCare Holdings, LLC on May 17, 2013. During the current year, the Company also loaned $5.9 million to AlphaCare Holdings, LLC pursuant to a promissory note (the "Note") which was secured by a pledge of all of the outstanding stock of AlphaCare. AlphaCare is a newly licensed HMO in New York that operates a New York Managed Long-Term Care Plan ("MLTCP") in Bronx, New York, Queens, Kings and Westchester Counties, and Medicare Plans in Bronx, New York, Queens and Kings Counties. | ||||||||||||||
On August 13, 2013, the Company entered into a stock purchase agreement (the "Stock Purchase Agreement") under which it agreed to acquire a 65% equity interest in AlphaCare through an investment in its holding company. | ||||||||||||||
As contemplated by the Stock Purchase Agreement, AlphaCare Holdings, LLC will merge with and into AlphaCare Holdings, Inc. ("AlphaCare Holdings"), a recently-formed Delaware holding corporation, and the Company's 7% equity interest and the Note will be converted into shares of Series A Participating Preferred Stock ("Series A Preferred") of AlphaCare Holdings. The Company will also purchase additional shares of Series A Preferred stock such that it will own 65% of the outstanding shares of AlphaCare Holdings for an aggregate acquisition price of $25.5 million, including its original investment of $7.9 million. | ||||||||||||||
The closing of the Stock Purchase Agreement is subject to various conditions, including approval of the New York State Department of Health. The Company expects that the closing of the Stock Purchase Agreement will occur in late 2013 or early 2014. | ||||||||||||||
Income Taxes | Income Taxes | |||||||||||||
The Company's effective income tax rates were 12.6 percent and 22.0 percent for the nine months ended September 30, 2012 and 2013, respectively. These rates differ from the federal statutory income tax rate primarily due to state income taxes, permanent differences between book and tax income, and changes to recorded tax contingencies. The Company also accrues interest and penalties related to unrecognized tax benefits in its provision for income taxes. The effective income tax rate for the nine months ended September 30, 2012 is lower than the effective rate for the nine months ended September 30, 2013 mainly due to lower reversals of tax contingencies in the current year from the closure of statutes of limitation. | ||||||||||||||
The Company files a consolidated federal income tax return for the Company and its eighty percent or more owned subsidiaries, and the Company and its subsidiaries file income tax returns in various states and local jurisdictions. With few exceptions, the Company is no longer subject to state or local income tax assessments by tax authorities for years ended prior to 2009. Further, the statutes of limitation regarding the assessment of federal and certain state and local income taxes for 2009 closed during the current quarter. As a result, $27.2 million of unrecognized tax benefits (excluding interest costs) recorded as of December 31, 2012 were reversed in the current quarter, of which $22.7 million is reflected as a discrete reduction to income tax expense, $3.9 million as an increase to additional paid-in capital, and the remainder as a decrease to deferred tax assets. Additionally, $2.1 million of accrued interest was reversed in the current quarter and reflected as a reduction to income tax expense due to the closing of statutes of limitation on tax assessments. | ||||||||||||||
Stock Compensation | Stock Compensation | |||||||||||||
At December 31, 2012 and September 30, 2013, the Company had equity-based employee incentive plans, which are described more fully in Note 6 in the Company's Annual Report on Form 10-K for the year ended December 31, 2012. The Company recorded stock compensation expense of $4.5 million and $13.9 million for the three and nine months ended September 30, 2012, respectively, and $4.5 million and $14.8 million for the three and nine months ended September 30, 2013, respectively. Stock compensation expense recognized in the consolidated statements of comprehensive income for the three and nine months ended September 30, 2012 and 2013 has been reduced for estimated forfeitures, estimated at four percent for both periods. | ||||||||||||||
The weighted average grant date fair value of all stock options granted during the nine months ended September 30, 2013 was $12.10 as estimated using the Black-Scholes-Merton option pricing model, which also assumed an expected volatility of 27.86 percent based on the historical volatility of the Company's stock price. | ||||||||||||||
The benefits of tax deductions in excess of recognized stock compensation expense are reported as a financing cash flow, rather than as an operating cash flow. In the nine months ended September 30, 2012 and 2013, $0.9 million and $1.1 million, respectively, of benefits of such tax deductions related to stock compensation expense were realized and as such were reported as financing cash flows. For the nine months ended September 30, 2012 the net change to additional paid in capital related to tax benefits (deficiencies) was $0.6 million, which includes the $0.9 million of excess tax benefits offset by $(0.3) million of tax deficiencies. For the nine months ended September 30, 2013, the net change to additional paid in capital related to tax benefits (deficiencies) was $0.4 million, which includes the $1.1 million of excess tax benefits offset by $(0.7) million of excess tax deficiencies. | ||||||||||||||
Summarized information related to the Company's stock options for the nine months ended September 30, 2013 is as follows: | ||||||||||||||
Options | Weighted | |||||||||||||
Average | ||||||||||||||
Exercise | ||||||||||||||
Price | ||||||||||||||
Outstanding, beginning of period | 4,268,240 | $ | 44.35 | |||||||||||
Granted | 981,133 | 52.65 | ||||||||||||
Forfeited | (101,476 | ) | 49.02 | |||||||||||
Exercised | (562,554 | ) | 43.22 | |||||||||||
Outstanding, end of period | 4,585,343 | $ | 46.16 | |||||||||||
Vested and expected to vest at end of period | 4,538,122 | $ | 46.11 | |||||||||||
Exercisable, end of period | 2,519,497 | $ | 42.84 | |||||||||||
With the exception of options granted to the Company's CEO, generally all of the Company's options granted during the nine months ended September 30, 2013 vest ratably on each anniversary date over the three years subsequent to grant. During the nine months ended September 30, 2013, the Company granted options to the Company's CEO which vest over four year annual installments, with 16.7 percent, 33.3 percent, 33.3 percent, and 16.7 percent vesting in 2014, 2015, 2016, and 2017, respectively. All options granted during the nine months ended September 30, 2013 have a ten year life. | ||||||||||||||
Summarized information related to the Company's nonvested restricted stock awards for the nine months ended September 30, 2013 is as follows: | ||||||||||||||
Shares | Weighted | |||||||||||||
Average | ||||||||||||||
Grant Date | ||||||||||||||
Fair Value | ||||||||||||||
Outstanding, beginning of period | 23,672 | $ | 42.25 | |||||||||||
Awarded | 16,569 | 52.82 | ||||||||||||
Vested | (23,672 | ) | 42.25 | |||||||||||
Forfeited | — | — | ||||||||||||
Outstanding, ending of period | 16,569 | $ | 52.82 | |||||||||||
Summarized information related to the Company's nonvested restricted stock units for the nine months ended September 30, 2013 is as follows: | ||||||||||||||
Shares | Weighted | |||||||||||||
Average | ||||||||||||||
Grant Date | ||||||||||||||
Fair Value | ||||||||||||||
Outstanding, beginning of period | 202,690 | $ | 47.38 | |||||||||||
Awarded | 98,580 | 52.62 | ||||||||||||
Vested | (95,138 | ) | 46.72 | |||||||||||
Forfeited | (5,935 | ) | 49.39 | |||||||||||
Outstanding, ending of period | 200,197 | $ | 50.21 | |||||||||||
Grants of restricted stock awards vest on the anniversary of the grant. With the exception of restricted stock units awarded to the Company's CEO during the nine months ended September 30, 2013, generally all of the Company's restricted stock units vest ratably on each anniversary over the three years subsequent to grant, assuming that the associated performance hurdle(s) for that vesting year are met. During the nine months ended September 30, 2013, the Company granted restricted stock units to the Company's CEO which vest over four year annual installments, with 16.7 percent, 33.3 percent, 33.3 percent, and 16.7 percent vesting in 2014, 2015, 2016, and 2017, respectively, assuming the associated performance hurdle(s) for that vesting year are met. | ||||||||||||||
Long Term Debt and Capital Lease Obligations | Long Term Debt and Capital Lease Obligations | |||||||||||||
On December 9, 2011, the Company entered into a Senior Secured Revolving Credit Facility Credit Agreement with Citibank, N.A., Wells Fargo Bank, N.A., Bank of America, N.A., and U.S. Bank, N.A. that provides for up to $230.0 million of revolving loans with a sublimit of up to $70.0 million for the issuance of letters of credit for the account of the Company (the "2011 Credit Facility"). Citibank, N.A., has assigned a portion of its interest in the 2011 Credit Facility to Bank of Tokyo. The 2011 Credit Facility is guaranteed by substantially all of the subsidiaries of the Company and is secured by substantially all of the assets of the Company and the subsidiary guarantors. The 2011 Credit Facility will mature on December 9, 2014. | ||||||||||||||
Under the 2011 Credit Facility, the annual interest rate on revolving loan borrowings is equal to (i) in the case of U.S. dollar denominated loans, the sum of a borrowing margin of 0.75 percent plus the higher of the prime rate, one-half of one percent in excess of the overnight "federal funds" rate, or the Eurodollar rate for one month plus 1.00 percent, or (ii) in the case of Eurodollar denominated loans, the sum of a borrowing margin of 1.75 percent plus the Eurodollar rate for the selected interest period. The Company has the option to borrow in U.S. dollar denominated loans or Eurodollar denominated loans at its discretion. Letters of credit issued under the Revolving Loan Commitment bear interest at the rate of 1.875 percent. The commitment commission on the 2011 Credit Facility is 0.375 percent of the unused Revolving Loan Commitment. | ||||||||||||||
There were no capital lease obligations at December 31, 2012 and $27.0 million of capital lease obligations at September 30, 2013. The Company had $32.0 million and $32.4 million of letters of credit outstanding at December 31, 2012 and September 30, 2013, respectively, and no revolving loan borrowings at December 31, 2012 or September 30, 2013. | ||||||||||||||
Reclassifications | Reclassifications | |||||||||||||
Certain prior year amounts have been reclassified to conform with the current year presentation. | ||||||||||||||
General_Tables
General (Tables) | 9 Months Ended | |||||||||||||
Sep. 30, 2013 | ||||||||||||||
General | ||||||||||||||
Schedule of customers generating in excess of ten percent of net revenues for respective segment | In addition to the Maricopa Contract previously discussed, the following customers generated in excess of ten percent of net revenues for the respective segment for the nine months ended September 30, 2012 and 2013 (in thousands): | |||||||||||||
Segment | Term Date | 2012 | 2013 | |||||||||||
Commercial | ||||||||||||||
Customer A | Mid-2014(1) | $ | 144,499 | $ | 156,269 | |||||||||
Customer B | December 31, 2019 | 101,249 | 106,433 | |||||||||||
Customer C | December 31, 2012 to December 14, 2013(2)(3) | 89,592 | 58,246 | |||||||||||
Public Sector | ||||||||||||||
Customer D | June 30, 2014(4) | 175,440 | 209,266 | |||||||||||
Radiology Benefits Management | ||||||||||||||
Customer E | December 31, 2015 | 83,158 | 96,402 | |||||||||||
Customer F | June 30, 2014 | 44,959 | 43,490 | |||||||||||
Customer G | July 31, 2015 | 42,458 | 47,161 | |||||||||||
Customer H | January 31, 2014 | 27,824 | 34,338 | |||||||||||
Pharmacy Solutions | ||||||||||||||
Customer I | November 30, 2013 to December 31, 2013(2) | 98,128 | 99,599 | |||||||||||
Customer J | December 31, 2013(5) | 45,018 | 43,315 | * | ||||||||||
Customer K | December 31, 2013(5) | 53,640 | 68,166 | |||||||||||
Customer L | September 30, 2013(6) | 53,259 | 48,527 | |||||||||||
* | ||||||||||||||
Revenue amount did not exceed ten percent of net revenues for the respective segment for the period presented. Amount is shown for comparative purposes only. | ||||||||||||||
-1 | ||||||||||||||
The customer has informed the Company that, after a competitive evaluation process, it has decided not to renew its contract after the contract expires on December 31, 2013. The Company anticipates the contract will extend through mid-2014 to allow for transition to new vendor. | ||||||||||||||
-2 | ||||||||||||||
The customer has more than one contract. The individual contracts are scheduled to terminate at various points during the time period indicated above. | ||||||||||||||
-3 | ||||||||||||||
Revenues for the nine months ended September 30, 2012 of $38.0 million relate to a contract that terminated as of December 31, 2012. The customer has informed the Company that is has decided not to renew the remaining contract after the contract expires on December 14, 2013. | ||||||||||||||
-4 | ||||||||||||||
Contract has options for the customer to extend the term for two additional one-year periods. | ||||||||||||||
-5 | ||||||||||||||
The Company has received notification that the customer will not renew its contracts for specialty pharmacy and related services. The Company has multiple contracts that are currently scheduled to terminate on December 31, 2013. | ||||||||||||||
-6 | ||||||||||||||
This customer represents a subcontract with a Public Sector customer and is eliminated in consolidation. | ||||||||||||||
Schedule of fair value of financial assets and liabilities | In accordance with the fair value hierarchy described above, the following table shows the fair value of the Company's financial assets and liabilities that are required to be measured at fair value as of December 31, 2012 and September 30, 2013 (in thousands): | |||||||||||||
December 31, 2012 | ||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||
Cash and cash equivalents(1) | $ | — | $ | 102,137 | $ | — | $ | 102,137 | ||||||
Restricted cash(2) | — | 82,839 | — | 82,839 | ||||||||||
Investments: | ||||||||||||||
U.S. government and agency securities | 1,065 | — | — | 1,065 | ||||||||||
Obligations of government-sponsored enterprises(3) | — | 6,128 | — | 6,128 | ||||||||||
Corporate debt securities | — | 214,547 | — | 214,547 | ||||||||||
Taxable municipal bonds | — | 11,800 | — | 11,800 | ||||||||||
Certificates of deposit | — | 150 | — | 150 | ||||||||||
December 31, 2012 | $ | 1,065 | $ | 417,601 | $ | — | $ | 418,666 | ||||||
` | ||||||||||||||
September 30, 2013 | ||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||
Cash and cash equivalents(4) | $ | — | $ | 75,861 | $ | — | $ | 75,861 | ||||||
Restricted cash(5) | — | 117,611 | — | 117,611 | ||||||||||
Investments: | ||||||||||||||
U.S. government and agency securities | 1,130 | — | — | 1,130 | ||||||||||
Obligations of government-sponsored enterprises(3) | — | 8,410 | — | 8,410 | ||||||||||
Corporate debt securities | — | 218,288 | — | 218,288 | ||||||||||
Taxable municipal bonds | — | 600 | — | 600 | ||||||||||
Certificates of deposit | — | 150 | — | 150 | ||||||||||
September 30, 2013 | $ | 1,130 | $ | 420,920 | $ | — | $ | 422,050 | ||||||
-1 | ||||||||||||||
Excludes $87.3 million of cash held in bank accounts by the Company. | ||||||||||||||
-2 | ||||||||||||||
Excludes $143.7 million of restricted cash held in bank accounts by the Company. | ||||||||||||||
-3 | ||||||||||||||
Includes investments in notes issued by the Federal Home Loan Bank. | ||||||||||||||
-4 | ||||||||||||||
Excludes $205.9 million of cash held in bank accounts by the Company. | ||||||||||||||
-5 | ||||||||||||||
Excludes $91.0 million of restricted cash held in bank accounts by the Company. | ||||||||||||||
Summary of short-term and long-term "available-for-sale" investments | The following is a summary of short-term and long-term investments at December 31, 2012 and September 30, 2013 (in thousands): | |||||||||||||
December 31, 2012 | ||||||||||||||
Amortized | Gross | Gross | Estimated | |||||||||||
Cost | Unrealized | Unrealized | Fair | |||||||||||
Gains | Losses | Value | ||||||||||||
U.S. government and agency securities | $ | 1,065 | $ | — | $ | — | $ | 1,065 | ||||||
Obligations of government-sponsored enterprises(1) | 6,126 | 4 | (2 | ) | 6,128 | |||||||||
Corporate debt securities | 214,603 | 66 | (122 | ) | 214,547 | |||||||||
Taxable municipal bonds | 11,805 | — | (5 | ) | 11,800 | |||||||||
Certificates of deposit | 150 | — | — | 150 | ||||||||||
Total investments at December 31, 2012 | $ | 233,749 | $ | 70 | $ | (129 | ) | $ | 233,690 | |||||
September 30, 2013 | ||||||||||||||
Amortized | Gross | Gross | Estimated | |||||||||||
Cost | Unrealized | Unrealized | Fair Value | |||||||||||
Gains | Losses | |||||||||||||
U.S. government and agency securities | $ | 1,130 | $ | — | $ | — | $ | 1,130 | ||||||
Obligations of government-sponsored enterprises(1) | 8,408 | 3 | (1 | ) | 8,410 | |||||||||
Corporate debt securities | 218,411 | 28 | (151 | ) | 218,288 | |||||||||
Taxable municipal bonds | 600 | — | — | 600 | ||||||||||
Certificates of deposit | 150 | — | — | 150 | ||||||||||
Total investments at September 30, 2013 | $ | 228,699 | $ | 31 | $ | (152 | ) | $ | 228,578 | |||||
-1 | ||||||||||||||
Includes investments in notes issued by the Federal Home Loan Bank. | ||||||||||||||
Summary of maturity dates of investments | The maturity dates of the Company's investments as of September 30, 2013 are summarized below (in thousands): | |||||||||||||
Amortized | Estimated | |||||||||||||
Cost | Fair Value | |||||||||||||
2013 | $ | 99,253 | $ | 99,211 | ||||||||||
2014 | 121,593 | 121,522 | ||||||||||||
2015 | 7,853 | 7,845 | ||||||||||||
Total investments at September 30, 2013 | $ | 228,699 | $ | 228,578 | ||||||||||
Schedule of stock option activity | Summarized information related to the Company's stock options for the nine months ended September 30, 2013 is as follows: | |||||||||||||
Options | Weighted | |||||||||||||
Average | ||||||||||||||
Exercise | ||||||||||||||
Price | ||||||||||||||
Outstanding, beginning of period | 4,268,240 | $ | 44.35 | |||||||||||
Granted | 981,133 | 52.65 | ||||||||||||
Forfeited | (101,476 | ) | 49.02 | |||||||||||
Exercised | (562,554 | ) | 43.22 | |||||||||||
Outstanding, end of period | 4,585,343 | $ | 46.16 | |||||||||||
Vested and expected to vest at end of period | 4,538,122 | $ | 46.11 | |||||||||||
Exercisable, end of period | 2,519,497 | $ | 42.84 | |||||||||||
Schedule of nonvested restricted stock award activity | Summarized information related to the Company's nonvested restricted stock awards for the nine months ended September 30, 2013 is as follows: | |||||||||||||
Shares | Weighted | |||||||||||||
Average | ||||||||||||||
Grant Date | ||||||||||||||
Fair Value | ||||||||||||||
Outstanding, beginning of period | 23,672 | $ | 42.25 | |||||||||||
Awarded | 16,569 | 52.82 | ||||||||||||
Vested | (23,672 | ) | 42.25 | |||||||||||
Forfeited | — | — | ||||||||||||
Outstanding, ending of period | 16,569 | $ | 52.82 | |||||||||||
Schedule of nonvested restricted stock units | Summarized information related to the Company's nonvested restricted stock units for the nine months ended September 30, 2013 is as follows: | |||||||||||||
Shares | Weighted | |||||||||||||
Average | ||||||||||||||
Grant Date | ||||||||||||||
Fair Value | ||||||||||||||
Outstanding, beginning of period | 202,690 | $ | 47.38 | |||||||||||
Awarded | 98,580 | 52.62 | ||||||||||||
Vested | (95,138 | ) | 46.72 | |||||||||||
Forfeited | (5,935 | ) | 49.39 | |||||||||||
Outstanding, ending of period | 200,197 | $ | 50.21 | |||||||||||
Net_Income_per_Common_Share_Ta
Net Income per Common Share (Tables) | 9 Months Ended | |||||||||||||
Sep. 30, 2013 | ||||||||||||||
Net Income per Common Share | ||||||||||||||
Computation of basic and diluted earnings per share | The following tables reconcile income (numerator) and shares (denominator) used in the computations of net income per common share (in thousands, except per share data): | |||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||
September 30, | September 30, | |||||||||||||
2012 | 2013 | 2012 | 2013 | |||||||||||
Numerator: | ||||||||||||||
Net income | $ | 66,262 | $ | 47,232 | $ | 114,025 | $ | 106,770 | ||||||
Denominator: | ||||||||||||||
Weighted average number of common shares outstanding—basic | 27,521 | 26,990 | 27,346 | 26,976 | ||||||||||
Common stock equivalents—stock options | 426 | 655 | 395 | 539 | ||||||||||
Common stock equivalents—restricted stock | 7 | 4 | 10 | 11 | ||||||||||
Common stock equivalents—restricted stock units | 87 | 54 | 83 | 35 | ||||||||||
Common stock equivalents—employee stock purchase plan | 1 | 1 | 1 | 2 | ||||||||||
Weighted average number of common shares outstanding—diluted | 28,042 | 27,704 | 27,835 | 27,563 | ||||||||||
Net income per common share—basic | $ | 2.41 | $ | 1.75 | $ | 4.17 | $ | 3.96 | ||||||
Net income per common share—diluted | $ | 2.36 | $ | 1.7 | $ | 4.1 | $ | 3.87 | ||||||
Business_Segment_Information_T
Business Segment Information (Tables) | 9 Months Ended | |||||||||||||||||||
Sep. 30, 2013 | ||||||||||||||||||||
Business Segment Information | ||||||||||||||||||||
Schedule of operating results by business segment | The following tables summarize, for the periods indicated, operating results by business segment (in thousands): | |||||||||||||||||||
Commercial | Public Sector | Radiology | Pharmacy | Corporate | Consolidated | |||||||||||||||
Benefits | Solutions | and | ||||||||||||||||||
Management | Elimination | |||||||||||||||||||
Three Months Ended September 30, 2012 | ||||||||||||||||||||
Managed care and other revenue | $ | 176,713 | $ | 407,265 | $ | 88,126 | $ | 54,421 | $ | (15,433 | ) | $ | 711,092 | |||||||
Dispensing revenue | — | — | — | 87,345 | — | 87,345 | ||||||||||||||
Cost of care | (100,973 | ) | (358,959 | ) | (58,080 | ) | (13,659 | ) | 15,433 | (516,238 | ) | |||||||||
Cost of goods sold | — | — | — | (81,662 | ) | — | (81,662 | ) | ||||||||||||
Direct service costs and other | (43,007 | ) | (22,948 | ) | (14,045 | ) | (27,565 | ) | (28,009 | ) | (135,574 | ) | ||||||||
Stock compensation expense(1) | 293 | 278 | 419 | 238 | 3,240 | 4,468 | ||||||||||||||
Segment profit (loss) | $ | 33,026 | $ | 25,636 | $ | 16,420 | $ | 19,118 | $ | (24,769 | ) | $ | 69,431 | |||||||
Commercial | Public Sector | Radiology | Pharmacy | Corporate | Consolidated | |||||||||||||||
Benefits | Solutions | and | ||||||||||||||||||
Management | Elimination | |||||||||||||||||||
Three Months Ended September 30, 2013 | ||||||||||||||||||||
Managed care and other revenue | $ | 190,655 | $ | 445,260 | $ | 94,125 | $ | 63,008 | $ | (17,091 | ) | $ | 775,957 | |||||||
Dispensing revenue | — | — | — | 97,641 | — | 97,641 | ||||||||||||||
Cost of care | (118,022 | ) | (382,913 | ) | (65,403 | ) | (20,940 | ) | 17,091 | (570,187 | ) | |||||||||
Cost of goods sold | — | — | — | (91,853 | ) | — | (91,853 | ) | ||||||||||||
Direct service costs and other | (47,032 | ) | (27,826 | ) | (13,990 | ) | (32,281 | ) | (35,705 | ) | (156,834 | ) | ||||||||
Stock compensation expense(1) | 124 | 259 | 384 | 198 | 3,559 | 4,524 | ||||||||||||||
Segment profit (loss) | $ | 25,725 | $ | 34,780 | $ | 15,116 | $ | 15,773 | $ | (32,146 | ) | $ | 59,248 | |||||||
Commercial | Public Sector | Radiology | Pharmacy | Corporate | Consolidated | |||||||||||||||
Benefits | Solutions | and | ||||||||||||||||||
Management | Elimination | |||||||||||||||||||
Nine Months Ended September 30, 2012 | ||||||||||||||||||||
Managed care and other revenue | $ | 535,464 | $ | 1,206,289 | $ | 253,809 | $ | 171,846 | $ | (53,259 | ) | $ | 2,114,149 | |||||||
Dispensing revenue | — | — | — | 262,974 | — | 262,974 | ||||||||||||||
Cost of care | (323,992 | ) | (1,058,384 | ) | (166,364 | ) | (47,880 | ) | 53,259 | (1,543,361 | ) | |||||||||
Cost of goods sold | — | — | — | (245,555 | ) | — | (245,555 | ) | ||||||||||||
Direct service costs and other | (127,825 | ) | (66,850 | ) | (41,113 | ) | (83,532 | ) | (93,176 | ) | (412,496 | ) | ||||||||
Stock compensation expense(1) | 830 | 835 | 1,179 | 704 | 10,387 | 13,935 | ||||||||||||||
Segment profit (loss) | $ | 84,477 | $ | 81,890 | $ | 47,511 | $ | 58,557 | $ | (82,789 | ) | $ | 189,646 | |||||||
Commercial | Public Sector | Radiology | Pharmacy | Corporate | Consolidated | |||||||||||||||
Benefits | Solutions | and | ||||||||||||||||||
Management | Elimination | |||||||||||||||||||
Nine Months Ended September 30, 2013 | ||||||||||||||||||||
Managed care and other revenue | $ | 578,030 | $ | 1,266,739 | $ | 277,118 | $ | 182,418 | $ | (48,557 | ) | $ | 2,255,748 | |||||||
Dispensing revenue | — | — | — | 282,359 | — | 282,359 | ||||||||||||||
Cost of care | (354,520 | ) | (1,095,694 | ) | (182,212 | ) | (59,075 | ) | 48,557 | (1,642,944 | ) | |||||||||
Cost of goods sold | — | — | — | (265,440 | ) | — | (265,440 | ) | ||||||||||||
Direct service costs and other | (129,823 | ) | (82,403 | ) | (41,224 | ) | (93,216 | ) | (94,292 | ) | (440,958 | ) | ||||||||
Stock compensation expense(1) | 390 | 833 | 1,275 | 898 | 11,368 | 14,764 | ||||||||||||||
Segment profit (loss) | $ | 94,077 | $ | 89,475 | $ | 54,957 | $ | 47,944 | $ | (82,924 | ) | $ | 203,529 | |||||||
-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. | ||||||||||||||||||||
Reconciliation of Segment Profit to income before income taxes | The following table reconciles Segment Profit to income before income taxes (in thousands): | |||||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||||||
September 30, | September 30, | |||||||||||||||||||
2012 | 2013 | 2012 | 2013 | |||||||||||||||||
Segment profit | $ | 69,431 | $ | 59,248 | $ | 189,646 | $ | 203,529 | ||||||||||||
Stock compensation expense | (4,468 | ) | (4,524 | ) | (13,935 | ) | (14,764 | ) | ||||||||||||
Depreciation and amortization | (15,239 | ) | (17,654 | ) | (45,172 | ) | (50,770 | ) | ||||||||||||
Interest expense | (537 | ) | (789 | ) | (1,713 | ) | (2,191 | ) | ||||||||||||
Interest income | 350 | 291 | 1,619 | 1,002 | ||||||||||||||||
Income before income taxes | $ | 49,537 | $ | 36,572 | $ | 130,445 | $ | 136,806 | ||||||||||||
General_Details
General (Details) | 9 Months Ended |
Sep. 30, 2013 | |
segment | |
Operating results by business segment | |
Number of Business segments | 5 |
Managed Behavioral Healthcare | |
Operating results by business segment | |
Number of Business segments | 2 |
General_Details_2
General (Details 2) (USD $) | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2013 | Sep. 30, 2012 | Sep. 30, 2013 | Sep. 30, 2012 | |
Net revenues | ||||
Managed Care Revenue | $673,600,000 | $631,600,000 | $1,957,900,000 | $1,871,400,000 |
Fee-For-Service and Cost-Plus Contracts Revenue | 52,600,000 | 33,800,000 | 152,900,000 | 104,800,000 |
Block Grant Revenues | 32,300,000 | 32,600,000 | 96,900,000 | 90,500,000 |
Performance-Based Revenue | 2,700,000 | 2,600,000 | 6,100,000 | 14,500,000 |
Rebate revenues | 8,800,000 | 10,300,000 | 25,600,000 | 29,300,000 |
Dispensing Revenue | 97,641,000 | 87,345,000 | 282,359,000 | 262,974,000 |
Significant customers | ||||
Revenues generated | 873,598,000 | 798,437,000 | 2,538,107,000 | 2,377,123,000 |
Maricopa County Regional Behavioral Health Authority | ||||
Significant customers | ||||
Number of members receiving behavioral healthcare management and other related services | 685,000 | |||
Termination notice | 10 days | |||
Termination notice period without cause | 30 days | |||
Revenues generated | 557,600,000 | 566,200,000 | ||
Magellan Complete Care of Arizona, Inc. | ||||
Significant customers | ||||
Percentage of investment in joint venture | 80.00% | 80.00% | ||
Number of days to review administrative law judge's decision | 30 days | |||
Vanguard/Phoenix Health Plan | Magellan Complete Care of Arizona, Inc. | ||||
Significant customers | ||||
Percentage of investment in joint venture | 20.00% | 20.00% | ||
Commercial | Customer A | Service | ||||
Significant customers | ||||
Revenues generated | 156,269,000 | 144,499,000 | ||
Commercial | Customer B | Service | ||||
Significant customers | ||||
Revenues generated | 106,433,000 | 101,249,000 | ||
Commercial | Customer C | Service | ||||
Significant customers | ||||
Revenues generated | 58,246,000 | 89,592,000 | ||
Minimum number of contracts per customer | 1 | |||
Revenues related to terminated contract | 38,000,000 | |||
Public Sector | Customer D | Service | ||||
Significant customers | ||||
Revenues generated | 209,266,000 | 175,440,000 | ||
Number of contract extensions available under option | 2 | |||
Contract extension period available under option | 1 year | |||
Radiology Benefits Management | Customer E | Service | ||||
Significant customers | ||||
Revenues generated | 96,402,000 | 83,158,000 | ||
Radiology Benefits Management | Customer F | Service | ||||
Significant customers | ||||
Revenues generated | 43,490,000 | 44,959,000 | ||
Radiology Benefits Management | Customer G | Service | ||||
Significant customers | ||||
Revenues generated | 47,161,000 | 42,458,000 | ||
Radiology Benefits Management | Customer H | Service | ||||
Significant customers | ||||
Revenues generated | 34,338,000 | 27,824,000 | ||
Pharmacy Solutions | ||||
Net revenues | ||||
Dispensing Revenue | 97,641,000 | 87,345,000 | 282,359,000 | 262,974,000 |
Pharmacy Solutions | Customer I | Service | ||||
Significant customers | ||||
Revenues generated | 99,599,000 | 98,128,000 | ||
Minimum number of contracts per customer | 1 | |||
Pharmacy Solutions | Customer J | Service | ||||
Significant customers | ||||
Revenues generated | 43,315,000 | 45,018,000 | ||
Minimum number of contracts per customer | 1 | |||
Pharmacy Solutions | Customer K | Service | ||||
Significant customers | ||||
Revenues generated | 68,166,000 | 53,640,000 | ||
Minimum number of contracts per customer | 1 | |||
Pharmacy Solutions | Customer L | Service | ||||
Significant customers | ||||
Revenues generated | $48,527,000 | $53,259,000 |
General_Details_3
General (Details 3) (USD $) | 3 Months Ended | 9 Months Ended | ||
In Thousands, unless otherwise specified | Sep. 30, 2013 | Sep. 30, 2012 | Sep. 30, 2013 | Sep. 30, 2012 |
Concentration of Business | ||||
Net revenue | $873,598 | $798,437 | $2,538,107 | $2,377,123 |
Minimum | ||||
Concentration of Business | ||||
Term of Contract | 1 year | |||
Term of renewed contract | 1 year | |||
Notice period for termination of contract | 60 days | |||
Maximum | ||||
Concentration of Business | ||||
Term of Contract | 3 years | |||
Term of renewed contract | 2 years | |||
Notice period for termination of contract | 180 days | |||
Pennsylvania Counties | ||||
Concentration of Business | ||||
Net revenue | 269,100 | 269,800 | ||
Florida Areas | ||||
Concentration of Business | ||||
Net revenue | $97,800 | $100,600 |
General_Details_4
General (Details 4) (USD $) | Sep. 30, 2013 | Dec. 31, 2012 |
Fair value of financial assets and liabilities required to be measured at fair value on a recurring basis | ||
Restricted cash | $208,567,000 | $226,554,000 |
Investments | 228,578,000 | 233,690,000 |
Cash held in bank accounts by the Company, unrestricted | 205,900,000 | 87,300,000 |
Cash held in bank accounts by the Company, restricted | 91,000,000 | 143,700,000 |
Fair value measured on recurring basis | Level 1 | ||
Fair value of financial assets and liabilities required to be measured at fair value on a recurring basis | ||
Total assets measured at fair value on a recurring basis | 1,130,000 | 1,065,000 |
Fair value measured on recurring basis | Level 1 | U.S. Government and agency securities | ||
Fair value of financial assets and liabilities required to be measured at fair value on a recurring basis | ||
Investments | 1,130,000 | 1,065,000 |
Fair value measured on recurring basis | Level 2 | ||
Fair value of financial assets and liabilities required to be measured at fair value on a recurring basis | ||
Total assets measured at fair value on a recurring basis | 420,920,000 | 417,601,000 |
Fair value measured on recurring basis | Level 2 | Other than cash held in bank accounts by Company | ||
Fair value of financial assets and liabilities required to be measured at fair value on a recurring basis | ||
Cash and cash equivalents | 75,861,000 | 102,137,000 |
Restricted cash | 117,611,000 | 82,839,000 |
Fair value measured on recurring basis | Level 2 | Obligations of government-sponsored enterprises | ||
Fair value of financial assets and liabilities required to be measured at fair value on a recurring basis | ||
Investments | 8,410,000 | 6,128,000 |
Fair value measured on recurring basis | Level 2 | Corporate debt securities | ||
Fair value of financial assets and liabilities required to be measured at fair value on a recurring basis | ||
Investments | 218,288,000 | 214,547,000 |
Fair value measured on recurring basis | Level 2 | Taxable municipal bonds | ||
Fair value of financial assets and liabilities required to be measured at fair value on a recurring basis | ||
Investments | 600,000 | 11,800,000 |
Fair value measured on recurring basis | Level 2 | Certificates of deposit | ||
Fair value of financial assets and liabilities required to be measured at fair value on a recurring basis | ||
Investments | 150,000 | 150,000 |
Fair value measured on recurring basis | Total | ||
Fair value of financial assets and liabilities required to be measured at fair value on a recurring basis | ||
Total assets measured at fair value on a recurring basis | 422,050,000 | 418,666,000 |
Fair value measured on recurring basis | Total | Other than cash held in bank accounts by Company | ||
Fair value of financial assets and liabilities required to be measured at fair value on a recurring basis | ||
Cash and cash equivalents | 75,861,000 | 102,137,000 |
Restricted cash | 117,611,000 | 82,839,000 |
Fair value measured on recurring basis | Total | U.S. Government and agency securities | ||
Fair value of financial assets and liabilities required to be measured at fair value on a recurring basis | ||
Investments | 1,130,000 | 1,065,000 |
Fair value measured on recurring basis | Total | Obligations of government-sponsored enterprises | ||
Fair value of financial assets and liabilities required to be measured at fair value on a recurring basis | ||
Investments | 8,410,000 | 6,128,000 |
Fair value measured on recurring basis | Total | Corporate debt securities | ||
Fair value of financial assets and liabilities required to be measured at fair value on a recurring basis | ||
Investments | 218,288,000 | 214,547,000 |
Fair value measured on recurring basis | Total | Taxable municipal bonds | ||
Fair value of financial assets and liabilities required to be measured at fair value on a recurring basis | ||
Investments | 600,000 | 11,800,000 |
Fair value measured on recurring basis | Total | Certificates of deposit | ||
Fair value of financial assets and liabilities required to be measured at fair value on a recurring basis | ||
Investments | $150,000 | $150,000 |
General_Details_5
General (Details 5) (USD $) | 9 Months Ended | 12 Months Ended | |
In Thousands, unless otherwise specified | Sep. 30, 2013 | Sep. 30, 2012 | Dec. 31, 2012 |
Short-term and long-term investments | |||
Other-than-temporary unrealized losses | $0 | $0 | |
Realized gains or losses | 0 | 0 | |
Amortized Cost | 228,699 | 233,749 | |
Gross Unrealized Gains | 31 | 70 | |
Gross Unrealized Losses | -152 | -129 | |
Total, Estimated Fair Value | 228,578 | 233,690 | |
U.S. Government and agency securities | |||
Short-term and long-term investments | |||
Amortized Cost | 1,130 | 1,065 | |
Total, Estimated Fair Value | 1,130 | 1,065 | |
Obligations of government-sponsored enterprises | |||
Short-term and long-term investments | |||
Amortized Cost | 8,408 | 6,126 | |
Gross Unrealized Gains | 3 | 4 | |
Gross Unrealized Losses | -1 | -2 | |
Total, Estimated Fair Value | 8,410 | 6,128 | |
Corporate debt securities | |||
Short-term and long-term investments | |||
Amortized Cost | 218,411 | 214,603 | |
Gross Unrealized Gains | 28 | 66 | |
Gross Unrealized Losses | -151 | -122 | |
Total, Estimated Fair Value | 218,288 | 214,547 | |
Taxable municipal bonds | |||
Short-term and long-term investments | |||
Amortized Cost | 600 | 11,805 | |
Gross Unrealized Losses | -5 | ||
Total, Estimated Fair Value | 600 | 11,800 | |
Certificates of deposit | |||
Short-term and long-term investments | |||
Amortized Cost | 150 | 150 | |
Total, Estimated Fair Value | $150 | $150 |
General_Details_6
General (Details 6) (USD $) | Sep. 30, 2013 | Dec. 31, 2012 |
In Thousands, unless otherwise specified | ||
Amortized Cost | ||
Maturity dates, investments, 2013 | $99,253 | |
Maturity dates, investments, 2014 | 121,593 | |
Maturity dates, investments, 2015 | 7,853 | |
Total, Amortized Cost | 228,699 | |
Estimated Fair Value | ||
Maturity dates, investments, 2013 | 99,211 | |
Maturity dates, investments, 2014 | 121,522 | |
Maturity dates, investments, 2015 | 7,845 | |
Total, Estimated Fair Value | $228,578 | $233,690 |
General_Details_7
General (Details 7) (AlphaCare Holdings, USD $) | Sep. 30, 2013 | Aug. 13, 2013 | Sep. 30, 2013 | 17-May-13 |
In Millions, unless otherwise specified | AlphaCare | AlphaCare | ||
Note Receivable and Preferred Stock | ||||
Equity interest held (as a percent) | 7.00% | |||
Equity investment in preferred membership units | $2 | |||
Amount previously loaned to acquiree pursuant to a promissory note | 5.9 | |||
Percentage of equity interest to be owned | 65.00% | |||
Aggregate acquisition price | 25.5 | |||
Original investment | $7.90 |
General_Details_8
General (Details 8) (USD $) | 3 Months Ended | 9 Months Ended | |
In Millions, unless otherwise specified | Sep. 30, 2013 | Sep. 30, 2013 | Sep. 30, 2012 |
Income Taxes | |||
Effective income tax rates (as a percent) | 22.00% | 12.60% | |
The ownership percentage for which the entity files a consolidated federal income tax return, low end of range | 80.00% | 80.00% | |
Income tax contingency disclosures | |||
Unrecognized tax benefits reduced due to lapse of statute of limitation | $27.20 | ||
Additional Paid in Capital | |||
Income tax contingency disclosures | |||
Unrecognized tax benefits reduced due to lapse of statute of limitation | 3.9 | ||
Income Tax Expense | |||
Income tax contingency disclosures | |||
Unrecognized tax benefits reduced due to lapse of statute of limitation | 22.7 | ||
Interest expense related to unrecognized tax benefits | ($2.10) |
General_Details_9
General (Details 9) (USD $) | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2013 | Sep. 30, 2012 | Sep. 30, 2013 | Sep. 30, 2012 | |
Share-based compensation | ||||
Stock compensation expense | $4,524,000 | $4,468,000 | $14,764,000 | $13,935,000 |
Estimated forfeitures (as a percent) | 4.00% | 4.00% | 4.00% | 4.00% |
Benefits of tax deductions in excess of recognized stock compensation expenses | 1,100,000 | 900,000 | ||
Change to additional paid in capital related to tax net benefits (deficiencies) | 400,000 | 600,000 | ||
Benefit of tax deductions in recognized stock compensation expenses | 1,100,000 | 900,000 | ||
Deficiency of tax deductions in recognized stock compensation expenses | ($700,000) | ($300,000) | ||
Stock options | ||||
Stock options, nonvested restricted stock awards and nonvested restricted stock units | ||||
Grants in period, weighted average grant date fair value (in dollars per share) | $12.10 | |||
Expected volatility (as a percent) | 27.86% | |||
Stock option activity | ||||
Outstanding, beginning of period (in shares) | 4,268,240 | |||
Granted (in shares) | 981,133 | |||
Forfeited (in shares) | -101,476 | |||
Exercised (in shares) | -562,554 | |||
Outstanding, end of period (in shares) | 4,585,343 | 4,585,343 | ||
Vested and expected to vest end of period (in shares) | 4,538,122 | 4,538,122 | ||
Exercisable, end of period (in shares) | 2,519,497 | 2,519,497 | ||
Weighted average exercise price of stock options | ||||
Outstanding, beginning of period (in dollars per share) | $44.35 | |||
Granted (in dollars per share) | $52.65 | |||
Forfeited (in dollars per share) | $49.02 | |||
Exercised (in dollars per share) | $43.22 | |||
Outstanding, end of period (in dollars per share) | $46.16 | $46.16 | ||
Vested and expected to vest end of period (in dollars per share) | $46.11 | $46.11 | ||
Exercisable, end of period (in dollars per share) | $42.84 | $42.84 | ||
Life of options (Expiration period) | 10 years | |||
Stock options | Individuals other than the CEO | ||||
Weighted average exercise price of stock options | ||||
Vesting period | 3 years | |||
Stock options | CEO | ||||
Weighted average exercise price of stock options | ||||
Vesting period | 4 years | |||
Percentage of awards vesting in 2014 | 16.70% | |||
Percentage of awards vesting in 2015 | 33.30% | |||
Percentage of awards vesting in 2016 | 33.30% | |||
Percentage of awards vesting in 2017 | 16.70% | |||
Nonvested restricted stock awards | ||||
Nonvested restricted stock awards and units | ||||
Outstanding, beginning of period (in shares) | 23,672 | |||
Awarded (in shares) | 16,569 | |||
Vested (in shares) | -23,672 | |||
Outstanding, ending of period (in shares) | 16,569 | 16,569 | ||
Weighted average exercise price of nonvested restricted stock award and units | ||||
Outstanding, beginning of period (in dollars per share) | $42.25 | |||
Awarded (in dollars per share) | $52.82 | |||
Vested (in dollars per share) | $42.25 | |||
Outstanding, ending of period (in dollars per share) | $52.82 | $52.82 | ||
Nonvested restricted stock units | ||||
Nonvested restricted stock awards and units | ||||
Outstanding, beginning of period (in shares) | 202,690 | |||
Awarded (in shares) | 98,580 | |||
Vested (in shares) | -95,138 | |||
Forfeited (in shares) | -5,935 | |||
Outstanding, ending of period (in shares) | 200,197 | 200,197 | ||
Weighted average exercise price of nonvested restricted stock award and units | ||||
Outstanding, beginning of period (in dollars per share) | $47.38 | |||
Awarded (in dollars per share) | $52.62 | |||
Vested (in dollars per share) | $46.72 | |||
Forfeited (in dollars per share) | $49.39 | |||
Outstanding, ending of period (in dollars per share) | $50.21 | $50.21 | ||
Nonvested restricted stock units | Individuals other than the CEO | ||||
Weighted average exercise price of stock options | ||||
Vesting period | 3 years | |||
Nonvested restricted stock units | CEO | ||||
Weighted average exercise price of stock options | ||||
Vesting period | 4 years | |||
Percentage of awards vesting in 2014 | 16.70% | |||
Percentage of awards vesting in 2015 | 33.30% | |||
Percentage of awards vesting in 2016 | 33.30% | |||
Percentage of awards vesting in 2017 | 16.70% |
General_Details_10
General (Details 10) (USD $) | 9 Months Ended | ||
In Millions, unless otherwise specified | Sep. 30, 2013 | Dec. 31, 2012 | Dec. 09, 2011 |
Long Term Debt and Capital Lease Obligations disclosures | |||
Capital lease obligations | $27 | $0 | |
Revolving loan borrowings | |||
Long Term Debt and Capital Lease Obligations disclosures | |||
Maximum borrowing capacity | 230 | ||
Commitment commission (as a percent) | 0.38% | ||
Amount of borrowings outstanding | 0 | 0 | |
Revolving loan borrowings | U.S. dollar denominated loans | Prime rate | |||
Long Term Debt and Capital Lease Obligations disclosures | |||
Borrowing margin (as a percent) | 0.75% | ||
Description of variable rate basis | Prime Rate | ||
Revolving loan borrowings | U.S. dollar denominated loans | Overnight Federal Funds rate | |||
Long Term Debt and Capital Lease Obligations disclosures | |||
Borrowing margin (as a percent) | 0.75% | ||
Description of variable rate basis | Overnight Federal Funds Rate | ||
Basis spread on variable rate(as a percent) | 0.50% | ||
Revolving loan borrowings | U.S. dollar denominated loans | Eurodollar rate for one month | |||
Long Term Debt and Capital Lease Obligations disclosures | |||
Borrowing margin (as a percent) | 0.75% | ||
Description of variable rate basis | Eurodollar rate for one month | ||
Basis spread on variable rate(as a percent) | 1.00% | ||
Revolving loan borrowings | Eurodollar denominated loans | Eurodollar rate for selected interest period | |||
Long Term Debt and Capital Lease Obligations disclosures | |||
Borrowing margin (as a percent) | 1.75% | ||
Description of variable rate basis | Eurodollar rate for the selected interest period | ||
Letter of credit | |||
Long Term Debt and Capital Lease Obligations disclosures | |||
Maximum borrowing capacity | 70 | ||
Stated interest rate (as a percent) | 1.88% | ||
Letters of credit outstanding | $32.40 | $32 |
Net_Income_per_Common_Share_De
Net Income per Common Share (Details) (USD $) | 3 Months Ended | 9 Months Ended | ||
In Thousands, except Share data, unless otherwise specified | Sep. 30, 2013 | Sep. 30, 2012 | Sep. 30, 2013 | Sep. 30, 2012 |
Numerator: | ||||
Net income | $47,232 | $66,262 | $106,770 | $114,025 |
Denominator: | ||||
Weighted average number of common shares outstanding-basic | 26,990,000 | 27,521,000 | 26,976,000 | 27,346,000 |
Common stock equivalents-stock options (in shares) | 655,000 | 426,000 | 539,000 | 395,000 |
Common stock equivalents-restricted stock (in shares) | 4,000 | 7,000 | 11,000 | 10,000 |
Common stock equivalents-restricted stock units (in shares) | 54,000 | 87,000 | 35,000 | 83,000 |
Common stock equivalents-employee stock purchase plan (in shares) | 1,000 | 1,000 | 2,000 | 1,000 |
Weighted average number of common shares outstanding-diluted | 27,704,000 | 28,042,000 | 27,563,000 | 27,835,000 |
Net income per common share-basic (in dollars per share) | $1.75 | $2.41 | $3.96 | $4.17 |
Net income per common share-diluted (in dollars per share) | $1.70 | $2.36 | $3.87 | $4.10 |
Potential dilutive securities excluded from computation of dilutive securities (in shares) | 900,000 | 2,300,000 | 900,000 | 2,200,000 |
Business_Segment_Information_D
Business Segment Information (Details) (USD $) | 1 Months Ended | 3 Months Ended | 9 Months Ended | ||
In Thousands, unless otherwise specified | Sep. 30, 2010 | Sep. 30, 2013 | Sep. 30, 2012 | Sep. 30, 2013 | Sep. 30, 2012 |
customer | |||||
Operating results by business segment | |||||
Number of customers subcontracted by Public Sector with Medicaid Administration | 1 | ||||
Managed care and other revenue | $775,957 | $711,092 | $2,255,748 | $2,114,149 | |
Dispensing revenue | 97,641 | 87,345 | 282,359 | 262,974 | |
Cost of care | -570,187 | -516,238 | -1,642,944 | -1,543,361 | |
Cost of goods sold | -91,853 | -81,662 | -265,440 | -245,555 | |
Direct service costs and other | -156,834 | -135,574 | -440,958 | -412,496 | |
Stock compensation expense | 4,524 | 4,468 | 14,764 | 13,935 | |
Segment profit (loss) | 59,248 | 69,431 | 203,529 | 189,646 | |
Commercial | |||||
Operating results by business segment | |||||
Managed care and other revenue | 190,655 | 176,713 | 578,030 | 535,464 | |
Cost of care | -118,022 | -100,973 | -354,520 | -323,992 | |
Direct service costs and other | -47,032 | -43,007 | -129,823 | -127,825 | |
Stock compensation expense | 124 | 293 | 390 | 830 | |
Segment profit (loss) | 25,725 | 33,026 | 94,077 | 84,477 | |
Public Sector | |||||
Operating results by business segment | |||||
Managed care and other revenue | 445,260 | 407,265 | 1,266,739 | 1,206,289 | |
Cost of care | -382,913 | -358,959 | -1,095,694 | -1,058,384 | |
Direct service costs and other | -27,826 | -22,948 | -82,403 | -66,850 | |
Stock compensation expense | 259 | 278 | 833 | 835 | |
Segment profit (loss) | 34,780 | 25,636 | 89,475 | 81,890 | |
Radiology Benefits Management | |||||
Operating results by business segment | |||||
Managed care and other revenue | 94,125 | 88,126 | 277,118 | 253,809 | |
Cost of care | -65,403 | -58,080 | -182,212 | -166,364 | |
Direct service costs and other | -13,990 | -14,045 | -41,224 | -41,113 | |
Stock compensation expense | 384 | 419 | 1,275 | 1,179 | |
Segment profit (loss) | 15,116 | 16,420 | 54,957 | 47,511 | |
Pharmacy Solutions | |||||
Operating results by business segment | |||||
Managed care and other revenue | 63,008 | 54,421 | 182,418 | 171,846 | |
Dispensing revenue | 97,641 | 87,345 | 282,359 | 262,974 | |
Cost of care | -20,940 | -13,659 | -59,075 | -47,880 | |
Cost of goods sold | -91,853 | -81,662 | -265,440 | -245,555 | |
Direct service costs and other | -32,281 | -27,565 | -93,216 | -83,532 | |
Stock compensation expense | 198 | 238 | 898 | 704 | |
Segment profit (loss) | 15,773 | 19,118 | 47,944 | 58,557 | |
Corporate and Elimination | |||||
Operating results by business segment | |||||
Managed care and other revenue | -17,091 | -15,433 | -48,557 | -53,259 | |
Cost of care | 17,091 | 15,433 | 48,557 | 53,259 | |
Direct service costs and other | -35,705 | -28,009 | -94,292 | -93,176 | |
Stock compensation expense | 3,559 | 3,240 | 11,368 | 10,387 | |
Segment profit (loss) | ($32,146) | ($24,769) | ($82,924) | ($82,789) |
Business_Segment_Information_D1
Business Segment Information (Details 2) (USD $) | 3 Months Ended | 9 Months Ended | ||
In Thousands, unless otherwise specified | Sep. 30, 2013 | Sep. 30, 2012 | Sep. 30, 2013 | Sep. 30, 2012 |
Reconciliation of segment profit to income before income taxes | ||||
Segment profit | $59,248 | $69,431 | $203,529 | $189,646 |
Stock compensation expense | -4,524 | -4,468 | -14,764 | -13,935 |
Depreciation and amortization | -17,654 | -15,239 | -50,770 | -45,172 |
Interest expense | -789 | -537 | -2,191 | -1,713 |
Interest income | 291 | 350 | 1,002 | 1,619 |
Income before income taxes | $36,572 | $49,537 | $136,806 | $130,445 |
Commitments_and_Contingencies_
Commitments and Contingencies (Details) (Pending Litigation, District of Connecticut, July 2012 Lawsuit, USD $) | 0 Months Ended | |
In Millions, unless otherwise specified | Jun. 10, 2013 | Jul. 25, 2012 |
Item | ||
Pending Litigation | District of Connecticut, July 2012 Lawsuit | ||
Loss contingency disclosures | ||
Number of former employees against whom the entity filed lawsuit | 2 | |
Number of former employees owning the corporation against which the entity filed lawsuit | 1 | |
Amount of damages alleged by defendant corporation for lost profits | $155 |
Commitments_and_Contingencies_1
Commitments and Contingencies (Details 2) (USD $) | 0 Months Ended | 1 Months Ended | 2 Months Ended | 9 Months Ended | 12 Months Ended | |
In Millions, except Share data, unless otherwise specified | Jul. 24, 2013 | Oct. 25, 2011 | Oct. 21, 2013 | Dec. 31, 2011 | Sep. 30, 2013 | Dec. 31, 2012 |
Commitments and Contingencies | ||||||
Amount authorized under stock repurchase plan | $300 | $200 | ||||
Share repurchases made in open market (in shares) | 0 | 671,776 | 955,776 | 459,252 | ||
Average price of shares repurchased (in dollars per share) | $48.72 | $50.23 | $50.27 | |||
Aggregate cost of shares repurchased, excluding broker commissions | 32.7 | 48 | 23.1 | |||
Remaining authorized repurchase amount | $196.20 |
Subsequent_Events_Details
Subsequent Events (Details) (Subsequent event, Partners Rx, USD $) | 0 Months Ended |
In Millions, unless otherwise specified | Oct. 02, 2013 |
Subsequent event | Partners Rx | |
Subsequent events | |
Amount of consideration paid in cash | $100 |
Purchase price of restricted stock | $10 |
Trading day period to calculate average of the closing prices of the company's stock | 5 days |
Vesting period of restriced stock issued | 3 years |
Vesting percentage on the second anniversary of the Acquisition | 50.00% |
Vesting percentage on the third anniversary of the Acquisition | 50.00% |