General (Policies)

6 Months Ended

Jun. 30, 2014

Recent Accounting Pronouncements

In July 2011, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2011-06, "Other Expenses (Topic 720): Fees Paid to the Federal Government by Health Insurers (a consensus of the FASB Emerging Issues Task Force)" ("ASU 2011-06"), which addresses how fees mandated by the Patient Protection and the Affordable Care Act ("ACA"), as amended by the Health Care and Education Reconciliation Act of 2010 (collectively, the "Health Reform Law"), should be recognized and classified in the income statements of health insurers. The Health Reform Law imposes a mandatory annual fee on health insurers for each calendar year beginning on or after January 1, 2014. ASU 2011-06 stipulates that the liability incurred for that fee be amortized to expense over the calendar year in which it is payable. This ASU is effective for calendar years beginning after December 31, 2013, when the fee initially becomes effective. The Company is currently pursuing rate adjustments to cover the direct costs of these fees and the impact from non-deductibility of such fees for federal and state income tax purposes. To the extent the Company has a state public sector customer that does not renew, there may be some impact due to taxes paid where the timing and amount of recoupment of these additional costs is uncertain. In the event the Company is unable to obtain rate adjustments to cover the financial impact of the annual fee, the fee may have a material impact on the Company. As of June 30, 2014, the Company has obtained signed commitments from four of its customers to recover the economic impact of the ACA fees. For 2014, the projected ACA fee is currently estimated to be $21.3 million and is included in accrued liabilities in the consolidated balance sheets. Of this amount $5.6 million and $10.7 million was expensed in the three and six months ended June 30, 2014, respectively, which is included in direct service costs and other operating expenses in the consolidated statements of income. The Company has recorded revenues of $10.9 million and $14.1 million in the three and six months ended June 30, 2014, respectively, associated with the accrual for the reimbursement of the economic impact of the ACA fees from its customers. Of the revenues recorded in the three months ended June 30, 2014, $4.8 million are associated with the three months ended March 31, 2014, due to signed commitments obtained in the three months ended June 30, 2014.

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 and were adopted by the Company during the quarter ended March 31, 2014. The effect of the guidance is immaterial to the Company's consolidated results of operations, financial position, and cash flows.

In May 2014, the FASB issued ASU No. 2014-09, "Revenue from Contracts with Customers (Topic 606)" ("ASU 2014-09), which is a new comprehensive revenue recognition standard that will supersede virtually all existing revenue guidance under GAAP. This ASU is effective for calendar years beginning after December 15, 2016. The Company is currently assessing the potential impact this ASU will have on the Company's consolidated results of operation, financial position, and cash flows.

In June 2014, the FASB issued ASU No. 2014-12, "Compensation—Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved After the Requisite Service Period" ("ASU 2014-12), which revises the accounting treatment for stock compensation tied to performance targets. This ASU is effective for calendar years beginning after December 15, 2015. The guidance is not expected to materially impact the Company's consolidated results of operations, financial position, or cash flows.

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, contingent consideration, 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 $654.6 million and $1,284.3 million for the three and six months ended June 30, 2013, respectively, and $595.1 million and $1,323.9 million for the three and six months ended June 30, 2014, 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. This includes revenues received in relation to ACA fees billed on a cost reimbursement basis. Revenues from these contracts approximated $51.0 million and $100.3 million for the three and six months ended June 30, 2013, respectively, and $73.0 million and $132.7 million for the three and six months ended June 30, 2014, respectively.

Block Grant Revenues. The Maricopa Contract (as defined below) was 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 $31.4 million and $64.6 million for the three and six months ended June 30, 2013, respectively, and $0.0 million and $33.0 million for the three and six months ended June 30, 2014, 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 $1.5 million and $3.4 million for the three and six months ended June 30, 2013, respectively, and $2.4 million and $5.4 million for the three and six months ended June 30, 2014, 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 $8.1 million and $16.8 million for the three and six months ended June 30, 2013, respectively, and $9.2 million and $13.3 million for the three and six months ended June 30, 2014, respectively.

In relation to the Company's PBM business, the Company administers rebate programs through which it receives rebates from pharmaceutical manufacturers that are shared with its customers. The Company recognizes rebates when the Company is entitled to them and when the amounts of the rebates are determinable. The amount recorded for rebates earned by the Company from the pharmaceutical manufacturers are recorded as a reduction of cost of goods sold.

PBM and Dispensing Revenue

Pharmacy Benefit Management Revenue. The Company recognizes PBM revenue, which consists of a negotiated prescription price (ingredient cost plus dispensing fee), co-payments collected by the pharmacy and any associated administrative fees, when claims are adjudicated. The Company recognizes PBM revenue on a gross basis (i.e. including drug costs and co-payments) as it is acting as the principal in the arrangement and is contractually obligated to its clients and network pharmacies, which is a primary indicator of gross reporting. In addition, the Company is solely responsible for the claims adjudication process, negotiating the prescription price for the pharmacy, collection of payments from the client for drugs dispensed by the pharmacy, and managing the total prescription drug relationship with the client's members. If the Company enters into a contract where it is only an administrator, and does not assume any of the risks previously noted, revenue will be recognized on a net basis. PBM revenues were $5.5 million and $10.5 million for the three and six months ended June 30, 2013, respectively, and $146.3 million and $227.5 million for the three and six months ended June 30, 2014, respectively. The increase mainly relates to the October 1, 2013 acquisition of Partners Rx Management, LLC ("Partners Rx").

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 $90.6 million and $184.7 million for the three and six months ended June 30, 2013, respectively, and $59.4 million and $115.1 million for the three and six months ended June 30, 2014, respectively.

Significant Customers

Consolidated Company

Through March 31, 2014, the Company provided behavioral healthcare management and other related services to approximately 680,000 members in Maricopa County, Arizona as the Regional Behavioral Health Authority ("RBHA") for GSA6 ("Maricopa County") pursuant to a contract with the State of Arizona (the "Maricopa Contract"). The Maricopa Contract was for the management of the publicly funded behavioral health system that delivered mental health, substance abuse and crisis services for adults, youth, and children. The Maricopa Contract terminated on March 31, 2014. The Maricopa Contract generated net revenues of $367.2 million and $209.5 million for the six months ended June 30, 2013 and 2014, respectively.

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 six months ended June 30, 2013 and 2014 (in thousands):

Segment	Term Date	2013			2014

Commercial
Customer A	June 30, 2014(1)	$	103,460		$	110,492
Customer B	December 31, 2019		70,919			90,923
Customer C	August 14, 2017		29,537	*		47,769
Customer D	December 14, 2013(1)		38,776			—
Public Sector
Customer E	June 30, 2015		129,471			213,000
Specialty Solutions
Customer E	December 31, 2015		60,602			69,988
Customer F	June 30, 2016(2)		30,580			26,515
Customer G	July 31, 2015		32,708			34,901
Customer A	November 30, 2016		1,154	*		26,577
Customer H	January 31, 2016		22,230			24,593
Pharmacy Management
Customer I	November 30, 2014 to December 31, 2014(3)		65,335			60,972
Customer J	December 31, 2013(4)		43,274			1,267	*
Customer K	March 31, 2014(1)(5)		31,466			18,055	*

*: 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 contract has terminated.
(2): This contract transitioned from risk to ASO based services effective July 1, 2014.
(3): The customer has more than one contract. The individual contracts are scheduled to terminate at various points during the time period indicated above.
(4): The contract has terminated, however, the Company continues to provide services as the contract is transitioned to the new vendor.
(5): 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. Net revenues from the Pennsylvania Counties in the aggregate totaled $178.0 million and $179.0 million for the six months ended June 30, 2013 and 2014, respectively.

In addition, the Company has a significant concentration of business with the State of Florida. The Company currently has behavioral healthcare contracts with various areas in the State of Florida (the "Florida Areas") which are part of the Florida Medicaid program. The State of Florida is implementing a new system of mandated managed care through which Medicaid enrollees will receive integrated healthcare services, and by July 31, 2014 it will phase out the behavioral healthcare programs under which the Florida Areas' contracts operate. The Company has a contract with the State of Florida to provide integrated healthcare services under the new program. Net revenues from the State of Florida in the aggregate totaled $66.3 million and $56.5 million for the six months ended June 30, 2013 and 2014, 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 has certain assets and liabilities that are required to be measured at fair value on a recurring basis. These 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 assets and liabilities that are required to be measured at fair value as of December 31, 2013 and June 30, 2014 (in thousands):

	December 31, 2013

	Level 1		Level 2		Level 3		Total
Assets
Cash and cash equivalents(1)	$	—	$	101,028	$	—	$	101,028
Restricted cash(2)		—		128,318		—		128,318
Investments:
U.S. government and agency securities		1,129		—		—		1,129
Obligations of government-sponsored enterprises(3)		—		8,440		—		8,440
Corporate debt securities		—		198,594		—		198,594
Certificates of deposit		—		150		—		150


Total assets held at fair value	$	1,129	$	436,530	$	—	$	437,659

	June 30, 2014

	Level 1		Level 2		Level 3		Total
Assets
Cash and cash equivalents(4)	$	—	$	72,729	$	—	$	72,729
Restricted cash(5)		—		71,911		—		71,911
Investments:
U.S. government and agency securities		2,078		—		—		2,078
Obligations of government-sponsored enterprises(3)		—		8,707		—		8,707
Corporate debt securities		—		159,420		—		159,420
Certificates of deposit		—		1,150		—		1,150


Total assets held at fair value	$	2,078	$	313,917	$	—	$	315,995




Liabilities
Contingent consideration	$	—	$	—	$	46,982	$	46,982


Total liabilities held at fair value	$	—	$	—	$	46,982	$	46,982

(1): Excludes $102.2 million of cash held in bank accounts by the Company.
(2): Excludes $108.4 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 $113.0 million of cash held in bank accounts by the Company.
(5): Excludes $95.4 million of restricted cash held in bank accounts by the Company.

For the six months ended June 30, 2014, 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.

The contingent consideration liability reflects the fair values of potential future payments related to the CDMI, LLC ("CDMI") acquisition. The CDMI purchase agreement provides for potential contingent payments up to a maximum aggregate amount of $165.0 million. The potential future payments are contingent upon CDMI meeting certain client retention, client conversion, and gross profit milestones through December 31, 2016. The fair value of contingent consideration is determined based on probabilities of payment, projected payment dates, discount rates, and projected revenues, gross profits, and client base. The projected revenues, gross profits, and client base are derived from the Company's latest internal operational forecasts. The Company used a probability weighted discounted cash flow method to arrive at the fair value of the contingent consideration. Changes in the operational forecasts, probabilities of payment, discount rates, or projected payment dates may result in a change in the fair value measurement. Any changes in the fair value measurement are reflected as income or expense in the consolidated statements of income. As the fair value measurement for the contingent consideration is based on inputs not observed in the market, these measurements are classified as Level 3 measurements as defined by fair value measurement guidance.

The following unobservable inputs were used in the fair value measurement of contingent consideration: (i) discount rate of 14.5 percent; (ii) probabilities of payment of 0.2 percent to 75.9 percent; and (iii) projected payment dates of 2015 to 2017. As of the acquisition date, the Company estimated undiscounted future contingent payments of $61.7 million. As of June 30, 2014 the fair value of the contingent consideration was $47.0 million and is included in accrued liabilities and contingent liabilities in the consolidated balance sheet. The change in the present value of the contingent consideration was $1.2 million for the three months and six months ended June 30, 2014 and was recorded as interest expense in the consolidated statements of income.

The following table summarizes the Company's liability for contingent consideration:

	June 30, 2014

Balance as of beginning of period	$	—
Acquisition of CDMI		45,778
Interest accretion		1,204


Balance as of end of period	$	46,982

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 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 income and the non-credit component of the other-than-temporary impairment is recognized in other comprehensive income.

As of December 31, 2013 and June 30, 2014, there were no unrealized losses that the Company believed to be other-than-temporary. No realized gains or losses were recorded for the six months ended June 30, 2013. During the six months ended June 30, 2014, the Company recognized a $0.1 million loss on the sale of investments. The following is a summary of short-term and long-term investments at December 31, 2013 and June 30, 2014 (in thousands):

	December 31, 2013

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
U.S. government and agency securities	$	1,129	$	—	$	—		$	1,129
Obligations of government-sponsored enterprises(1)		8,441		2		(3	)		8,440
Corporate debt securities		198,748		18		(172	)		198,594
Certificates of deposit		150		—		—			150


Total investments at December 31, 2013	$	208,468	$	20	$	(175	)	$	208,313

	June 30, 2014

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
U.S. government and agency securities	$	2,078	$	1	$	(1	)	$	2,078
Obligations of government-sponsored enterprises(1)		8,707		2		(2	)		8,707
Corporate debt securities		159,387		64		(31	)		159,420
Certificates of deposit		1,150		—		—			1,150


Total investments at June 30, 2014	$	171,322	$	67	$	(34	)	$	171,355

(1): Includes investments in notes issued by the Federal Home Loan Bank.

The maturity dates of the Company's investments as of June 30, 2014 are summarized below (in thousands):

	Amortized Cost		Estimated Fair Value

2014	$	97,491	$	97,489
2015		69,149		69,186
2016		4,682		4,680


Total investments at June 30, 2014	$	171,322	$	171,355

Income Taxes

Income Taxes

The Company's effective income tax rates were 40.6 percent and 52.6 percent for the six months ended June 30, 2013 and 2014, 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 six months ended June 30, 2013 is lower than the effective rate for the six months ended June 30, 2014 mainly due to the non-deductible ACA fees and valuations allowances for certain deferred tax assets.

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 income tax assessments by tax authorities for years ended prior to 2010.

Stock Compensation

Stock Compensation

At December 31, 2013 and June 30, 2014, 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, 2013. The Company recorded stock compensation expense of $4.6 million and $10.2 million for the three and six months ended June 30, 2013 and $9.5 million and $14.0 million for the three and six months ended June 30, 2014, respectively. Stock compensation expense recognized in the consolidated statements of income for the six months ended June 30, 2013 and 2014 has been reduced for forfeitures, estimated at four percent for both periods.

The weighted average grant date fair value of all stock options granted during the six months ended June 30, 2014 was $13.61 as estimated using the Black-Scholes-Merton option pricing model, which also assumed an expected volatility of 26.20 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 six months ended June 30, 2013 and 2014, $0.5 million and $2.4 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 six months ended June 30, 2013, the net change to additional paid in capital related to tax benefits (deficiencies) was $(0.1) million, which includes $(0.6) million of excess tax deficiencies offset by the $0.5 million of excess tax benefits. For the six months ended June 30, 2014, the net change to additional paid in capital related to tax benefits (deficiencies) was $2.1 million, which includes the $2.4 million of excess tax benefits offset by $(0.3) million of excess tax deficiencies.

Summarized information related to the Company's stock options for the six months ended June 30, 2014 is as follows:

			Weighted Average Exercise Price

Outstanding, beginning of period	4,010,146		$	47.23
Granted	654,636			60.22
Forfeited	(137,472	)		52.91
Exercised	(813,867	)		44.54


Outstanding, end of period	3,713,443		$	49.90




Vested and expected to vest at end of period	3,670,859		$	49.83




Exercisable, end of period	2,037,633		$	46.00

All of the Company's options granted during the six months ended June 30, 2014 vest ratably on each anniversary date over the three years subsequent to grant. All options granted during the six months ended June 30, 2014 have a ten year life.

Summarized information related to the Company's nonvested restricted stock awards for the six months ended June 30, 2014 is as follows:

			Weighted Average Grant Date Fair Value

Outstanding, beginning of period	192,165		$	56.59
Awarded(1)	1,448,674			57.74
Vested	(16,569	)		52.82
Forfeited	—			—


Outstanding, ending of period	1,624,270		$	57.65

(1): Includes 1,433,946 shares associated with the CDMI acquisition.

Summarized information related to the Company's nonvested restricted stock units ("RSUs") for the six months ended June 30, 2014 is as follows:

			Weighted Average Grant Date Fair Value

Outstanding, beginning of period	194,913		$	50.21
Awarded	76,306			60.39
Vested	(90,177	)		49.55
Forfeited	(11,293	)		54.05


Outstanding, ending of period	169,749		$	54.88

RSAs generally vest on the anniversary of the grant. In general, RSUs 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.

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 non-regulated 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.

On July 23, 2014, the Company entered into a $500.0 million Credit Agreement with various lenders that provides for Magellan Rx Management, Inc. to borrow up to $250.0 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, and a term loan in an original aggregate principal amount of $250.0 million (the "2014 Credit Facility"). See Note G—"Subsequent Events" for more information on the 2014 Credit Facility.

There were $26.7 million and $24.9 million of capital lease obligations at December 31, 2013 and June 30, 2014, respectively. The Company had $33.7 million and $32.9 million of letters of credit outstanding at December 31, 2013 and June 30, 2014, respectively, and no revolving loan borrowings at December 31, 2013 or June 30, 2014.

Goodwill

Goodwill

The Company is required to test its goodwill for impairment on at least an annual basis and more frequently if indicators of impairment exist. The Company has selected October 1 as the date of its annual impairment test. Goodwill for each of the Company's reporting units at December 31, 2013 and June 30, 2014 were as follows (in thousands):

	December 31, 2013		June 30, 2014

Health Plan	$	120,485	$	120,485
Specialty Solutions		104,549		104,549
Pharmacy Management		242,290		311,512
Public Sector		20,882		20,879


Total	$	488,206	$	557,425

The changes in the carry amount of goodwill for the year ended December 31, 2013 and the six months ended June 30, 2014 are reflected in the table below (in thousands):

	December 31, 2013		June 30, 2014

Balance as of beginning of period	$	426,939	$	488,206
Acquisition of Partners Rx(1)		40,385		254
Acquisition of AlphaCare Holdings(1)		20,882		(3	)
Acquisition of CDMI		—		68,968


Balance as of end of period	$	488,206	$	557,425

(1): Activity for the period ended June 30, 2014 represents measurement period adjustments.

Intangible Assets

Intangible Assets

The following is a summary of intangible assets at December 31, 2013 and June 30, 2014, and the estimated useful lives for such assets (in thousands):

	December 31, 2013

Asset	Estimated Useful Life	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Customer agreements and lists	2.5 to 18 years	$	163,990	$	(100,482	)	$	63,508
Provider networks and other	1 to 16 years		11,593		(5,407	)		6,186


		$	175,583	$	(105,889	)	$	69,694

	June 30, 2014

Asset	Estimated Useful Life	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Customer agreements and lists	2.5 to 18 years	$	249,290	$	(109,407	)	$	139,883
Provider networks and other	1 to 16 years		13,193		(6,091	)		7,102


		$	262,483	$	(115,498	)	$	146,985

Amortization expense was $2.3 million and $4.6 million for the three and six months ended June 30, 2013, respectively, and $5.7 million and $9.6 million for the three and six months ended June 30, 2014, respectively. The Company estimates amortization expense will be $22.8 million, $25.0 million, $20.7 million, $16.9 million and $15.4 million for the years ended December 31, 2014, 2015, 2016, 2017, and 2018, respectively.

Redeemable Non-controlling Interest

Redeemable Non-Controlling Interest

On December 31, 2013, the Company acquired a 65% equity interest in AlphaCare Holdings, Inc. ("AlphaCare Holdings"). The other shareholders of AlphaCare Holdings have the right to exercise put options, requiring the Company to purchase up to 50 percent of the remaining shares prior to January 1, 2017 provided certain membership levels are attained. After December 31, 2016 the other shareholders of AlphaCare Holdings have the right to exercise put options requiring the Company to purchase all or any portion of the remaining shares. In addition, after December 31, 2016 the Company has the right to purchase all remaining shares. Non-controlling interests with redemption features, such as put options, that are not solely within the Company's control are considered redeemable non-controlling interest. Redeemable non-controlling interest is considered to be temporary and is therefore reported in a mezzanine level between liabilities and stockholders' equity on the Company's consolidated balance sheet at the greater of the initial carrying amount adjusted for the non-controlling interest's share of net income or loss or its redemption value. The Company recorded $10.6 million of redeemable non-controlling interest in relation to the acquisition. The carrying value of the non-controlling interest as of June 30, 2014 was $8.6 million. The $2.0 million reduction in carrying value for the six months ended June 30, 2014 is a result of operating losses. The Company recognizes changes in the redemption value on a quarterly basis and adjusts the carrying amount of the non-controlling interest to equal the redemption value at the end of each reporting period. Under this method, this is viewed at the end of the reporting period as if it were also the redemption date for the non-controlling interest. The Company will reflect redemption value adjustments in the earnings per share calculation if redemption value is in excess of the carrying value of the non-controlling interest. As of June 30, 2014 the carrying value of the non-controlling interest exceeded the redemption value and therefore no adjustment to the carrying value was required.

Reclassifications

Reclassifications

Certain prior year amounts have been reclassified to conform with the current year presentation.