General (Tables)

6 Months Ended

Jun. 30, 2018

Summary of impacts of adoption of ASC 606

The cumulative effect of changes made to our consolidated January 1, 2018 balance sheet for the adoption of ASU 2014-09 were as follows (in thousands):


	Balance at December 31, 2017		Adjustments Due to ASC 606		Balance at January 1, 2018
Assets
Other current assets	$	72,323	$	(667)	$	71,656
Total Current Assets		1,483,353		(667)		1,482,686
Deferred income taxes		813		1,335		2,148
Other long-term assets		22,567		(1,333)		21,234
Total Assets		2,957,234		(665)		2,956,569

Liabilities and Stockholders' Equity
Accrued liabilities		193,635		(2,182)		191,453
Total Current Liabilities		892,303		(2,182)		890,121
Deferred credits and other long-term liabilities		19,100		5,744		24,844
Total Liabilities		1,680,740		3,562		1,684,302
Retained earnings		1,399,495		(4,227)		1,395,268
Total Stockholders' Equity		1,276,494		(4,227)		1,272,267
Total Liabilities and Stockholders' Equity		2,957,234		(665)		2,956,569

The impact of the adoption of ASC 606 on our consolidated balance sheet as of June 30, 2018 was as follows (in thousands):


	As Reported		Adjustments		Balance Without ASC 606 Adoption
Assets
Accounts receivable	$	839,773	$	(17,972)	$	821,801
Other current assets		119,164		(445)		118,719
Total Current Assets		1,668,149		(18,417)		1,649,732
Other long-term assets		30,909		9,199		40,108
Total Assets		3,139,759		(9,218)		3,130,541

Liabilities and Stockholders' Equity
Accrued liabilities		268,258		(11,127)		257,131
Other medical liabilities		183,222		50		183,272
Total Current Liabilities		1,023,096		(11,077)		1,012,019
Deferred credits and other long-term liabilities		35,346		(6,835)		28,511
Total Liabilities		1,820,989		(17,912)		1,803,077
Retained earnings		1,420,271		8,694		1,428,965
Total Stockholders' Equity		1,318,770		8,694		1,327,464
Total Liabilities and Stockholders' Equity		3,139,759		(9,218)		3,130,541

The impact of the adoption of ASC 606 on our consolidated income statement for the three months ended June 30, 2018 was as follows (in thousands):


	As Reported		Adjustments		Balance Without ASC 606 Adoption
Managed care and other	$	1,215,340	$	(1,203)	$	1,214,137
PBM		595,583		1,749		597,332
Total net revenue		1,810,923		546		1,811,469
Income before income taxes		18,375		546		18,921
Provision for income taxes		4,824		143		4,967
Net income		13,551		403		13,954
Net income attributable to Magellan		13,551		403		13,954

The impact of the adoption of ASC 606 on our consolidated income statement for the six months ended June 30, 2018 was as follows (in thousands):


	As Reported		Adjustments		Balance Without ASC 606 Adoption
Managed care and other	$	2,435,103	$	(3,955)	$	2,431,148
PBM		1,180,897		8,199		1,189,096
Total net revenue		3,616,000		4,244		3,620,244
Income before income taxes		29,752		4,244		33,996
Provision for income taxes		4,749		1,112		5,861
Net income		25,003		3,132		28,135
Net income attributable to Magellan		25,003		3,132		28,135

Schedule of disaggregation of revenue by major service line, type of customer and timing of revenue recognition

The following tables disaggregate our revenue for the three and six months ended June 30, 2018 by major service line, type of customer and timing of revenue recognition (in thousands):


	Three Months Ended June 30, 2018
	Healthcare		Pharmacy Management		Elimination		Total
Major Service Lines
Commercial
Risk-based, non-EAP	$	238,272	$	—	$	(114)	$	238,158
EAP risk-based		12,335		—		—		12,335
ASO		51,111		8,529		(37)		59,603
Government
Risk-based, non-EAP		750,162		—		—		750,162
EAP risk-based		78,940		—		—		78,940
ASO		24,068		—		—		24,068
PBM, including dispensing		—		536,131		(47,211)		488,920
Medicare Part D		—		106,663		—		106,663
PBA		—		33,088		—		33,088
Formulary management		—		18,348		—		18,348
Other		—		638		—		638
Total net revenue	$	1,154,888	$	703,397	$	(47,362)	$	1,810,923

Type of Customer
Government	$	853,170	$	229,948	$	—	$	1,083,118
Non-government		301,718		473,449		(47,362)		727,805
Total net revenue	$	1,154,888	$	703,397	$	(47,362)	$	1,810,923

Timing of Revenue Recognition
Transferred at a point in time	$	—	$	642,794	$	(47,211)	$	595,583
Transferred over time		1,154,888		60,603		(151)		1,215,340
Total net revenue	$	1,154,888	$	703,397	$	(47,362)	$	1,810,923


	Six Months Ended June 30, 2018
	Healthcare		Pharmacy Management		Elimination		Total
Major Service Lines
Commercial
Risk-based, non-EAP	$	472,663	$	—	$	(114)	$	472,549
EAP risk-based		24,756		—		—		24,756
ASO		103,680		15,829		(182)		119,327
Government
Risk-based, non-EAP		1,502,652		—		—		1,502,652
EAP risk-based		161,177		—		—		161,177
ASO		47,561		—		—		47,561
PBM, including dispensing		—		1,069,923		(94,095)		975,828
Medicare Part D		—		205,069		—		205,069
PBA		—		66,634		—		66,634
Formulary management		—		38,725		—		38,725
Other		—		1,722		—		1,722
Total net revenue	$	2,312,489	$	1,397,902	$	(94,391)	$	3,616,000

Type of Customer
Government	$	1,711,390	$	457,997	$	—	$	2,169,387
Non-government		601,099		939,905		(94,391)		1,446,613
Total net revenue	$	2,312,489	$	1,397,902	$	(94,391)	$	3,616,000

Timing of Revenue Recognition
Transferred at a point in time	$	—	$	1,274,992	$	(94,095)	$	1,180,897
Transferred over time		2,312,489		122,910		(296)		2,435,103
Total net revenue	$	2,312,489	$	1,397,902	$	(94,391)	$	3,616,000

Schedule of accounts receivable, contract assets and contract liabilities


	January 1, 2018		June 30, 2018		$ Change		% Change
Accounts receivable	$	679,269	$	864,674	$	185,405		27.3%
Contract assets		8,564		14,339		5,775		67.4%
Contract liabilities - current		14,299		75,552		61,253		428.4%
Contract liabilities - long-term		12,303		12,612		309		2.5%

Schedule of customers generating in excess of ten percent of net revenues for respective segment


Segment	Term Date	2017		2018

Healthcare
Customer A	(1)	$	79,247	$	356,573
Customer B	December 31, 2018 to December 31, 2020 (2)		—		330,910

Pharmacy Management
Customer C	March 31, 2019		184,364		176,650

(1)

The Company, along with other participating managed care plans in this state, continues to provide services while a new contract is being finalized.

The customer has more than one contract. The individual contracts are scheduled to terminate at various points during the time period indicated above.

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 assets and liabilities that are required to be measured at fair value as of December 31, 2017 and June 30, 2018 (in thousands):


	December 31, 2017
	Level 1		Level 2		Level 3		Total
Assets
Cash and cash equivalents (1)	$	—	$	284,064	$	—	$	284,064
Investments:
U.S. Government and agency securities		28,231		—		—		28,231
Obligations of government-sponsored enterprises (2)		—		22,088		—		22,088
Corporate debt securities		—		269,788		—		269,788
Taxable municipal bonds		—		5,000		—		5,000
Certificates of deposit		—		2,758		—		2,758
Total assets held at fair value	$	28,231	$	583,698	$	—	$	611,929

Liabilities
Contingent consideration	$	—	$	—	$	8,817	$	8,817
Total liabilities held at fair value	$	—	$	—	$	8,817	$	8,817


	June 30, 2018
	Level 1		Level 2		Level 3		Total
Assets
Cash and cash equivalents (3)	$	—	$	215,843	$	—	$	215,843
Investments:
U.S. Government and agency securities		52,716		—		—		52,716
Obligations of government-sponsored enterprises (2)		—		13,026		—		13,026
Corporate debt securities		—		345,394		—		345,394
Certificates of deposit		—		22,112		—		22,112
Total assets held at fair value	$	52,716	$	596,375	$	—	$	649,091

Liabilities
Contingent consideration	$	—	$	—	$	9,120	$	9,120
Total liabilities held at fair value	$	—	$	—	$	9,120	$	9,120

(1)

Excludes $114.7 million of cash held in bank accounts by the Company.

(2)

Includes investments in notes issued by the Federal Home Loan Bank, Federal Farm Credit Banks and Federal National Mortgage Association.

(3)

Excludes $30.3 million of cash held in bank accounts by the Company.

Summary of the Company's liability for contingent consideration

The following table summarizes the Company’s liability for contingent consideration for the six months ended June 30, 2018 (in thousands):


	June 30,
	2018
Balance as of beginning of period	$	8,817
Changes in fair value		303
Payments		—
Balance as of end of period	$	9,120

Summary of short-term and long-term investments

The following is a summary of short‑term and long‑term investments at December 31, 2017 and June 30, 2018 (in thousands):


	December 31, 2017
			Gross		Gross
	Amortized		Unrealized		Unrealized		Estimated
	Cost		Gains		Losses		Fair Value
U.S. Government and agency securities	$	28,313	$	—	$	(82)	$	28,231
Obligations of government-sponsored enterprises (1)		22,139		—		(51)		22,088
Corporate debt securities		270,154		1		(367)		269,788
Taxable municipal bonds		5,000		—		—		5,000
Certificates of deposit		2,758		—		—		2,758
Total investments at December 31, 2017	$	328,364	$	1	$	(500)	$	327,865


	June 30, 2018
			Gross		Gross
	Amortized		Unrealized		Unrealized		Estimated
	Cost		Gains		Losses		Fair Value
U.S. Government and agency securities	$	52,838	$	—	$	(122)	$	52,716
Obligations of government-sponsored enterprises (1)		13,079		—		(53)		13,026
Corporate debt securities		345,965		5		(576)		345,394
Certificates of deposit		22,112		—		—		22,112
Total investments at June 30, 2018	$	433,994	$	5	$	(751)	$	433,248

(1)

Includes investments in notes issued by the Federal Home Loan Bank, Federal National Mortgage Association and Federal Farm Credit Banks.

Summary of maturity dates of investments

The maturity dates of the Company’s investments as of June 30, 2018 are summarized below (in thousands):


	Amortized		Estimated
	Cost		Fair Value
2018	$	205,329	$	205,104
2019		228,665		228,144
Total investments at June 30, 2018	$	433,994	$	433,248

Schedule of stock option activity

Summarized information related to the Company’s stock options for the six months ended June 30, 2018 is as follows:


	2018


		Weighted
		Average
		Exercise
	Options	Price
Outstanding, beginning of period	2,458,237	$	61.50
Granted	425,456		99.02
Forfeited	(44,651)		74.78
Exercised	(379,589)		56.58
Outstanding, end of period	2,459,453	$	68.51
Vested and expected to vest at end of period	2,440,741	$	68.38
Exercisable, end of period	1,483,866	$	59.99

Schedule of nonvested restricted stock award activity

Summarized information related to the Company’s nonvested restricted stock awards (“RSAs”) for the six months ended June 30, 2018 is as follows:



		Weighted
		Average
		Grant Date
	Shares	Fair Value
Outstanding, beginning of period	31,102	$	68.00
Awarded	11,795		89.05
Vested	(31,102)		68.00
Forfeited	—		—
Outstanding, ending of period	11,795		89.05

Schedule of nonvested restricted stock units

Summarized information related to the Company’s nonvested restricted stock units (“RSUs”) for the six months ended June 30, 2018 is as follows:



		Weighted
		Average
		Grant Date
	Shares	Fair Value
Outstanding, beginning of period	163,289	$	66.46
Awarded	109,348		99.45
Vested	(82,207)		65.54
Forfeited	(13,082)		80.95
Outstanding, ending of period	177,348		86.16

Schedule of nonvested restricted performance stock units

Summarized information related to the Company’s nonvested restricted performance stock units (“PSUs”) for the six months ended June 30, 2018 is as follows:


	2018
		Weighted
		Average
		Grant Date
	Shares	Fair Value
Outstanding, beginning of period	202,315	$	84.63
Awarded	80,502		141.61
Vested	(33,592)		85.00
Forfeited	(1,865)		97.25
Outstanding, end of period	247,360		103.03