Business Acquisition

6 Months Ended

Jun. 30, 2012

Business Combinations [Abstract]

Business Acquisition

Business Acquisition

On May 1, 2012, the Company's New York health plan completed the previously announced acquisition of substantially all of the operating assets and contract rights of Health Plus, a Medicaid Prepaid Health Service Plan in New York, for $85.2 million. The purchase price was financed through available cash. The acquisition is expected to substantially increase the operations and resulting market share of the Company's New York health plan. Transaction costs related to the acquisition were included in selling, general and administrative expenses upon occurrence and were not material.

The transaction was accounted for using the acquisition method of accounting and the purchase price was allocated to the fair values of assets acquired and liabilities assumed. Goodwill recognized from the acquisition represents, among other things, the future economic benefits arising from expected synergies and is consistent with the Company's stated intentions to strengthen its position and expand operations in the state of New York. The acquired goodwill is fully deductible for income tax purposes. The following table summarizes the allocation of the total purchase price to the fair values of the assets acquired and liabilities assumed on May 1, 2012:

	May 1, 2012
Prepaid expenses and other current assets	$	1,111
Property, equipment and software	3,849
Intangible assets	24,900
Other long-term assets	282
Goodwill	56,251
Total assets acquired	86,393
Accrued payroll related liabilities	(1,225		)
Net assets acquired	$	85,168

Intangible assets acquired consist of specifically identifiable intangible assets including rights to the Medicaid and Medicare service contracts, the New York Health Plus trade name and rights to the provider network. The fair values of intangible assets related to the rights to the Medicaid and Medicare service contracts were determined using an income approach that relies on projected future net cash flows including key assumptions for the customer attrition rate and discount rate and are being amortized over a period of 115 months based on a projected disenrollment rate of members in this market. The fair value of the intangible asset related to the trade name was determined using an income approach that relies on projected future net cash flows including key assumptions for the royalty income rate and discount rate and is being amortized over a period of 120 months on a straight-line basis. The fair value of the intangible asset related to the provider network was determined using a modified cost approach that relies on key assumptions for the amount of time and number of personnel needed to replace the entire provider network and is being amortized over a period of 120 months on a straight-line basis. Other long-term assets acquired consist of long-term deposits.

The operations of Health Plus have been integrated with the Company's New York health plan. As a result, it is not practicable to disclose the amounts of revenue and earnings included in the Condensed Consolidated Statements of Income attributable to the Health Plus acquisition since the acquisition date.

The unaudited pro forma information presented below includes the effects of the acquisition as if it had been consummated as of the beginning of the prior fiscal year. The pro forma results include adjustments for premium tax, depreciation and amortization associated with acquired tangible and intangible assets, reduced investment income related to cash used to fund the acquisition, adjustments for management fee arrangements, charges related to the Management Services Agreement ("MSA") (discussed below) and related income tax effects. Consistent with the Company's established accounting policies, the results of operations for the three and six months ended June 30, 2012 include increased health benefits expense in order to establish an estimate for claims payable sufficient to cover obligations under an assumption of moderately adverse conditions as a result of the growth in our New York health plan membership. As the Company's acquisition of Health Plus was an asset acquisition which did not include an assumption of any liability for claims payable for dates of service prior to the acquisition, the pro forma results of operations below do not reflect the reversal of estimates held by Health Plus for this factor. The unaudited pro forma information does not give effect to the potential impact of current financial conditions, regulatory matters or any anticipated synergies or other expected benefits of the acquisition and is not necessarily indicative of future results of operations or results that might have been achieved had the acquisition been consummated as of the beginning of the prior fiscal year (dollars in thousands, except share data):

	Three Months Ended June 30,				Six Months Ended June 30,
	2012		2011		2012		2011
Premium revenue	$	2,327,573	$	1,765,710	$	4,412,381	$	3,538,352
Net income	$	31,917	$	44,450	$	64,048	$	113,640
Basic earnings per share	$	0.67	$	0.92	$	1.36	$	2.35
Diluted earnings per share	$	0.63	$	0.83	$	1.25	$	2.16

In conjunction with the purchase agreement, the Company and the seller entered into a MSA whereby the Company will provide certain claims and operational processing services to the seller for a period up to five years. The majority of these services are expected to be provided during the first year subsequent to the purchase. The effect of this agreement is not expected to be material to our results of operations.