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General (Tables)

3 Months Ended

Mar. 31, 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 March 31, 2018 was as follows (in thousands):


	As Reported		Adjustments		Balance Without ASC 606 Adoption
Assets
Accounts receivable	$	748,060	$	(28,336)	$	719,724
Other current assets		108,872		(297)		108,575
Total Current Assets		1,618,846		(28,633)		1,590,213
Other long-term assets		21,489		9,483		30,972
Total Assets		3,091,737		(19,150)		3,072,587

Liabilities and Stockholders' Equity
Accrued liabilities		246,909		(21,154)		225,755
Total Current Liabilities		985,701		(21,154)		964,547
Deferred credits and other long-term liabilities		36,148		(6,289)		29,859
Total Liabilities		1,786,608		(27,443)		1,759,165
Retained earnings		1,406,720		8,293		1,415,013
Total Stockholders' Equity		1,305,129		8,293		1,313,422
Total Liabilities and Stockholders' Equity		3,091,737		(19,150)		3,072,587

The impact of the adoption of ASC 606 on our consolidated income statement for the three months ended March 31, 2018 was as follows (in thousands):


	As Reported		Adjustments		Balance Without ASC 606 Adoption
Managed care and other	$	1,219,763	$	(2,755)	$	1,217,008
PBM		585,314		6,450		591,764
Total net revenue		1,805,077		3,695		1,808,772
Income before income taxes		11,377		3,695		15,072
(Benefit) provision for income taxes		(75)		964		889
Net income		11,452		2,731		14,183
Net income attributable to Magellan		11,452		2,731		14,183

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


	Three months ended March 31, 2018
	Healthcare		Pharmacy Management		Elimination		Total
Major Service Lines
Commercial
Risk-based, non-EAP	$	234,391	$	—	$	—	$	234,391
EAP risk-based		12,421		—		—		12,421
ASO		52,569		7,300		(145)		59,724
Government
Risk-based, non-EAP		752,490		—		—		752,490
EAP risk-based		82,237		—		—		82,237
ASO		23,493		—		—		23,493
PBM, including dispensing		—		533,792		(46,884)		486,908
Medicare Part D		—		98,406		—		98,406
PBA		—		33,546		—		33,546
Formulary management		—		20,377		—		20,377
Other		—		1,084		—		1,084
Total net revenue	$	1,157,601	$	694,505	$	(47,029)	$	1,805,077

Type of Customer
Government	$	858,220	$	228,049	$	—	$	1,086,269
Non-government		299,381		466,456		(47,029)		718,808
Total net revenue	$	1,157,601	$	694,505	$	(47,029)	$	1,805,077

Timing of Revenue Recognition
Transferred at a point in time	$	—	$	632,198	$	(46,884)	$	585,314
Transferred over time		1,157,601		62,307		(145)		1,219,763
Total net revenue	$	1,157,601	$	694,505	$	(47,029)	$	1,805,077

Schedule of accounts receivable, contract assets and contract liabilities


	January 1, 2018		March 31, 2018		$ Change		% Change
Accounts receivable	$	679,269	$	778,556	$	99,287		14.6%
Contract assets		8,564		5,519		(3,045)		(35.6%)
Contract liabilities - current		14,299		79,251		64,952		454.2%
Contract liabilities - long-term		12,303		13,192		889		7.2%

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

Segment	Term Date	2017		2018

Healthcare
Customer A	(1)	$	37,374	$	180,457
Customer B	December 31, 2018 to December 31, 2020 (2)		—		163,733
Customer C	December 31, 2022		—		117,254

Pharmacy Management
Customer D	March 31, 2019		92,712		91,442

(1)

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

(2)

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 March 31, 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


	March 31, 2018
	Level 1		Level 2		Level 3		Total
Assets
Cash and cash equivalents (3)	$	—	$	229,405	$	—	$	229,405
Investments:
U.S. Government and agency securities		33,170		—		—		33,170
Obligations of government-sponsored enterprises (2)		—		22,109		—		22,109
Corporate debt securities		—		292,480		—		292,480
Certificates of deposit		—		2,762		—		2,762
Total assets held at fair value	$	33,170	$	546,756	$	—	$	579,926

Liabilities
Contingent consideration	$	—	$	—	$	9,050	$	9,050
Total liabilities held at fair value	$	—	$	—	$	9,050	$	9,050

(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 $164.9 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 three months ended March 31, 2018 (in thousands):


	March 31,
	2018
Balance as of beginning of period	$	8,817
Changes in fair value		233
Payments		—
Balance as of end of period	$	9,050

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 March 31, 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


	March 31, 2018
			Gross		Gross
	Amortized		Unrealized		Unrealized		Estimated
	Cost		Gains		Losses		Fair Value
U.S. Government and agency securities	$	33,311	$	—	$	(141)	$	33,170
Obligations of government-sponsored enterprises (1)		22,163		3		(57)		22,109
Corporate debt securities		293,205		8		(733)		292,480
Certificates of deposit		2,762		—		—		2,762
Total investments at March 31, 2018	$	351,441	$	11	$	(931)	$	350,521

(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 March 31, 2018 are summarized below (in thousands):


	Amortized		Estimated
	Cost		Fair Value
2018	$	266,700	$	266,104
2019		84,741		84,417
Total investments at March 31, 2018	$	351,441	$	350,521

Schedule of stock option activity

Summarized information related to the Company’s stock options for the three months ended March 31, 2018 is as follows:


	2018


		Weighted
		Average
		Exercise
	Options	Price
Outstanding, beginning of period	2,458,237	$	61.50
Granted	399,706		99.46
Forfeited	(8,321)		48.01
Exercised	(299,873)		57.14
Outstanding, end of period	2,549,749	$	67.96
Vested and expected to vest at end of period	2,522,274	$	59.59
Exercisable, end of period	1,537,926	$	67.76

Schedule of nonvested restricted stock award activity

Summarized information related to the Company’s nonvested restricted stock awards (“RSAs”) for the three months ended March 31, 2018 is as follows:



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

Schedule of nonvested restricted stock units

Summarized information related to the Company’s nonvested restricted stock units (“RSUs”) for the three months ended March 31, 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	(80,070)		65.41
Forfeited	(4,349)		67.60
Outstanding, ending of period	188,218		86.05

Schedule of nonvested restricted performance stock units

Summarized information related to the Company’s nonvested restricted performance stock units (“PSUs”) for the three months ended March 31, 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	(1,469)		85.29
Outstanding, end of period	247,756		103.09