Full Press Release Details
COMBINED FINANCIAL STATEMENTS
MAGELLAN SPECIALTY HEALTH
Business of Magellan Health, Inc.)
December 31, 2020 and 2021
MAGELLAN SPECIALTY HEALTH
(A Business of Magellan Health, Inc.)
COMBINED FINANCIAL STATEMENTS
Years Ended December 31, 2020 and 2021
Audited Financial Statements
| Combined Balance Sheets | 3 | |||
| Combined Statements of Income | 4 | |||
| Consolidated Statement of Net Parent Investment | 5 | |||
| Combined Statements of Cash Flows | 6 | |||
| Notes to Combined Financial Statements | 7 |
Independent Auditors Report
The Board of Directors
Magellan Specialty Health:
We have audited the combined financial
statements of Magellan Specialty Health (the Company), which comprise the combined balance sheets as of December 31, 2021 and December 31, 2020, and the related combined statements of income, net parent investment, and cash flows for the years then
ended, and the related notes to the combined financial statements.
In our opinion, the accompanying combined financial statements present fairly, in all
material respects, the financial position of the Company as of December 31, 2021 and December 31, 2020, and the results of its operations and its cash flows for the years then ended in accordance with U.S. generally accepted accounting principles.
We conducted our audits in
accordance with auditing standards generally accepted in the United States of America (GAAS). Our responsibilities under those standards are further described in the Auditors Responsibilities for the Audit of the Combined Financial Statements
section of our report. We are required to be independent of the Company and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audits. We believe that the audit evidence we have obtained
is sufficient and appropriate to provide a basis for our audit opinion.
Responsibilities of Management for the Combined Financial Statements
Management is responsible for the preparation and fair presentation of the combined financial statements in accordance with U.S. generally accepted accounting
principles, and for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of combined financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the combined financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that
raise substantial doubt about the Company s ability to continue as a going concern for one year after the date that the combined financial statements are issued.
Auditors Responsibilities for the Audit of the Combined Financial Statements
Our objectives are to obtain reasonable assurance about whether the combined financial statements as a whole are free from material misstatement, whether due
to fraud or error, and to issue an auditors report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with GAAS will
always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions,
misrepresentations, or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the
combined financial statements.
In performing an audit in accordance with GAAS, we:
communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control related matters that we identified during the audit.
| MAGELLAN SPECIALTY HEALTH (A Business of Magellan Health, Inc.) COMBINED BALANCE SHEETS AS OF DECEMBER 31, | ||||||||
| (In thousands) | ||||||||
| 2020 | 2021 | |||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable, net | 76,128 | 133,653 | ||||||
| Other current assets | 1,154 | 990 | ||||||
| Total Current Assets | 77,282 | 134,643 | ||||||
| Property and equipment, net | 7,795 | 7,743 | ||||||
| Other long-term assets | 939 | 318 | ||||||
| Goodwill | 113,214 | 113,214 | ||||||
| Other intangible assets, net | 1,112 | 410 | ||||||
| Total Assets | $ | 200,342 | $ | 256,328 | ||||
| LIABILITIES AND EQUITY | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable | $ | 1,500 | $ | 2,279 | ||||
| Accrued liabilities | 18,058 | 13,718 | ||||||
| Medical claims payable | 11,682 | 51,752 | ||||||
| Other medical liabilities | 17,511 | 29,238 | ||||||
| Total Current Liabilities | 48,751 | 96,987 | ||||||
| Deferred income taxes | 445 | 8 | ||||||
| Note payable to affiliate | 35,000 | |||||||
| Other long-term liabilities | 1,445 | 281 | ||||||
| Total Liabilities | 85,641 | 97,276 | ||||||
| Net Parent investment | 114,701 | 159,052 | ||||||
| Total Liabilities and Equity | $ | 200,342 | $ | 256,328 |
See accompanying notes to Combined Financial Statements.
MAGELLAN SPECIALTY HEALTH
(A Business of Magellan Health, Inc.)
COMBINED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31,
| 2020 | 2021 | |||||||
| Net revenue: | ||||||||
| Managed care and other | $ | 459,067 | $ | 694,378 | ||||
| Total net revenue | 459,067 | 694,378 | ||||||
| Costs and expenses: | ||||||||
| Cost of care | 261,705 | 467,209 | ||||||
| Direct service costs and other operating expenses (1) | 151,961 | 184,266 | ||||||
| Depreciation and amortization | 6,812 | 8,117 | ||||||
| Interest expense for note payable to affiliate | 1,900 | 1,663 | ||||||
| Special charges | 282 | 22 | ||||||
| Total costs and expenses | 422,660 | 661,277 | ||||||
| Income before income taxes | 36,407 | 33,100 | ||||||
| Provision for income taxes | 9,545 | 8,635 | ||||||
| Net income | $ | 26,862 | $ | 24,465 |
accompanying notes to Combined Financial Statements.
MAGELLAN SPECIALTY HEALTH
(A Business of Magellan Health, Inc.)
COMBINED STATEMENTS OF NET PARENT INVESTMENT
| Total | ||||
| Balance at December 31, 2019 | $ | 100,035 | ||
| Stock compensation expense | 1,420 | |||
| Net income | 26,862 | |||
| Net transfers to Parent | (13,616 | ) | ||
| Balance at December 31, 2020 | $ | 114,701 | ||
| Stock compensation expense | 1,315 | |||
| Net income | 24,465 | |||
| Contribution of note receivable from Parent | 35,000 | |||
| Net transfers to Parent | (16,429 | ) | ||
| Balance at December 31, 2021 | $ | 159,052 |
See accompanying notes to Combined Financial Statements.
MAGELLAN SPECIALTY HEALTH
(A Business of Magellan Health, Inc.)
COMBINED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31,
| 2020 | 2021 | |||||||
| Cash flows from operating activities: | ||||||||
| Net income | $ | 26,862 | $ | 24,465 | ||||
| Adjustments to reconcile net income to net cash from operating activities: | ||||||||
| Depreciation and amortization | 6,812 | 8,117 | ||||||
| Special charges | 282 | 22 | ||||||
| Non-cash stock compensation expense | 1,420 | 1,315 | ||||||
| Non-cash income tax provision | (275 | ) | (437 | ) | ||||
| Changes in assets and liabilities, net of effects from acquisitions of businesses: | ||||||||
| Accounts receivable, net | (9,983 | ) | (57,525 | ) | ||||
| Accounts payable and accrued liabilities | 6,303 | (3,583 | ) | |||||
| Medical claims payable and other medical liabilities | (6,847 | ) | 51,797 | |||||
| Other assets and liabilities | (1,005 | ) | (1,880 | ) | ||||
| Net cash provided by operating activities | 23,569 | 22,291 | ||||||
| Cash flows from investing activities: | ||||||||
| Capital expenditures | (4,953 | ) | (5,862 | ) | ||||
| Net cash used in investing activities | (4,953 | ) | (5,862 | ) | ||||
| Cash flows from financing activities: | ||||||||
| Net transfers (to) from Parent | (13,616 | ) | (16,429 | ) | ||||
| Payments on note payable to affiliate (1) | (5,000 | ) | ||||||
| Net cash used in financing activities | (18,616 | ) | (16,429 | ) | ||||
| Net increase (decrease) in cash | ||||||||
| Cash at beginning of period | ||||||||
| Cash at end of period | $ | $ |
See accompanying notes to Combined Financial Statements.
MAGELLAN SPECIALTY HEALTH
(A business of Magellan Health, Inc.)
NOTES TO COMBINED FINANCIAL STATEMENTS
1. Organization and Nature of Operations
The accompanying combined carve-out financial statements include the historical accounts of Magellan
Specialty Health (referred to as Specialty Health or the Company ), part of the Healthcare segment of Magellan Health, Inc. ( Magellan or the Parent ). Magellan was acquired by, and became a wholly owned subsidiary
of, Centene Corporation ( Centene ) effective as of January 4, 2022.
The Company is a leader within the healthcare
management business and is focused on delivering innovative specialty solutions for the fastest growing, most complex areas of healthcare. The Company develops innovative solutions that combine advanced analytics, agile technology and clinical
excellence to drive better decision making and positively impact members health outcomes. The Company provides its management services primarily through: (i) risk-based contractual arrangements or (ii) administrative services only
( ASO ) contractual arrangements. Additional information regarding the Company s contractual arrangements is provided in Revenue Recognition below.
The Company s customers include health plans for whom Magellan provides carve-out management
services for areas of specialty healthcare including diagnostic imaging, musculoskeletal management, cardiac and physical medicine. These management services can be applied broadly across commercial, Medicaid and Medicare populations, or on a more
targeted basis for our health plan customers.
2. Summary of Significant Accounting Policies
Basis of Presentation
Combined Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States ( U.S. GAAP ) from the consolidated financial statements and accounting records of Magellan using the
historical results of operations and historical cost basis of the assets and liabilities of Magellan that comprise Specialty Health. The Company has historically operated as part of Magellan and not as a stand-alone company and has no separate legal
status or existence. Consequently, stand-alone financial statements have not historically been prepared by Specialty Health. The accompanying Combined Financial Statements have been prepared from Magellan s historical consolidated financial
statements and accounting records and are presented on a stand-alone basis as if the Company s operations had been conducted independently from Magellan. All intercompany accounts within Specialty Health have been eliminated within these
The operations comprising Specialty Health are in various legal entities, owned 100% by the Parent, in which Specialty Health
has no direct ownership relationship. References in these Combined Financial Statements to subsidiaries of Magellan Specialty Health refers to legal entities that are primarily engaged in operating activities that are dedicated to the business of
Specialty Health. The Company s business is primarily composed of all of the business of National Imaging Associates, Inc. ( NIA ), as well as the specialty risk business written by Magellan Providers of Texas, Inc. ( MPT )
and Magellan Life Insurance Company ( MLIC ). Effective January 1, 2022, the risk business written by MPT and MLIC converted to non-risk. This non-risk
business is written by NIA as of January 1, 2022. The financial statements have been derived from Magellan s historical accounting records and are presented on a carve-out basis.
The Combined Statements of Income include revenues and costs directly attributable to Specialty Health as well as an allocation of expenses
related to functions and services provided by our Parent. The allocation methodologies have been described within the notes to the Combined Financial Statements where appropriate. The allocation methodology was revised in 2021, with more costs being
allocated using a value-added basis percentage compared to 2020, where costs were primarily allocated based on a level of effort. Management assessed the impact of retroactively applying the change in methodology and determined the change would have
an immaterial impact to the Company. As such, there are different methodologies applied in 2020 and 2021 results. These methodologies were primarily based on cost centers specific to the Company s operations, as well as direct labor costs
incurred by Specialty Health compared to Magellan, and the Company s proportionate share of Magellan s full-time employees. These allocated costs are primarily related to corporate administrative expenses, and other corporate support
services. The allocated costs are deemed to be settled by Specialty Health to the Parent in the period in which the expense was recorded in the Combined Statements of Income. The Combined Statements of Cash Flows present these allocated Parent
functional costs as cash flows from operating activities. Due to the inherent limitation of allocations, there can be no assurance that allocated costs represent arm s length transactions.
Current and deferred income taxes and related tax expense have been determined based on the stand-alone results of the Company by applying
Accounting Standards Codification No. 740, Income Taxes ( ASC 740 ), to Specialty Health s operations as if it was a separate taxpayer (i.e. following the Separate Return Methodology).
The Combined Balance Sheets include all assets and liabilities that are attributable to the Specialty Health business. Assets and liabilities
in shared entities were included in the stand-alone financial statements to the extent the asset is primarily used by Specialty Health. If Specialty Health is not the primary user of the asset, it was excluded entirely from the Combined Financial
Statements. Any such items which exist in other entities, whether shared or otherwise, are outside of the control of Specialty Health and have been excluded from the Combined Financial Statements. Our Parent s third-party debt and the related
interest have not been allocated to us for any of the periods presented because our Parent s borrowings are primarily for corporate cash purposes and are not directly attributable to the Company. In addition, the Company did not guarantee the
debt nor is the Company jointly and severally liable for Parent s debt.
The Company utilizes the Parent s centralized processes and systems for cash
management, payroll, purchasing, and distribution. Accordingly, cash, related party debt and related party interest have been attributed to Specialty Health in the Combined Financial Statement only to the extent such items have been legal entitled
to the Company. The net results of these cash transactions between the Company and the Parent are reflected within net Parent investment in the accompanying combined balance sheets. In addition, net Parent investment represents the Parent s
interest in the recorded net assets of Specialty Health and represents the cumulative net investment by the Parent in Specialty Health through the dates presented, inclusive of cumulative operating results.
The financial information included herein may not necessarily reflect the combined financial position, results of operations, changes in net
Parent investment and cash flows of Specialty Health in the future or what they would have been had the Company been a separate, stand-alone entity during the periods presented.
Basis of Combination
Financial Statements are presented on a stand-alone basis and include the financial position, statements of income and cash flows of Specialty Health. All significant intercompany accounts and transactions within Specialty Health have been