Exhibit 99.2
FirstGuard, Inc. and
FirstGuard Health Plan, Inc.
Index
September 30, 2004
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Combined Financial Statements | | |
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Balance Sheet | | 1 |
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Statement of Earnings | | 2 |
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Statement of Cash Flows | | 3 |
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Notes to Financial Statements | | 4 |
FirstGuard, Inc. and
FirstGuard Health Plan, Inc.
Combined Balance Sheet (Unaudited)
September 30, 2004
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Assets | | | |
Current assets | | | |
Cash and cash equivalents | | $ | 8,345,234 |
Premium and related receivables, net | | | 12,680,265 |
Short-term investments, at amortized cost | | | 27,857,084 |
Income taxes receivable | | | 2,056,024 |
Deferred income taxes | | | 249,515 |
Other current assets | | | 274,959 |
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Total current assets | | | 51,463,081 |
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Long-term investments, at amortized cost | | | 10,501,533 |
Restricted deposits, at amortized cost | | | 900,000 |
Property, software and equipment | | | 392,728 |
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Total assets | | $ | 63,257,342 |
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Liabilities and stockholder’s equity | | | |
Current liabilities | | | |
Medical claims liabilities | | $ | 25,227,339 |
Accounts payable and accrued expenses | | | 2,844,028 |
Payable to affiliates | | | 90,663 |
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Total current liabilities | | | 28,162,030 |
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Note payable to affiliate | | | 2,516,625 |
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Total liabilities | | | 30,678,655 |
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Stockholder’s equity | | | |
Common stock | | | 3,876,116 |
Retained earnings | | | 28,702,571 |
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Total stockholder’s equity | | | 32,578,687 |
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Total liabilities and stockholder’s equity | | $ | 63,257,342 |
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The accompanying notes are an integral part of these combined financial statements.
1
FirstGuard, Inc. and
FirstGuard Health Plan, Inc.
Combined Statement of Earnings (Unaudited)
Nine Months Ended September 30, 2004
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Revenues | | | | |
Premiums | | $ | 179,675,421 | |
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Total revenues | | | 179,675,421 | |
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Expenses | | | | |
Medical costs | | | 151,557,816 | |
General and administrative expenses | | | 16,788,107 | |
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Total operating expenses | | | 168,345,923 | |
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Earnings from operations | | | 11,329,498 | |
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Other income (expense) | | | | |
Investment and other income | | | 1,028,901 | |
Interest expense | | | (57,188 | ) |
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Earnings before income taxes | | | 12,301,211 | |
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Income tax expense | | | 4,286,892 | |
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Minority interest | | | (1,640,890 | ) |
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Net earnings | | $ | 6,373,429 | |
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The accompanying notes are an integral part of these combined financial statements.
2
FirstGuard, Inc. and
FirstGuard Health Plan, Inc.
Combined Statement of Cash Flows (Unaudited)
Nine Months Ended September 30, 2004
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Cash flows from operating activities | | | | |
Net earnings | | $ | 6,373,429 | |
Adjustments to reconcile net earnings to net cash provided by operating activities | | | | |
Depreciation expense | | | 169,941 | |
Deferred income tax provision | | | 914,408 | |
Minority interest | | | 1,640,890 | |
Changes in assets and liabilities | | | | |
Premium and related receivables | | | (1,260,367 | ) |
Income taxes receivable | | | (2,056,024 | ) |
Other current assets | | | 16,345 | |
Medical claims liabilities | | | (5,091,228 | ) |
Accounts payable and accrued expenses | | | 337,103 | |
Unearned revenue | | | (341,137 | ) |
Income taxes payable | | | (1,088,370 | ) |
Amounts due to affiliates | | | (59,682 | ) |
Note payable to affiliate | | | 57,188 | |
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Net cash used in operating activities | | | (387,504 | ) |
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Cash flows from investing activities | | | | |
Purchase of property, software and equipment | | | (249,430 | ) |
Proceeds from investments | | | 6,624,996 | |
Purchase of investments | | | (1,307,321 | ) |
Purchase of minority interest of FirstGuard | | | | |
Kansas Health Plan, Inc. | | | (4,641,000 | ) |
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Net cash provided by investing activities | | | 427,245 | |
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Cash flows from financing activities | | | | |
Net cash provided by financing activities | | | — | |
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Net increase in cash and cash equivalents | | | 39,741 | |
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Cash and cash equivalents, beginning of period | | | 8,305,493 | |
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Cash and cash equivalents, end of period | | $ | 8,345,234 | |
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Income taxes paid | | $ | 5,100,000 | |
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The accompanying notes are an integral part of these combined financial statements.
3
FirstGuard, Inc. and
FirstGuard Health Plan, Inc.
Notes to Combined Financial Statements (Unaudited)
September 30, 2004
| 1. | Organization and Operations |
FirstGuard, Inc. and FirstGuard Health Plan, Inc. and their subsidiaries (the “Company”) operate two health maintenance organizations (HMOs) to provide health services primarily to low income residents of the States of Kansas and Missouri through the Healthwave – Title XIX and Healthwave – Title XXI programs sponsored by the State of Kansas and the MC+ program sponsored by the State of Missouri. The Company derives all of its premium revenues from the States of Kansas and Missouri.
As of December 31, 2003, FirstGuard, Inc. and FirstGuard Health Plan, Inc. were wholly owned subsidiaries of Model Cities Health Corporation of Kansas City d/b/a Swope Parkway Health Center (the “Parent”). On September 23, 2004, the Company completed a reorganization plan, which was initiated during late 2002. As a result of the reorganization, all of the outstanding shares of FirstGuard, Inc. and FirstGuard Health Plan, Inc. were transferred from the Parent to an affiliate, Swope Community Enterprises (“SCE”). Subsequently, on September 28, 2004, SCE announced that it had signed a definitive agreement to sell the Company to Centene Corporation, an unaffiliated company, for approximately $93 million in cash. This transaction closed in December 2004, after regulatory approvals were received.
Prior to August 2004, FirstGuard, Inc. owned 80 percent of FirstGuard Health Plan Kansas, Inc., which comprised 100 percent of FirstGuard, Inc.’s premium revenues. The remainder of FirstGuard Health Plan Kansas, Inc. was owned by Heartland Physicians Health Network, Inc. (“HPHN”). During August 2004, FirstGuard Health Plan Kansas, Inc. purchased the minority stockholder’s interest for $4.6 million, subject to additional consideration of $1.95 million that will be paid to HPHN by SCE.
On November 22, 2004, with the approval of the Commissioner of the Missouri Department of Insurance, the Company paid the Parent $2,527,934 in full settlement of the outstanding note payable balance, including accrued interest.
During 2004, the Missouri Department of Insurance and the Kansas Insurance Department approved total dividend payments of $27,096,331 to the Parent, subject to completion of the sale of the Company to Centene Corporation which occurred in December 2004.
The unaudited interim financial statements herein have been prepared consistent with the accounting policies applied in the annual financial statements with the exception of medical claims liabilities which does not include a provision for moderately adverse conditions. The accompanying interim financial statements have been prepared under the presumption that users of the interim financial information have either read or have access to the audited financial statements for the latest fiscal year ended December 31, 2003. Accordingly, footnote disclosures, which would substantially duplicate the disclosures contained in the December 31, 2003 audited financial statements, have been omitted from these interim financial statements where appropriate. In the opinion of management, these financial statements reflect all adjustments, consisting only of normal recurring adjustments, which are necessary for a fair presentation of the results of the interim period presented.
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