Exhibit 99.3
CENTENE CORPORATION
Unaudited Pro Forma Financial Information
Centene purchased FirstGuard, Inc. and FirstGuard Health Plan, Inc. from Swope Community Enterprises effective December 1, 2004 for $93 million in cash plus transaction costs. FirstGuard, Inc.’s subsidiary, First Guard Health Plan Kansas, serves approximately 94,000 Medicaid and SCHIP members throughout the state of Kansas and FirstGuard Health Plan, Inc. serves approximately 41,000 Medicaid members in Missouri (collectively, FirstGuard).
The following unaudited pro forma financial information has been prepared to give effect to our acquisition of FirstGuard using the purchase method of accounting and the assumptions and adjustments described in the accompanying notes to unaudited pro forma financial information. This pro forma financial information was prepared as if the acquisition had been completed as of January 1, 2003 for statement of earnings purposes and September 30, 2004 for balance sheet purposes.
The unaudited pro forma financial information is presented for illustrative purposes only and is not necessarily indicative of the financial position or results of operations that would have actually been reported had the acquisition occurred January 1, 2003 for statement of earnings purposes and September 30, 2004 for balance sheet purposes, nor is it necessarily indicative of the future financial position or results of operations. The pro forma financial information includes adjustments, which are based upon preliminary estimates, to reflect the allocation of the purchase price to the acquired assets and liabilities of FirstGuard. The final allocation of the purchase price will be determined later and will be based upon actual tangible and intangible assets acquired as well as liabilities assumed. As the unaudited pro forma financial information is based upon preliminary estimates, the pro forma adjustments may differ materially based upon the final allocation.
The audited financial statements of Centene for each of the three years ended December 31, 2003, and the quarterly information for the three and nine-month periods ended September 30, 2004 have been filed with the SEC in Centene’s Annual Report on Form 10-K/A, filed on December 15, 2004, and quarterly report on Form 10-Q/A, filed on December 15, 2004, respectively. The audited financial statements of FirstGuard for each of the two years ended December 31, 2003 and the unaudited financial statements for the nine-month period ended September 30, 2004, are filed as part of this Current Report on Form 8-K/A. The unaudited pro forma financial information should be read in conjunction with each company’s historical financial statements and the notes thereto.
CENTENE CORPORATION
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 2004
(In thousands, except share data)
Historical | Pro Forma Adjustments | Centene Corp Pro Forma Combined | |||||||||||
Centene | FirstGuard | ||||||||||||
Assets | |||||||||||||
Current assets: | |||||||||||||
Cash and cash equivalents | $ | 88,687 | $ | 8,345 | $ | (56,100) | (A) | ||||||
(2,516) | (B) | $ | 38,416 | ||||||||||
Premium and related receivables, net of allowance | 22,739 | 12,680 | — | 35,419 | |||||||||
Short-term investments, at fair value | 43,568 | 27,857 | (26,579) | (C) | 44,846 | ||||||||
Deferred income taxes | 3,143 | 250 | — | 3,393 | |||||||||
Other current assets | 12,561 | 2,331 | — | 14,892 | |||||||||
Total current assets | 170,698 | 51,463 | (85,195) | 136,966 | |||||||||
Long-term investments, at fair value | 170,126 | 10,501 | — | 180,627 | |||||||||
Restricted deposit, at fair value | 21,202 | 900 | — | 22,102 | |||||||||
Property, software and equipment | 28,831 | 393 | — | 29,224 | |||||||||
Goodwill | 17,142 | — | 85,140 | (D) | 102,282 | ||||||||
Other intangible assets | 6,808 | — | 8,000 | (D) | 14,808 | ||||||||
Other assets | 6,346 | — | — | 6,346 | |||||||||
Total assets | $ | 421,153 | $ | 63,257 | $ | 7,945 | $ | 492,355 | |||||
Liabilities and Stockholders’ Equity | |||||||||||||
Current liabilities: | |||||||||||||
Medical claims liabilities | $ | 126,394 | $ | 25,318 | — | $ | 151,712 | ||||||
Accounts payable and accrued expenses | 21,907 | 2,844 | — | 24,751 | |||||||||
Unearned revenue | 3,670 | — | — | 3,670 | |||||||||
Current portion of long-term debt and notes payable | 288 | — | — | 288 | |||||||||
Total current liabilities | 152,259 | 28,162 | — | 180,421 | |||||||||
Long-term debt | 7,400 | 2,516 | (2,516) | (B) | |||||||||
40,000 | (A) | 47,400 | |||||||||||
Other liabilities | 5,571 | — | 3,040 | (E) | 8,611 | ||||||||
Total liabilities | 165,230 | 30,678 | 40,524 | 236,432 | |||||||||
Stockholders’ equity: | |||||||||||||
Common stock | 41 | 3,876 | (3,876) | (F) | 41 | ||||||||
Additional paid-in capital | 161,593 | — | — | 161,593 | |||||||||
Accumulated other comprehensive income: | |||||||||||||
Unrealized gain on investments, net of tax | 12 | — | — | 12 | |||||||||
Retained earnings | 94,277 | 28,703 | (26,579) | (C) | |||||||||
(2,124) | (F) | 94,277 | |||||||||||
Total stockholders’ equity | 255,923 | 32,579 | (32,579) | 255,923 | |||||||||
Total liabilities and stockholders’ equity | $ | 421,153 | $ | 63,257 | $ | 7,945 | $ | 492,355 | |||||
See notes to unaudited pro forma financial information.
CENTENE CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 2003
(In thousands, except share data)
Historical | Pro Forma Adjustments | Centene Corp Pro Forma Combined | ||||||||||||||
Centene | FirstGuard | |||||||||||||||
Revenues: | ||||||||||||||||
Premiums | $ | 759,763 | $ | 233,377 | $ | — | $ | 993,140 | ||||||||
Services | 9,967 | — | — | 9,967 | ||||||||||||
Total revenues | 769,730 | 233,377 | — | 1,003,107 | ||||||||||||
Expenses: | ||||||||||||||||
Medical costs | 626,192 | 189,589 | 1,850 | (G) | 817,631 | |||||||||||
Cost of services | 8,323 | — | — | 8,323 | ||||||||||||
General and administrative expenses | 88,288 | 20,231 | (1,850) | (G) | ||||||||||||
— | — | 800 | (D) | 107,469 | ||||||||||||
Total operating expenses | 722,803 | 209,820 | 800 | 933,423 | ||||||||||||
Earnings from operations | 46,927 | 23,557 | (800) | 69,684 | ||||||||||||
Other income (expense): | ||||||||||||||||
Investment and other income | 5,160 | 827 | (1,704) | (H) | 4,283 | |||||||||||
Interest expense | (194 | ) | (81 | ) | 81 | (I) | ||||||||||
— | — | (1,600) | (J) | (1,794 | ) | |||||||||||
Earnings before income taxes | 51,893 | 24,303 | (4,023) | 72,173 | ||||||||||||
Income tax expense | 19,504 | 8,670 | (1,529) | (K) | 26,645 | |||||||||||
Minority interest | 881 | (1,390 | ) | 1,390 | (L) | 881 | ||||||||||
Net earnings | $ | 33,270 | $ | 14,243 | $ | (1,104) | $ | 46,409 | ||||||||
Earnings per share: | ||||||||||||||||
Basic earnings per common share | $ | 0.93 | $ | 1.30 | ||||||||||||
Diluted earnings per common share | $ | 0.87 | $ | 1.21 | ||||||||||||
Weighted average number of shares outstanding: | ||||||||||||||||
Basic | 35,704,426 | 35,704,426 | ||||||||||||||
Diluted | 38,422,152 | 38,422,152 |
See notes to unaudited pro forma financial information.
CENTENE CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004
(In thousands, except share data)
Historical | Pro Forma Adjustments | Centene Corp Pro Forma Combined | ||||||||||||||
Centene | FirstGuard | |||||||||||||||
Revenues: | ||||||||||||||||
Premiums | $ | 705,556 | $ | 179,675 | $ | — | $ | 885,231 | ||||||||
Services | 7,320 | — | — | 7,320 | ||||||||||||
Total revenues | 712,876 | 179,675 | — | 892,551 | ||||||||||||
Expenses: | ||||||||||||||||
Medical costs | 570,720 | 151,558 | 1,720 | (G) | 723,998 | |||||||||||
Cost of services | 6,149 | — | — | 6,149 | ||||||||||||
General and administrative expenses | 88,915 | 16,788 | (1,720) | (G) | — | |||||||||||
— | — | 600 | (D) | 104,583 | ||||||||||||
Total operating expenses | 665,784 | 168,346 | 600 | 834,730 | ||||||||||||
Earnings from operations | 47,092 | 11,329 | (600) | 57,821 | ||||||||||||
Other income (expense): | ||||||||||||||||
Investment and other income | 4,529 | 1,029 | (1,278) | (H) | 4,280 | |||||||||||
Interest expense | (317 | ) | (57 | ) | 57 | (I) | ||||||||||
— | — | (1,200) | (J) | (1,517 | ) | |||||||||||
Earnings before income taxes | 51,304 | 12,301 | (3,021) | 60,584 | ||||||||||||
Income tax expense | 19,002 | 4,287 | (1,148) | (K) | 22,141 | |||||||||||
Minority interest | — | (1,641 | ) | 1,641 | (L) | — | ||||||||||
Net earnings | $ | 32,302 | $ | 6,373 | $ | (232 | ) | $ | 38,443 | |||||||
Earnings per share: | ||||||||||||||||
Basic earnings per common share | $ | 0.79 | $ | 0.94 | ||||||||||||
Diluted earnings per common share | $ | 0.74 | $ | 0.89 | ||||||||||||
Weighted average number of shares outstanding: | ||||||||||||||||
Basic | 40,693,804 | 40,693,804 | ||||||||||||||
Diluted | 43,364,120 | 43,364,120 |
See notes to unaudited pro forma financial information.
CENTENE CORPORATION
NOTES TO UNAUDITED PRO FORMA FINANCIAL INFORMATION
(Dollars in thousands)
The FirstGuard acquisition is accounted for under the purchase method of accounting. Accordingly, the total purchase price, estimated at $96,100 in cash and transaction costs, is allocated to assets acquired and liabilities assumed based upon their estimated fair values. The purchase price allocation may be adjusted upon completion of the final valuation of the assets acquired and liabilities assumed.
The estimated purchase price has been preliminarily allocated as follows:
Purchase price | $ | 96,100 | ||
Net tangible assets at acquisition date | (6,000 | ) | ||
Total excess purchase price | 90,100 | |||
Estimated identifiable intangible assets | (8,000 | ) | ||
Tax effect related to identifiable intangible assets | 3,040 | |||
Estimated goodwill | $ | 85,140 | ||
A. | Represents the payment of the purchase price funded through a combination of cash of $56,100 and borrowings of $40,000 under Centene’s credit facility. |
B. | Represents the FirstGuard debt paid prior to closing with cash. |
C. | Represents the estimated dividend payable at closing to the seller by FirstGuard, pursuant to the stock purchase agreement, to reduce the acquired statutory capital and surplus to $6,000. |
D. | Represents the estimated goodwill of $85,140 and estimated identifiable intangible assets of $8,000. The estimated weighted average useful life for the identifiable intangible assets is 10 years and the estimated annual amortization expense is $800. |
E. | Represents the deferred tax liability related to the identifiable intangible assets using an estimated tax rate of 38%. |
F. | Represents the elimination of FirstGuard’s equity accounts. |
G. | Represents reclassification of certain FirstGuard expenses to conform to Centene’s presentation. |
H. | Represents the reduced interest income associated with cash and investments used for the purchase price, dividend paid at closing to the seller and FirstGuard debt paid prior to closing with an average annual investment yield of 2%. |
I. | Represents elimination of FirstGuard’s interest expense associated with the debt paid prior to closing. |
J. | Represents increased interest expense associated with the long term debt of $40,000 used for the purchase price with an average annual interest rate of 4%. |
K. | Represents the income tax effect of the pro forma adjustments using an estimated tax rate of 38%. |
L. | Represents elimination of the minority interest in FirstGuard’s historical financial statements as this was eliminated prior to the acquisition of FirstGuard by Centene. |