Centene Corporation Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

Health Net (Tables)

Health Net (Tables)

6 Months Ended

Jun. 30, 2016

Schedule of Recognized Identified Assets Acquired and Liabilities Assumed

The Company's preliminary allocation of the fair value of assets acquired and liabilities assumed as of the acquisition date of March 24, 2016 is as follows ($ in millions):



Assets Acquired and Liabilities Assumed
Cash and cash equivalents	$	1,368
Premium and related receivables ^(a)	1,086
Short term investments	82
Other current assets	638
Long term investments	1,966
Restricted deposits	36
Property, software and equipment, net	41
Intangible assets ^(b)	1,500
Other long term assets	204
Total assets acquired	6,921

Medical claims liability	1,462
Borrowings under revolving credit facility	285
Accounts payable and accrued expenses ^(c)	2,030
Return of premium payable	375
Unearned revenue	117
Long term deferred tax liabilities ^(d)	349
Long term debt ^(e)	418
Other long term liabilities	452
Total liabilities assumed	5,488

Total identifiable net assets	1,433
Goodwill ^(f)	3,850
Total assets acquired and liabilities assumed	$	5,283

The Company has made the following preliminary fair value adjustments based on information reviewed through June 30, 2016. Significant fair value adjustments are noted as follows:


(a)	The preliminary fair value of premium and related receivables approximated their historical cost, with the exception of the risk corridor receivable associated with the Health Insurance Marketplace. The fair value of the risk corridor receivable was estimated at $9 million.

(b)

The identifiable intangible assets acquired are to be measured at fair value as of the completion of the acquisition. The fair value of intangible assets is determined primarily using variations of the "income approach," which is based on the present value of the future after tax cash flows attributable to each identified intangible asset. Other valuation methods, including the market approach and cost approach, were also considered in estimating the fair value. The Company has estimated the preliminary fair value of intangibles to be $1.5 billion with a weighted average life of 10 years. The Company expects the identifiable intangible assets to include purchased contract rights, provider contracts, trade names and developed technology. The Company is still in the process of finalizing its intangible valuation.

(c)

Accounts payable and accrued expenses includes approximately $300 million related to premium deficiency reserves based on costs trends existing prior to the acquisition date. The premium deficiency reserves are primarily associated with losses in the individual commercial business, largely in California, unfavorable performance in the Arizona commercial business as well as unfavorable performance in the Medicare business primarily in Oregon and Arizona. The premium deficiency reserve for the individual PPO commercial contracts in California includes future losses associated with substance abuse rehabilitation claims.


(d)	The preliminary deferred tax liabilities are presented net of $500 million of deferred tax assets.


(e)	Debt is required to be measured at fair value under the acquisition method of accounting. The fair value of Health Net's $400 million Senior Notes assumed in the acquisition was $418 million. The $18 million increase will be amortized as a reduction to interest expense over the remaining life of the debt.


(f)	The acquisition resulted in $3.9 billion of goodwill related primarily to buyer specific synergies expected from the acquisition and the assembled workforce of Health Net. This goodwill is not deductible for income tax purposes. The assignment of goodwill to the Company's respective segments has not been completed at this time.

Schedule of Unaudited Pro Forma Financial Information

The following table presents supplemental pro forma information for the three and six months ended June 30, 2015 ($ in millions, except per share data).



	Three Months Ended June 30, 2015		Six Months Ended June 30, 2015
Total revenues	$	9,650	$	18,657
Net earnings attributable to Centene Corporation	$	91	$	130
Diluted earnings per share	$	0.53	$	0.76

Restructuring and Related Costs

Changes in the restructuring liability for the six months ended June 30, 2016 were as follows ($ in millions):



	June 30, 2016
	Employee Termination Costs			Stock Based Compensation			Total
Total accrued restructuring costs as of December 31, 2015	$	—		$	—		$	—
Charges incurred	32			38			70
Paid/settled	(18		)	(38		)	(56		)
Total accrued restructuring costs as of June 30, 2016	$	14		$	—		$	14