Effective July 1, 2008, we completed the previously announced acquisition of Celtic, a health insurance carrier focused on the individual health insurance market.
In April 2008, we began operating under our new contract in Texas to provide statewide managed care services to participants in the Texas Foster Care program, with 33,100 members at December 31, 2008.
Cash, cash equivalents and short-term investments were $480.4 million at December 31, 2008 and $313.4 million at December 31, 2007. Long-term investments were $341.7 million at December 31, 2008 and $323.5 million at December 31, 2007, including restricted deposits of $9.3 million and $6.4 million, respectively. At December 31, 2008, cash and investments held by our unregulated entities totaled $24.1 million while cash and investments held by our regulated entities totaled $798.0 million. Additionally, we held regulated cash and investments of $30.1 million from discontinued operations. Upon completion of the sale of assets of UHP and the subsequent payment of medical claims liabilites and other liabilities at the closing date, the remaining regulated cash of UHP will be transferred to our unregulated cash.
In December 2007, the Financial Accounting Standards Board, or FASB, issued FASB Statement No.141 (revised 2007), Business Combinations. The purpose of issuing the statement was to replace current guidance in FASB Statement No.141, Business Combinations, to better represent the economic value of a business combination transaction. The changes to be effected with FASB Statement No. 141R from the current guidance include, but are not limited to: (1) acquisition costs will be recognized separately from the acquisition; (2) known contractual contingencies at the time of the acquisition will be considered part of the liabilities acquired and and measured at their fair value; all other contingencies will be part of the liabilities acquired and measured at their fair value only if it is more likely than not that they meet the definition of a liability; (3) contingent consideration based on the outcome of future events will be recognized and measured at the time of the acquisition; (4) business combinations achieved in stages (step acquisitions) will need to recognize the identifiable assets and liabilities, as well as noncontrolling interests, in the acquiree, at the full amounts of their fair values; and (5) a bargain purchase (defined as a business combination in which the total acquisition-date fair value of the identifiable net assets acquired exceeds the fair value of the consideration transferred plus any noncontrolling interest in the acquiree) will require that excess to be recognized as a gain attributable to the acquirer. FASB Statement No. 141R will be effective for any business combinations that occur after January 1, 2009.
We have determined that all other recently issued accounting pronouncements will not have a material impact on our consolidated financial position, results of operations and cash flows, or do not apply to our operations.
In the normal course of business, the Company invests in various financial assets and incur various financial liabilities. Fair values are disclosed for all financial instruments, whether or not such values are recognized in the Consolidated Balance Sheets. Management obtains quoted market prices for these disclosures. The carrying amounts reported in the Consolidated Balance Sheets for cash and cash equivalents, premium and related receivables, unearned revenue, accounts payable and accrued expenses, and certain other current liabilities approximate fair value because of their short-term nature.
The Company’s development of the medical claims liability estimate is a continuous process which it monitors and refines on a monthly basis as additional claims receipts and payment information becomes available. As more complete claim information becomes available, the Company adjust the amount of the estimates, and include the changes in estimates in medical costs in the period in which the changes are identified. In every reporting period, the operating results include the effects of more completely developed medical claims liability estimates associated with previously reported periods. The Company consistently applies its reserving methodology from period to period. As additional information becomes known, it adjusts the actuarial model accordingly to establish medical claims liability estimates.
In 2008, as a result of the plan to sell certain assets of UHP, the Company conducted an impairment analysis of the assets of UHP. The impairment analysis resulted in an impairment charge for fixed assets of $2,546. During the year ended December 31, 2008, the Company incurred exit costs consisting primarily of lease termination fees and employee severance. The change in exit cost liability for UHP is summarized as follows:
In 2006, as a result of the notification of the Kansas contract non-renewal, the Company conducted an impairment analysis of the identifiable intangible assets and goodwill of the FirstGuard reporting unit, which encompasses both the FirstGuard Kansas and FirstGuard Missouri health plans. The fair value of the FirstGuard reporting unit was determined using discounted expected cash flows and estimated market value. The impairment analysis resulted in a goodwill impairment of $81,098. The Company also recorded impairment charges for identifiable intangible assets of $5,993, and fixed assets of $1,177. The goodwill portion of the impairment was not deductible for tax purposes.
In 2007, the Company abandoned the stock of FirstGuard Kansas and FirstGuard Missouri to an unrelated entity. As a result of that abandonment, the Company recognized expense of $2,298 for the write-off of the remaining assets in that entity. The Company also recognized a $34,856 tax benefit for the tax deduction associated with the basis of that stock.
Estimated total amortization expense related to intangible assets for each of the five succeeding fiscal years is as follows:
Various state laws require Centene’s regulated subsidiaries to maintain minimum capital levels specified by each state and restrict the amount of dividends that may be paid without prior regulatory approval. At December 31, 2008 and 2007, Centene’s subsidiaries, including UHP, had aggregate statutory capital and surplus of $391,400 and $302,100, respectively, compared with the required minimum aggregate statutory capital and surplus of $241,500 and $192,300, respectively.
Includes a $3.0 million pre-tax cash contribution of a portion of the FirstGuard sale proceeds to the Company’s charitable foundation.