Document


MAGELLAN SPECIALTY HEALTH (A Business of Magellan Health, Inc.) COMBINED BALANCE SHEETS
(In thousands)
	As Restated December 31, 2021				As Restated September 30, 2022 (Unaudited)
ASSETS
Current assets:
Cash	$	—			$	—
Accounts receivable, net	53,975				26,161
Due from affiliates, net (1)	—				19,418
Other current assets	990				486
Total current assets	54,965				46,065
Property and equipment, net	7,743				6,770
Other long-term assets	318				345
Goodwill	113,214				113,214
Other intangible assets, net	410				293
Total assets	$	176,650			$	166,687
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	2,279	$	792
Accrued liabilities	15,030				13,236
Total current liabilities	17,309				14,028
Deferred income taxes	1,203				753
Other long-term liabilities	281				343
Total liabilities	18,793				15,124
Net Parent investment	157,857				151,563
Total liabilities and equity	$	176,650			$	166,687


MAGELLAN SPECIALTY HEALTH (A Business of Magellan Health, Inc.) COMBINED STATEMENTS OF INCOME FOR THE NINE MONTHS ENDED SEPTEMBER 30,
(Unaudited)
(In thousands)
	As Restated 2021		As Restated 2022
Net revenue:
Managed care and other (1)	$	162,685	$	194,363
Total net revenue	162,685		194,363
Costs and expenses:
Direct service costs and other operating expenses (2)	132,753		141,577
Depreciation and amortization	4,818		3,400
Interest expense for note payable to parent (1)	1,247		-
Total costs and expenses	138,818		144,977
Income before income taxes	23,867		49,386
Provision for income taxes	6,225		12,902
Net income	$	17,642	$	36,484


MAGELLAN SPECIALTY HEALTH (A Business of Magellan Health, Inc.) COMBINED STATEMENTS OF NET PARENT INVESTMENT
(Unaudited)
(In thousands)
	As Restated Total
Balance at December 31, 2020	$	114,177
Stock compensation expense	972
Net income	17,642
Net transfers to Parent	(14,188)
Balance at September 30, 2021	$	118,603

Balance at December 31, 2021	$	157,857
Stock compensation expense	586
Net income	36,484
Net transfers to Parent	(43,364)
Balance at September 30, 2022	$	151,563


MAGELLAN SPECIALTY HEALTH (A Business of Magellan Health, Inc.) COMBINED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30,
(Unaudited)
(In thousands)
	As Restated 2021		As Restated 2022
Cash flows from operating activities:
Net income	$	17,642	$	36,484
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization	4,818		3,400
Non-cash stock compensation expense	972		586
Non-cash income tax provision	164		(450)
Changes in assets and liabilities, net of effects from acquisitions of businesses:
Accounts receivable, net	(4,600)		3,207
Due from affiliates, net (1)	—		4,694
Accounts payable and accrued liabilities	(1,706)		(2,786)
Other assets and liabilities	764		1,122
Net cash provided by operating activities	18,054		46,257
Cash flows from investing activities:
Capital expenditures	(3,866)		(2,893)
Net cash used in investing activities	(3,866)		(2,893)
Cash flows from financing activities:
Net transfers (to) from Parent	(14,188)		(43,364)
Net cash used in financing activities	(14,188)		(43,364)
Net increase (decrease) in cash	—		—
Cash at beginning of period	—		—
Cash at end of period	$	—	$	—

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 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.

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 fiscal years ended December 31, 2020 and 2021. Footnote disclosures that would substantially duplicate the disclosures contained in the December 31, 2020 and 2021 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 periods presented.

Subsequent to the issuance of the combined financial statements as of and for the interim period ended September 30, 2022, we identified an error in the application of ASC Topic 606, Revenue Recognition, related to principal accounting (gross accounting) versus agent accounting (net accounting) for risk-based contractual arrangements as well as the classification of certain assets and liabilities that were subject to offset. It was determined that we should have applied net accounting to the risk-based contractual arrangements, so the variable consideration is based on the premiums related to the contracts less the costs to provide such services, where our previously issued combined financial statements accounted for the transactions on a gross accounting basis. Additionally, due to the right of offset terms in certain contracts, certain assets and liabilities should have been netted against each other. These errors overstated managed care and other revenues and cost of care, along with the associated subtotals, in our previously issued combined statements of income. These errors also overstated accounts receivable, net, medical claims payable, and other medical liabilities, along with the associated subtotals, in our previously issued combined balance sheets. The correction of these errors also indirectly impacted other accounts, including accrued liabilities, deferred income taxes, and net Parent investment, in our previously issued combined balance sheets, combined statement of net Parent investment, and combined statements of cash flows or disclosures, as presented in the table below.

We evaluated the effect of the error corrections detailed in the tables below on the previously issued combined financial statements, both individually and in the aggregate, in accordance with the guidance in ASC Topic 250, Accounting Changes and Error Corrections, and concluded that the effect of such errors was material to the previously issued combined financial statements as of and for the nine months ended September 30, 2022. These corrections do not relate to or have any impact on the Company's income before income taxes and net income, which are unchanged from the previously issued combined financial statements.

The Company has also made other corrections to the previously issued combined financial statements related to reclassifications between depreciation and amortization expense and direct service costs and other operating expenses in the amount of $1.1 million and $1.5 million for the nine months ended September 30, 2021 and 2022, respectively. The tables below reflect the line items of the Company’s combined financial statements that were impacted by the errors as well as these other corrections.


Combined Balance Sheets
(In thousands)	December 31, 2021						September 30, 2022
	As Originally Reported		Adjustments		As Restated		As Originally Reported		Adjustments		As Restated
Assets
Accounts receivable, net	$	133,653	$	(79,678)	$	53,975	$	59,794	$	(33,633)	$	26,161
Due from affiliates, net	—		—		—		19,624		(206)		19,418
Total Current Assets	134,643		(79,678)		54,965		79,904		(33,839)		46,065
Total Assets	256,328		(79,678)		176,650		200,526		(33,839)		166,687

Liabilities and Equity
Accrued liabilities	13,718		1,312		15,030		13,006		230		13,236
Medical claims payable	51,752		(51,752)		—		31,955		(31,955)		—
Other medical liabilities	29,238		(29,238)		—		2,114		(2,114)		—
Total Current Liabilities	96,987		(79,678)		17,309		47,867		(33,839)		14,028
Deferred income taxes	8		1,195		1,203		425		328		753
Total Liabilities	97,276		(78,483)		18,793		48,635		(33,511)		15,124
Net Parent investment	159,052		(1,195)		157,857		151,891		(328)		151,563
Total Liabilities and Equity	256,328		(79,678)		176,650		200,526		(33,839)		166,687


Combined Statement of Income
(In thousands)	For the Nine Months Ended September 30, 2021						For the Nine Months Ended September 30, 2022
	As Originally Reported		Adjustments		As Restated		As Originally Reported		Adjustments		As Restated
Managed care and other	$	501,831	$	(339,146)	$	162,685	$	300,614	$	(106,251)	$	194,363
Total net revenue	501,831		(339,146)		162,685		300,614		(106,251)		194,363

Cost of care	339,146		(339,146)		—		106,251		(106,251)		—
Direct service costs and other operating expenses	131,669		1,084		132,753		140,075		1,502		141,577
Depreciation and amortization	5,902		(1,084)		4,818		4,902		(1,502)		3,400
Total costs and expenses	477,964		(339,146)		138,818		251,228		(106,251)		144,977


Combined Statements of Net Parent Investment
(In thousands)	For the Nine Months Ended September 30, 2021 and 2022
	As Originally Reported		Adjustments		As Restated
Balance at December 31, 2020	$	114,701	$	(524)	$	114,177
Net transfers to Parent	(13,693)		(495)		(14,188)
Balance at September 30, 2021	$	119,622	$	(1,019)	$	118,603

Balance at December 31, 2021	$	159,052	$	(1,195)	$	157,857
Net transfers to Parent	(44,231)		867		(43,364)
Balance at September 30, 2022	$	151,891	$	(328)	$	151,563


Combined Statements of Cash Flows
(In thousands)	For the Nine Months Ended September 30, 2021						For the Nine Months Ended September 30, 2022
	As Originally Reported		Adjustments		As Restated		As Originally Reported		Adjustments		As Restated
Cash flows from operating activities:
Depreciation and amortization	$	5,902	$	(1,084)	$	4,818	$	4,902	$	(1,502)	$	3,400
Non-cash income tax provision	(330)		494		164		417		(867)		(450)
Changes in assets and liabilities, net of effects from acquisitions of businesses:
Accounts receivable, net	(25,196)		20,596		(4,600)		9,918		(6,711)		3,207
Due from affiliates, net	—		—		—		4,983		(289)		4,694
Accounts payable and accrued liabilities	(6,508)		4,802		(1,706)		(1,704)		(1,082)		(2,786)
Medical claims payable and other medical liabilities	25,398		(25,398)		—		(8,082)		8,082		—
Other assets and liabilities	(321)		1,085		764		(380)		1,502		1,122
Net cash provided by operating activities	17,559		495		18,054		47,124		(867)		46,257

Cash flows from financing activities:
Net transfers (to) from Parent	(13,693)		(495)		(14,188)		(44,231)		867		(43,364)
Net cash used in financing activities	(13,693)		(495)		(14,188)		(44,231)		867		(43,364)

The accompanying 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. As of January 4, 2022, due to the acquisition of Magellan by Centene both Magellan and Specialty Health are wholly owned subsidiaries of Centene. 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 Company has historically operated as part of Magellan and not as a stand-alone company and has no separate legal status or existence, this structure has continued subsequent to the acquisition by Centene. 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 statements. As a result of Magellan’s acquisition by Centene on January 4, 2022, all of the Company’s service contracts with Centene represent related party business starting in 2022. Refer to Note 5 “Related Party Transactions” for further detail.

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 functions and services provided by Magellan has not changed with the acquisition of Magellan by Centene. No additional costs from Centene’s corporate functions have been allocated. The allocation methodologies have been described within the notes to the combined financial statements where appropriate. 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 Statements 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 Combined 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 eliminated in the accompanying Combined Financial Statements. All intercompany balance receivables and payables between our Parent and Specialty Health are considered settled through net transfers to Parent. As a result of Magellan’s acquisition by Centene, in 2022 Centene completed purchase accounting for Magellan. This purchase accounting resulted in adjustments to goodwill and intangible assets for the Company. Centene elected to not push the adjusted goodwill and intangible asset balances from purchase accounting down to the Company, thus the accompanying financial statements do not reflect such activity.

Specialty Health's equity on the Combined Balance Sheets represents our Parent’s historical net investment in the Company and is presented as "net Parent investment" in lieu of stockholders' equity given Specialty Health has no direct ownership relationship in the various entities comprising its operations. The Combined Statements of net Parent investment include corporate allocations, net cash transfers and other property transfers between our Parent and the Company. All transactions reflected in net Parent investment in the accompanying Combined Balance Sheets have been considered cash receipts and payments for purposes of the Combined Statements of Cash Flows and are reflected as financing activities in the accompanying Combined Statements of Cash Flows.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Significant estimates of the Company can include, among other things, valuation of intangible assets, medical claims payable, other medical liabilities, stock compensation assumptions, tax contingencies and legal liabilities. In addition, the Company also makes estimates in relation to revenue recognition under Accounting Standard Codification 606 (“ASC 606”) which are explained in more detail in “Revenue Recognition” below. Actual results could differ from those estimates.


	2021		2022
Major Service Lines
Risk-based	$	60,034	$	28,228
ASO	102,651		166,135
Total net revenue	$	162,685	$	194,363

Type of Customer
Government	$	—	$	—
Non-government	162,685		194,363
Total net revenue	$	162,685	$	194,363

Timing of Revenue Recognition
Transferred at a point in time	$	—	$	—
Transferred over time	162,685		194,363
Total net revenue	$	162,685	$	194,363

Per Member Per Month (“PMPM”) Revenue. The Company provides its management services primarily through: (i) risk-based contractual arrangements, where the Company assumes all or a substantial portion of the responsibility for the cost of providing treatment services in exchange for a fixed PMPM capitation payment, or (ii) ASO contractual arrangements, where the Company provides services such as utilization review, but does not assume full responsibility for the cost of the treatment services, in exchange for an administrative fee and, in some instances, shared savings. The risk-based contracts have provisions that include “profit share.” Under a contract with profit share provisions, if the cost to provide the care is below certain specified levels, the Company will “share” the cost savings with the customer at the percentages set forth in the contract. In addition, certain contracts include provisions to provide the Company additional funding if the cost of care is above the specified levels. Based on right to offset terms in certain contracts, the Company reflected accounts receivable net of the accrued liabilities related to the cost of the treatment services and profit share liability by customer. If the customer was in a payable position the net liability was included within accrued liabilities.

Almost all of the Specialty Health revenue is paid on a PMPM basis and is inclusive of revenue from the Company’s risk-based contracts and ASO contracts for services provided to its customers. PMPM contracts generally have a term of one year or longer. All managed care contracts have a single performance obligation that constitutes a series for the provision of managed healthcare services for a population of enrolled members for the duration of the contract. The transaction price for risk-based contracts or ASO contracts is entirely variable as it primarily includes PMPM fees associated with unspecified membership that fluctuates throughout the contract. In certain contracts, PMPM fees also include adjustments for things such as performance incentives, performance guarantees and risk shares.

The Company generally estimates the transaction price using an expected value methodology and amounts are only included in the net transaction price to the extent that it is probable that a significant reversal of cumulative revenue will not occur once any uncertainty is resolved. The majority of the Company’s net PMPM transaction price relates specifically to its efforts to transfer the service for a distinct increment of the series (e.g. day or month) and is recognized as revenue in the month in which members are entitled to service. The remaining transaction price is recognized over the contract period (or portion of the series to which it specifically relates) based upon estimated membership as a measure of progress.

The performance obligation on an activity-based contract is to stand ready to provide the activity or services purchased by the customer. The performance obligation represents a series for the duration of the arrangement. The PMPM rate is fixed per the contract; however, the level of activity is variable. A majority of the Company’s transaction price relates specifically to its efforts to transfer the service for a distinct increment of the series (e.g. day or month) and is recognized as revenue when the portion of the series for which it relates has been provided.

In accordance with ASC 606-10-50-13, the Company is required to include disclosure on its remaining performance obligations as of the end of the current reporting period. The majority of the Company’s contracts meet certain exemptions as defined in ASC 606-10-50-14 through 606-10-50-14A, including (i) performance obligation is part of a contract that has an original expected duration of one year or less; (ii) the right to invoice practical expedient; and (iii) variable consideration related to unsatisfied performance obligations that is allocated entirely to a wholly unsatisfied promise to transfer a distinct service that forms part of a single performance obligation, and the terms of that variable consideration relate specifically to our efforts to transfer the distinct service, or to a specific outcome from transferring the distinct service. For the Company’s contracts that pertain to these exemptions: (i) the remaining performance obligations primarily relate to the provision of managed healthcare services to the customers’ membership; (ii) the estimated remaining duration of these performance obligations ranges from the remainder of the current calendar year to three years; and (iii) variable consideration for these contracts as determined in accordance with the methodology above associated with unspecified membership that fluctuates throughout the contract.

In the nine months ended September 30, 2022, accounts receivable, which are included in accounts receivable and due from affiliates on the combined balance sheets, decreased by ($8.0) million, mainly due to customer settlements received for prior years and terminated contracts. In the nine months ended September 30, 2022, contract assets, which are included in accounts receivable and other current assets on the combined balance sheets, decreased by ($0.3) million, mainly due to timing of settlement of shared savings with customers.

The Company’s accounts receivable consists of amounts due from customers throughout the United States. Collateral is generally not required. A majority of the Company’s contracts have payment terms in the month of service, or within a few months thereafter. The timing of payments from customers from time to time generates contract assets or contract liabilities, however these amounts are immaterial.

The Company’s accounts receivable is net of an allowance for credit losses. The estimate of current expected credit losses on trade receivables considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts. Management elected to disaggregate trade receivables into business segments due to risk characteristics unique to each platform given the individual lines of business and market. Pooling was further disaggregated based on either geography or product type.

The Company leveraged historical write offs over a defined lookback period in deriving a historical loss rate. The expected credit loss model further considers current conditions and reasonable and supportable forecasts through the use of an adjustment for current and projected macroeconomic factors. Management identified appropriate macroeconomic indicators based on tangible correlation to historical losses, giving consideration to the location and risks associated with the Company’s customers.

The managed healthcare industry is subject to numerous laws and regulations. The subjects of such laws and regulations cover, but are not limited to, matters such as licensure, accreditation, government healthcare program participation requirements, information privacy and security, reimbursement for patient services, and Medicare and Medicaid fraud and abuse. Over the past several years, government activity has increased with respect to investigations and/or allegations concerning possible violations of fraud and abuse and false claims statutes and/or regulations by healthcare organizations and insurers. Entities that are found to have violated these laws and regulations may be excluded from participating in government healthcare programs, subjected to fines or penalties or required to repay amounts received from the government for previously billed patient services. Compliance with such laws and regulations can be subject to future government review and interpretation, as well as regulatory actions unknown or unasserted at this time.

In addition, regulators of certain of the Company’s subsidiaries may exercise certain discretionary rights under regulations including increasing their supervision of such entities, requiring additional restricted cash or other security or seizing or otherwise taking control of the assets and operations of such subsidiaries.

The Company’s operating activities entail significant risks of liability. From time to time, the Company is subject to various actions and claims arising from the acts or omissions of its employees, network providers or other parties. In the normal course of business, the Company receives reports relating to deaths and other serious incidents involving patients whose care is being managed by the Company. Such incidents occasionally give rise to malpractice, professional negligence and other related actions and claims against the Company or its

The Company is also subject to or party to certain class actions and other litigation and claims relating to its operations or business practices, including network provider reimbursement, employment practices and privacy and data protection. The Company has recorded reserves that, in the opinion of management, are adequate to cover litigation, claims or assessments that have been or may be asserted against the Company, and for which the outcome is probable and reasonably estimable. Management believes that the resolution of such litigation and claims will not have a material adverse effect on the Company’s financial condition or results of operations; however, there can be no assurance in this regard.

Historically, the Company has been managed and operated in the normal course of business consistent with other affiliates of the Parent. Accordingly, certain shared costs have been allocated to Specialty Health and reflected as expenses in the Combined Financial Statements. Management considers the allocation methodologies used to be reasonable and appropriate reflections of the historical Parent expenses attributable to Specialty Health for purposes of the stand-alone financial statements. However, the expenses reflected in the Combined Financial Statements may not be indicative of the actual expenses that would have been incurred during the periods presented if Specialty Health historically operated as a separate, stand-alone entity. In addition, the expenses reflected in the Combined Financial Statements may not be indicative of related expenses that will be incurred in the future by Specialty Health.

As a result of Magellan’s acquisition by Centene as of January 4, 2022, all of the Company’s service contracts with affiliate entities of Centene represent related party business starting in 2022. On the accompanying September 30, 2022 combined balance sheet, all related party balances have been reflected as a net due from affiliates of $19.4 million. At December 31, 2021, since Centene was not a related party the Centene balance of $24.6 million was disclosed within accounts receivable, net. The related party net revenue from the Company’s service contracts with Centene for the nine months ended September 30, 2022 were $106.9 million. The comparable balances for the nine months ended September 30, 2021 were $66.4 million.

Treasury activities, including activities related to the Company, are centralized by the Parent such that net cash collections and disbursements are generally distributed to the Parent and reflected as net Parent investment. Settlement of Specialty Health's transactions with the Parent are considered to be financing transactions, which are presented as Net Transfers to Parent in the accompanying combined statements of cash flows.

The combined statements of income include costs related to employees within shared services centers that were fully dedicated to the Company based on identification of cost centers specific to the Company’s operations. These costs are primarily related to administrative and other corporate support services. The combined balance sheets include the accruals of $14.2 million and $13.6 million at December 31, 2021 and September 30, 2022, respectively, related to the costs of such employees, which are included in accounts payable, accrued liabilities and other long-term liabilities.

Additionally, certain of Magellan’s corporate overhead costs were allocated to the Company using Magellan’s allocation methodologies described in Note 2 “Summary of Significant Accounting Policies.” A portion of these allocated costs include expenses related to employees that were not considered to be fully dedicated to the Company. As these corporate overhead expenses are considered intercompany transactions, the allocated costs are deemed to be settled when incurred and are included in the net Parent investment on the combined balance sheets.

In 2013, the Company executed a $150.0 million intercompany note agreement with a subsidiary of the Parent (the “Note”). The Note bore interest at a rate of the Prime Rate plus 1.5 percent. At December 31, 2019 the Note balance was $40.0 million. In the year ended December 31, 2020, the Company repaid $5.0 million of the Note. In December 2021, the Note was assigned by the Parent to the Company, effectively resulting in the cancellation of the Note agreement through a non-cash transaction.

On November 17, 2022, Magellan Health, Inc. and Magellan Healthcare, Inc. executed a definitive agreement to sell Magellan’s Specialty Health business to Evolent Health, Inc. (“Evolent”) (collectively the “Sale”). Given MPT and MLIC no longer have any specialty business, the only legal entities included in the Sale are NIA and its non-dissolved subsidiaries. The Sale closed on January 20, 2023, resulting in NIA becoming a wholly owned subsidiary of Evolent. In addition to the Sale, Evolent and Centene are expanding Centene’s relationship with NIA, now a part of Evolent, and extending NIA’s contracts with Centene through 2027.


Combined Balance Sheets as of December 31, 2021 and September 30, 2022 (unaudited)			1
Combined Statements of Income (unaudited)			2
Consolidated Statements of Net Parent Investment (unaudited)			3
Combined Statements of Cash Flows (unaudited)			4
Notes to Combined Financial Statements (unaudited)			5


	January 1, 2022		September 30, 2022
Accounts receivable	$	50,898	$	42,861
Contract assets	3,028		2,704


Customer	Term Date	2021	2022
Centene(1)	December 31, 2024	$66,428	$106,899