ACQUISITIONS AND DIVESTITURES

In the third quarter of 2018, we expect to complete the sale of our wholly-owned subsidiary, KMG America Corporation, or KMG, to Continental General Insurance Company, or CGIC, a Texas-based insurance company wholly owned by HC2 Holdings, Inc., a diversified holding company. KMG's subsidiary, Kanawha Insurance Company, or KIC, includes our closed block of non-strategic commercial long-term care policies. Upon closing, we expect to fund the transaction with approximately $200 million of parent company cash contributed into KMG, subject to customary adjustments, in addition to the transfer of approximately $150 million of statutory capital with the sale.

In connection with the expected sale of KMG, we recognized a pretax loss, including transaction costs, of $790 million which is reported as loss on business held-for-sale in the accompanying condensed consolidated statements of income for the three and six months ended June 30, 2018. We recorded a deferred tax benefit of $430 million from the loss which is included in the accompanying condensed consolidated statements of income for the three and six months ended June 30, 2018.

During the three months ended June 30, 2018, we entered into reinsurance contracts to transfer the risk associated with certain voluntary benefit and financial protection products previously issued primarily by KIC to a third party. We transferred approximately $230 million of cash to the third party and recorded a commensurate reinsurance recoverable as a result of these transactions. There was no material impact to operating results from these reinsurance transactions.

As of June 30, 2018, we classified KMG as held-for-sale and aggregated KMG's assets and liabilities separately on the balance sheet. With the carrying value of KMG’s net assets exceeding the fair value less cost to sell, the resulting net loss of $360 million was recognized during the second quarter of 2018, reflecting considerations for costs to sell, changes in the carrying value of net assets and the related tax effect.

KMG revenues for the three and six months ended June 30, 2018 were $93 million and $172 million, respectively. KMG pretax income for the three and six months ended June 30, 2018 were $35 million and $53 million, respectively.

The assets and liabilities of KMG that were classified as held-for-sale are as follows:



	June 30, 2018
Assets	(in millions)
Cash and cash equivalents	$	779
Receivables, net	2
Investment securities	1,574
Other assets	1,112
Total assets held-for-sale	$	3,467
Liabilities
Benefits payable	58
Trade accounts payable and accrued expenses	69
Future policy benefits payable	2,567
Total liabilities held-for-sale	$	2,694

On March 1, 2018 we acquired the remaining equity interest in MCCI Holdings, LLC, or MCCI, a privately held management service organization headquartered in Miami, Florida, that primarily coordinates medical care for Medicare Advantage beneficiaries in Florida and Texas. The purchase price consisted primarily of $169 million cash, as well as our existing investment in MCCI and a note receivable and a revolving note with an aggregate balance of $383 million. This resulted in a preliminary purchase price allocation to goodwill of $479 million, other intangible assets of $80 million, and net tangible assets of $27 million. The goodwill was assigned to the Retail and Healthcare Services segments. The other intangible assets, which primarily consist of customer contracts, have an estimated weighted average useful life of 8 years. Goodwill and other intangible assets are amortizable as deductible expenses for tax purposes.

On April 10, 2018, we acquired Family Physicians Group, or FPG, for cash consideration of approximately $185 million, net of cash received. FPG is one of the largest at-risk providers serving Medicare Advantage and Managed Medicaid HMO patients in Greater Orlando, Florida with a footprint that includes clinics located in Lake, Orange, Osceola and Seminole counties. This resulted in a preliminary purchase price allocation to goodwill of $135 million, other intangible assets of $38 million and net tangible assets of $17 million. The goodwill was assigned to the Retail and Healthcare Services segments. The other intangible assets, which primarily consist of customer contracts, have an estimated weighted average useful life of 4.9 years. The purchase price allocations for MCCI and FPG are preliminary, subject to completion of valuation analysis, including for example, refining assumptions used to calculate the fair value of intangible assets.

During 2018 and 2017, we also acquired other health and wellness related businesses which, individually or in the aggregate, have not had a material impact on our results of operations, financial condition, or cash flows. The results of operations and financial condition of these businesses have been included in our condensed consolidated statements of income and condensed consolidated balance sheets from the respective acquisition dates. Acquisition-related costs recognized in 2018 and 2017 were not material to our results of operations. The pro forma financial information assuming the acquisitions had occurred as of the beginning of the calendar year prior to the year of acquisition, as well as the revenues and earnings generated during the year of acquisition, were not material for disclosure purposes.