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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
___________________________________________
FORM 10-Q
____________________________________________
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2021
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                  to
____________________________________________
Commission file number: 001-31826
____________________________________________
CENTENE CORPORATION
(Exact name of registrant as specified in its charter)
Delaware42-1406317
(State or other jurisdiction of(I.R.S. Employer
incorporation or organization)Identification Number)
7700 Forsyth Boulevard 
St. Louis,Missouri63105
(Address of principal executive offices)(Zip Code)

Registrant’s telephone number, including area code: (314) 725-4477 
Securities registered pursuant to Section 12(b) of the Act:
Title of Each ClassTrading Symbol(s)Name of Each Exchange on Which Registered
Common Stock $0.001 Par ValueCNCNew York Stock Exchange
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days Yes No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files) Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act. 
Large Accelerated FilerAccelerated filer
Non-accelerated filer   Smaller reporting company
Emerging growth company 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes       No  
As of April 16, 2021, the registrant had 582,734,777 shares of common stock outstanding.



CENTENE CORPORATION
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
 PAGE
  
Part I
Financial Information
Item 1.
 
 
 
 
 
 
Item 2.
Item 3.
Item 4.
Part II
Other Information
Item 1.
Item 1A.
Item 2.
Item 6.


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CAUTIONARY STATEMENT ON FORWARD-LOOKING STATEMENTS

All statements, other than statements of current or historical fact, contained in this filing are forward-looking statements. Without limiting the foregoing, forward-looking statements often use words such as “believe,” “anticipate,” “plan,” “expect,” “estimate,” “intend,” “seek,” “target,” “goal,” “may,” “will,” “would,” “could,” “should,” “can,” “continue” and other similar words or expressions (and the negative thereof). Centene Corporation and its subsidiaries (Centene, the Company, our or we) intends such forward-looking statements to be covered by the safe-harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and we are including this statement for purposes of complying with these safe-harbor provisions. In particular, these statements include, without limitation, statements about our future operating or financial performance, market opportunity, growth strategy, competition, expected activities in completed and future acquisitions, including statements about the impact of our proposed acquisition of Magellan Health (the Magellan Acquisition), our recently completed acquisition of WellCare Health Plans, Inc. (WellCare and such acquisition, the WellCare Acquisition), other recent and future acquisitions, investments and the adequacy of our available cash resources. These statements may be found in the various sections of this filing, such as Part I, Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” Part II, Item 1. “Legal Proceedings,” and Part II, Item 1A “Risk Factors.” 

These forward-looking statements reflect our current views with respect to future events and are based on numerous assumptions and assessments made by us in light of our experience and perception of historical trends, current conditions, business strategies, operating environments, future developments and other factors we believe appropriate. By their nature, forward-looking statements involve known and unknown risks and uncertainties and are subject to change because they relate to events and depend on circumstances that will occur in the future, including economic, regulatory, competitive and other factors that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. These statements are not guarantees of future performance and are subject to risks, uncertainties and assumptions.

All forward-looking statements included in this filing are based on information available to us on the date of this filing. Except as may be otherwise required by law, we undertake no obligation to update or revise the forward-looking statements included in this filing, whether as a result of new information, future events or otherwise, after the date of this filing. You should not place undue reliance on any forward-looking statements, as actual results may differ materially from projections, estimates, or other forward-looking statements due to a variety of important factors, variables and events including, but not limited to:

the impact of COVID-19 on global markets, economic conditions, the healthcare industry and our results of operations and the response by governments and other third parties to COVID-19;
the risk that regulatory or other approvals required for the Magellan Acquisition may be delayed or not obtained or are subject to unanticipated conditions that could require the exertion of management's time and our resources or otherwise have an adverse effect on us;
the possibility that certain conditions to the consummation of the Magellan Acquisition will not be satisfied or completed on a timely basis and accordingly the Magellan Acquisition may not be consummated on a timely basis or at all;
uncertainty as to the expected financial performance of the combined company following completion of the Magellan Acquisition;
the possibility that the expected synergies and value creation from the Magellan Acquisition or the WellCare Acquisition will not be realized, or will not be realized within the respective expected time periods;
the risk that unexpected costs will be incurred in connection with the completion and/or integration of the Magellan Acquisition or that the integration of Magellan Health will be more difficult or time consuming than expected;
the risk that potential litigation in connection with the Magellan Acquisition may affect the timing or occurrence of the Magellan Acquisition or result in significant costs of defense, indemnification and liability;
a downgrade of the credit rating of our indebtedness, which could give rise to an obligation to redeem existing indebtedness;
the inability to retain key personnel;
disruption from the announcement, pendency, completion and/or integration of the Magellan Acquisition or from the integration of the WellCare Acquisition, or similar risks from other acquisitions we may announce or complete from time to time, including potential adverse reactions or changes to business relationships with customers, employees, suppliers or regulators, making it more difficult to maintain business and operational relationships;
our ability to accurately predict and effectively manage health benefits and other operating expenses and reserves, including fluctuations in medical utilization rates due to the impact of COVID-19;
competition;
membership and revenue declines or unexpected trends;
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changes in healthcare practices, new technologies and advances in medicine;
increased healthcare costs;
changes in economic, political or market conditions;
changes in federal or state laws or regulations, including changes with respect to income tax reform or government healthcare programs as well as changes with respect to the Patient Protection and Affordable Care Act and the Health Care and Education Affordability Reconciliation Act (collectively referred to as the ACA) and any regulations enacted thereunder that may result from changing political conditions, the new administration or judicial actions, including the ultimate outcome in “Texas v. United States of America” regarding the constitutionality of the ACA;
rate cuts or other payment reductions or delays by governmental payors and other risks and uncertainties affecting our government businesses;
our ability to adequately price products;
tax matters;
disasters or major epidemics;
changes in expected contract start dates;
provider, state, federal, foreign and other contract changes and timing of regulatory approval of contracts;
the expiration, suspension, or termination of our contracts with federal or state governments (including, but not limited to, Medicaid, Medicare, TRICARE or other customers);
the difficulty of predicting the timing or outcome of pending or future legal and regulatory proceedings or government investigations;
challenges to our contract awards;
cyber-attacks or other privacy or data security incidents;
the possibility that the expected synergies and value creation from acquired businesses, including businesses we may acquire in the future, will not be realized, or will not be realized within the expected time period;
the exertion of management’s time and our resources, and other expenses incurred and business changes required in connection with complying with the undertakings in connection with any regulatory, governmental or third party consents or approvals for acquisitions, including the Magellan acquisition;
disruption caused by significant completed and pending acquisitions making it more difficult to maintain business and operational relationships;
the risk that unexpected costs will be incurred in connection with the completion and/or integration of acquisition transactions;
changes in expected closing dates, estimated purchase price and accretion for acquisitions;
the risk that acquired businesses will not be integrated successfully;
restrictions and limitations in connection with our indebtedness;
our ability to maintain or achieve improvement in the Centers for Medicare and Medicaid Services (CMS) Star ratings and maintain or achieve improvement in other quality scores in each case that can impact revenue and future growth;
availability of debt and equity financing, on terms that are favorable to us;
inflation; and
foreign currency fluctuations.

This list of important factors is not intended to be exhaustive. We discuss certain of these matters more fully, as well as certain other factors that may affect our business operations, financial condition and results of operations, in our filings with the Securities and Exchange Commission (SEC), including our annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K. Item 1A. “Risk Factors” of Part II of this filing contains a further discussion of these and other important factors that could cause actual results to differ from expectations. Due to these important factors and risks, we cannot give assurances with respect to our future performance, including without limitation our ability to maintain adequate premium levels or our ability to control our future medical and selling, general and administrative costs.

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SUMMARY OF RISK FACTORS

Our business is subject to numerous risks and uncertainties that you should be aware of in evaluating our business, including risks that may prevent us from achieving our business objectives or may adversely affect our business, financial condition, results of operations, cash flows and prospects. The risks include, but are not limited to, the following, all of which are more fully described in Part II, Item 1A "Risk Factors" section below. This summary should be read in conjunction with the Risk Factors section and should not be relied upon as an exhaustive summary of the material risks facing our business.

Our business could be adversely affected by the effects of widespread public health pandemics, such as the spread of COVID-19;
Our Medicare programs are subject to a variety of unique risks that could adversely impact our financial results;
Failure to accurately estimate and price our medical expenses or effectively manage our medical costs or related administrative costs could negatively affect our results of operations, financial position and cash flows;
Risk-adjustment payment systems make our revenue and results of operations more difficult to estimate and could result in retroactive adjustments that have a material adverse effect on our results of operations, financial condition and cash flows;
Any failure to adequately price products offered or any reduction in products offered in the Health Insurance Marketplaces may have a negative impact on our results of operations, financial position and cash flow;
We derive a portion of our cash flow and gross margin from our prescription drug plan (PDP) operations, for which we submit annual bids for participation. The results of our bids could materially affect our results of operations, financial condition and cash flows;
Our encounter data may be inaccurate or incomplete, which could have a material adverse effect on our results of operations, financial condition, cash flows and ability to bid for, and continue to participate in, certain programs;
If any of our government contracts are terminated or are not renewed on favorable terms or at all, or if we receive an adverse finding or review resulting from an audit or investigation, our business may be adversely affected;
Ineffectiveness of state-operated systems and subcontractors could adversely affect our business;
Execution of our growth strategy may increase costs or liabilities, or create disruptions in our business;
If competing managed care programs are unwilling to purchase specialty services from us, we may not be able to successfully implement our strategy of diversifying our business lines;
If state regulators do not approve payments of dividends and distributions by our subsidiaries to us, we may not have sufficient funds to implement our business strategy;
We derive a significant portion of our premium revenues from operations in a limited number of states, and our results of operations, financial position or cash flows could be materially affected by a decrease in premium revenues or profitability in any one of those states;
Competition may limit our ability to increase penetration of the markets that we serve;
If we are unable to maintain relationships with our provider networks, our profitability may be harmed;
If we are unable to integrate and manage our information systems effectively, our operations could be disrupted;
An impairment charge with respect to our recorded goodwill and intangible assets could have a material impact on our results of operations;
A failure in or breach of our operational or security systems or infrastructure, or those of third parties with which we do business, including as a result of cyber-attacks, could have an adverse effect on our business;
Reductions in funding, changes to eligibility requirements for government sponsored healthcare programs in which we participate and any inability on our part to effectively adapt to changes to these programs could substantially affect our results of operations, financial position and cash flows;
The implementation of the ACA, as well as potential repeal of, significant changes to, or judicial challenges to the ACA, could materially and adversely affect our results of operations, financial position and cash flows;
Our business activities are highly regulated and new laws or regulations or changes in existing laws or regulations or their enforcement or application could force us to change how we operate and could harm our business;
Our businesses providing pharmacy benefit management and specialty pharmacy services face regulatory and other risks and uncertainties which could materially and adversely affect our results of operations, financial position and cash flows;
We have been and may from time to time become involved in costly and time-consuming litigation and other regulatory proceedings, which require significant attention from our management and adversely affect our business;
If we fail to comply with applicable privacy, security, and data laws, regulations and standards, including with respect to third-party service providers that utilize sensitive personal information on our behalf, our business, reputation, results of operations, financial position and cash flows could be materially and adversely affected;
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If we fail to comply with the extensive federal and state fraud, waste and abuse laws, our business, reputation, results of operations, financial position and cash flows could be materially and adversely affected;
Our investment portfolio may suffer losses which could materially and adversely affect our results of operations or liquidity;
Adverse credit market conditions may have a material adverse effect on our liquidity or our ability to obtain credit on acceptable terms;
We have substantial indebtedness outstanding and may incur additional indebtedness in the future. Such indebtedness could reduce our agility and may adversely affect our financial condition;
Changes in the method pursuant to which the LIBOR rates are determined and potential phasing out of LIBOR after 2021 may affect the value of the financial obligations to be held or issued by us that are linked to LIBOR or our results of operations or financial condition;
Mergers and acquisitions may not be accretive and may cause dilution to our earnings per share, which may cause the market price of our common stock to decline;
We may be unable to successfully integrate our existing business with acquired businesses and realize the anticipated benefits of such acquisitions;
The financing arrangements that we entered into in connection with the WellCare Acquisition may, under certain circumstances, contain restrictions and limitations that could significantly impact our ability to operate our business;
The merger with Magellan Health is subject to conditions, some or all of which may not be satisfied, or completed on a timely basis, if at all. Failure to complete the merger with Magellan Health could have adverse effects on our business;
Centene and Magellan Health have been and may be targets of securities class action and derivative lawsuits that could result in substantial costs and may delay or prevent the Magellan Acquisition from being completed;
Completion of the Magellan Acquisition may trigger change in control or other provisions in certain agreements to which Magellan Health or its subsidiaries are a party, which may have an adverse impact on the combined company’s business and results of operations;
We may be unable to attract, retain or effectively manage the succession of key personnel; and
Future issuances and sales of additional shares of preferred or common stock could reduce the market price of our shares of common stock.
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Non-GAAP Financial Presentation

The Company is providing certain non-GAAP financial measures in this report, as the Company believes that these figures are helpful in allowing investors to more accurately assess the ongoing nature of the Company’s operations and measure the Company’s performance more consistently across periods. The Company uses the presented non-GAAP financial measures internally to allow management to focus on period-to-period changes in the Company’s core business operations. Therefore, the Company believes that this information is meaningful in addition to the information contained in the GAAP presentation of financial information. The presentation of this additional non-GAAP financial information is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with GAAP.

Specifically, the Company believes the presentation of non-GAAP financial information that excludes amortization of acquired intangible assets and acquisition related expenses, as well as other items, allows investors to develop a more meaningful understanding of the Company’s performance over time. The tables below provide reconciliations of non-GAAP items ($ in millions, except per share data):
Three Months Ended March 31,
20212020
GAAP net earnings$699 $46 
Amortization of acquired intangible assets195 166 
Acquisition related expenses47 313 
Other adjustments (1)
102 23 
Income tax effects of adjustments (2)
(83)(72)
Adjusted net earnings $960 $476 
GAAP diluted earnings per share (EPS)$1.19 $0.08 
Amortization of acquired intangible assets (3)
0.25 0.23 
Acquisition related expenses (4)
0.06 0.49 
Other adjustments (1)
0.13 0.06 
Adjusted Diluted EPS $1.63 $0.86 
(1)    Other adjustments include the following items for the three months ended March 31, 2021: (a) debt extinguishment costs of $46 million, or $0.06 per diluted share, net of an income tax benefit of $0.02; and (b) severance costs due to a restructuring of $56 million, or $0.07 per diluted share, net of an income tax benefit of $0.02. Other adjustments include the following items for the three months ended March 31, 2020: (a) gain related to the divestiture of certain products of our Illinois health plan of $93 million, or $0.10 per diluted share, net of an income tax expense of $0.07; (b) non-cash impairment of our third-party care management software business of $72 million, or $0.10 per diluted share, net of an income tax benefit of $0.03; and (c) debt extinguishment costs of $44 million, or $0.06 per diluted share, net of an income tax benefit of $0.02.
(2)    The income tax effects of adjustments are based on the effective income tax rates applicable to each adjustment.
(3)    The amortization of acquired intangible assets per diluted share is net of an income tax benefit of $0.08 and $0.07 for the three months ended March 31, 2021 and 2020, respectively.
(4)    Acquisition related expenses per diluted share are net of an income tax benefit of $0.02 and $0.08 for the three months ended March 31, 2021 and 2020, respectively.
Three Months Ended March 31,
20212020
GAAP selling, general and administrative expenses$2,367 $2,384 
Acquisition related expenses46 295 
Restructuring costs56 — 
Adjusted selling, general and administrative expenses$2,265 $2,089 
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PART I
FINANCIAL INFORMATION

Item 1. Financial Statements.
CENTENE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In millions, except shares in thousands and per share data in dollars)
 March 31, 2021December 31, 2020
(Unaudited)
ASSETS  
Current assets:
  
Cash and cash equivalents
$9,627 $10,800 
Premium and trade receivables
11,601 9,696 
Short-term investments
1,662 1,580 
Other current assets
1,550 1,317 
Total current assets24,440 23,393 
Long-term investments
13,245 12,853 
Restricted deposits
1,113 1,060 
Property, software and equipment, net
2,822 2,774 
Goodwill
18,788 18,652 
Intangible assets, net
8,235 8,388 
Other long-term assets
1,642 1,599 
Total assets$70,285 $68,719 
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND STOCKHOLDERS’ EQUITY
 
Current liabilities:
  
Medical claims liability
$12,842 $12,438 
Accounts payable and accrued expenses
6,866 7,069 
Return of premium payable
1,935 1,458 
Unearned revenue
574 523 
Current portion of long-term debt
62 97 
Total current liabilities22,279 21,585 
Long-term debt
16,695 16,682 
Deferred tax liability1,641 1,534 
Other long-term liabilities
3,134 2,956 
Total liabilities43,749 42,757 
Commitments and contingencies
Redeemable noncontrolling interests
78 77 
Stockholders’ equity:
  
Preferred stock, $0.001 par value; authorized 10,000 shares; no shares issued or outstanding at March 31, 2021 and December 31, 2020
  
Common stock, $0.001 par value; authorized 800,000 shares; 599,608 issued and 582,682 outstanding at March 31, 2021, and 598,249 issued and 581,479 outstanding at December 31, 2020
1 1 
Additional paid-in capital
19,500 19,459 
Accumulated other comprehensive earnings
176 337 
Retained earnings
7,491 6,792 
Treasury stock, at cost (16,926 and 16,770 shares, respectively)
(826)(816)
Total Centene stockholders’ equity26,342 25,773 
Nonredeemable noncontrolling interest116 112 
Total stockholders’ equity
26,458 25,885 
Total liabilities, redeemable noncontrolling interests and stockholders’ equity
$70,285 $68,719 
The accompanying notes to the consolidated financial statements are an integral part of these statements. 
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CENTENE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except shares in thousands and per share data in dollars)
(Unaudited)
 Three Months Ended March 31,
 20212020
Revenues:
Premium$26,933 $23,214 
Service1,181 958 
Premium and service revenues
28,114 24,172 
Premium tax and health insurer fee
1,869 1,853 
Total revenues
29,983 26,025 
Expenses:
Medical costs
23,391 20,420 
Cost of services
1,048 825 
Selling, general and administrative expenses
2,367 2,384 
Amortization of acquired intangible assets
195 166 
Premium tax expense
1,928 1,625 
Health insurer fee expense
 345 
Impairment
 72 
Total operating expenses
28,929 25,837 
Earnings from operations
1,054 188 
Other income (expense):
Investment and other income
103 167 
Debt extinguishment costs
(46)(44)
Interest expense
(170)(180)
Earnings before income tax expense941 131 
Income tax expense244 85 
Net earnings697 46 
Loss attributable to noncontrolling interests2  
Net earnings attributable to Centene Corporation$699 $46 

Net earnings per common share attributable to Centene Corporation:
Basic earnings per common share$1.20 $0.08 
Diluted earnings per common share$1.19 $0.08 

Weighted average number of common shares outstanding:
Basic
581,869 544,436 
Diluted
589,343 552,062 

The accompanying notes to the consolidated financial statements are an integral part of these statements.
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CENTENE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS (LOSS)
(In millions)
(Unaudited)
 Three Months Ended March 31,
 20212020
Net earnings$697 $46 
Reclassification adjustment, net of tax(2) 
Change in unrealized gain (loss) on investments, net of tax(154)(134)
Defined benefit pension plan net gain, net of tax 2 
Foreign currency translation adjustments(5)(7)
Other comprehensive earnings (loss)(161)(139)
Comprehensive earnings (loss)536 (93)
Comprehensive loss attributable to noncontrolling interests2  
Comprehensive earnings (loss) attributable to Centene Corporation$538 $(93)

The accompanying notes to the consolidated financial statements are an integral part of these statements.

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CENTENE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In millions, except shares in thousands and per share data in dollars)
(Unaudited)
Three Months Ended March 31, 2021
 Centene Stockholders’ Equity  
 Common Stock   Treasury Stock  
 
$0.001 Par
Value
Shares
AmtAdditional
Paid-in
Capital
Accumulated
Other
Comprehensive Earnings
(Loss)
Retained
Earnings
$0.001 Par
Value
Shares
AmtNon-redeemable
Non-
controlling
Interest
Total
Balance, December 31, 2020598,249 $1 $19,459 $337 $6,792 16,770 $(816)$112 $25,885 
Comprehensive Earnings:         
Net earnings (loss)— — — — 699 — — (5)694 
Other comprehensive loss, net of $(49) tax
— — — (161)— — — — (161)
Common stock issued for employee benefit plans1,675 — 9 — — — — — 9 
Common stock repurchases(316)— (19)— — 156 (10)— (29)
Stock compensation expense— — 51 — — — — — 51 
Contribution from noncontrolling interest— — — — — — — 9 9 
Balance, March 31, 2021599,608 $1 $19,500 $176 $7,491 16,926 $(826)$116 $26,458 

Three Months Ended March 31, 2020
 Centene Stockholders’ Equity  
 Common Stock   Treasury Stock  
 
$0.001 Par
Value
Shares
AmtAdditional
Paid-in
Capital
Accumulated
Other
Comprehensive Earnings
(Loss)
Retained
Earnings
$0.001 Par
Value
Shares
AmtNon-redeemable
 Non-
controlling
Interest
Total
Balance, December 31, 2019421,508 $ $7,647 $134 $4,984 6,460 $(214)$108 $12,659 
Comprehensive Earnings:         
Net earnings (loss)— — — — 46 — — (3)43 
Other comprehensive loss, net of $(40) tax
— — — (139)— — — — (139)
Common stock issued for acquisitions
171,225 — 11,526 — — — — — 11,526 
Common stock issued for employee benefit plans
2,448 — 5 — — — — — 5 
Common stock repurchases(291)— (17)— — 9,308 (541)— (558)
Stock compensation expense
— — 117 — — — — — 117 
Contribution from noncontrolling interest
— — — — — — — 2 2 
Other
— — 1 — — — — — 1 
Balance, March 31, 2020594,890 $ $19,279 $(5)$5,030 15,768 $(755)$107 $23,656 

The accompanying notes to the consolidated financial statements are an integral part of these statements.
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CENTENE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions, unaudited)
 Three Months Ended March 31,
 20212020
Cash flows from operating activities:
  
Net earnings
$697 $46 
Adjustments to reconcile net earnings to net cash provided by (used in) operating activities
Depreciation and amortization361 288 
Stock compensation expense51 117 
Impairment 72 
Loss on debt extinguishment46 44 
Deferred income taxes156 112 
Gain on divestiture (93)
Other adjustments, net2 24 
Changes in assets and liabilities  
Premium and trade receivables(1,891)(2,182)
Other assets(287)97 
Medical claims liabilities405 252 
Unearned revenue48 (88)
Accounts payable and accrued expenses32 704 
Other long-term liabilities423 361 
Other operating activities, net 6 
Net cash provided by (used in) operating activities43 (240)
Cash flows from investing activities:
  
Capital expenditures(187)(177)
Purchases of investments(1,653)(1,400)
Sales and maturities of investments1,391 902 
Acquisitions, net of cash acquired(158)(3,048)
Divestiture proceeds, net of divested cash 456 
Other investing activities, net (5)
Net cash used in investing activities(607)(3,272)
Cash flows from financing activities:
  
Proceeds from long-term debt2,317 2,542 
Payments of long-term debt(2,295)(1,039)
Common stock repurchases(29)(558)
Payments for debt extinguishment(54)(21)
Debt issuance costs(27)(92)
Other financing activities, net15 7 
Net cash provided by (used in) financing activities(73)839 
Effect of exchange rate changes on cash, cash equivalents, and restricted cash(16)(1)
Net decrease in cash, cash equivalents and restricted cash and cash equivalents(653)(2,674)
Cash, cash equivalents, and restricted cash and cash equivalents, beginning of period
10,957 12,131 
Cash, cash equivalents, and restricted cash and cash equivalents, end of period
$10,304 $9,457 
Supplemental disclosures of cash flow information:
  
Interest paid$130 $104 
Income taxes paid
$20 $3 
Equity issued in connection with acquisitions$ $11,526 
The following table provides a reconciliation of cash, cash equivalents, and restricted cash and cash equivalents reported within the Consolidated Balance Sheets to the totals above:
March 31,
20212020
Cash and cash equivalents$9,627 $9,308 
Restricted cash and cash equivalents, included in restricted deposits677 149 
Total cash, cash equivalents, and restricted cash and cash equivalents$10,304 $9,457 
The accompanying notes to the consolidated financial statements are an integral part of these statements.
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CENTENE CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Organization and Operations

Basis of Presentation

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 included in the Form 10-K for the fiscal year ended December 31, 2020. The unaudited interim financial statements herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, footnote disclosures that would substantially duplicate the disclosures contained in the December 31, 2020 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.

Certain 2020 amounts in the consolidated financial statements and notes to the consolidated financial statements have been reclassified to conform to the 2021 presentation. These reclassifications have no effect on net earnings or stockholders’ equity as previously reported.

Recently Adopted Accounting Guidance

In December 2019, the Financial Accounting Standards Board issued an Accounting Standards Update which simplifies the accounting for income taxes. The guidance is effective for annual and interim periods beginning after December 15, 2020. The Company adopted the new guidance in the first quarter of 2021. The new guidance did not have a material impact on the Company's consolidated financial position, results of operations and cash flows.


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2. Short-term and Long-term Investments, Restricted Deposits

Short-term and long-term investments and restricted deposits by investment type consist of the following ($ in millions):
 March 31, 2021December 31, 2020
 Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized Losses
Fair
Value
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized Losses
Fair
Value
Debt securities:
U.S. Treasury securities and obligations of U.S. government corporations and agencies
$515 $2 $ $517 $907 $4 $ $911 
Corporate securities6,944 182 (64)7,062 6,560 262 (8)6,814 
Restricted certificates of deposit
4   4 105   105 
Restricted cash equivalents
677   677 157   157 
Short-term time deposits
82   82 53   53 
Municipal securities3,118 101 (14)3,205 2,970 129 (2)3,097 
Asset-backed securities1,197 12 (2)1,207 1,154 13 (3)1,164 
Residential mortgage-backed securities
1,066 20 (8)1,078 1,068 27  1,095 
Commercial mortgage-backed securities
793 19 (11)801 748 30 (5)773 
Equity securities (1)
319 — — 319 318 — — 318 
Private equity investments
896 — — 896 838 — — 838 
Life insurance contracts
172 — — 172 168 — — 168 
Total$15,783 $336 $(99)$16,020 $15,046 $465 $(18)$15,493 
(1) Investments in equity securities primarily consists of exchange traded funds in fixed income securities.
The Company’s investments are debt securities classified as available-for-sale with the exception of equity securities, certain private equity investments and life insurance contracts. The Company’s investment policies are designed to provide liquidity, preserve capital and maximize total return on invested assets with the focus on high credit quality securities. The Company limits the size of investment in any single issuer other than U.S. treasury securities and obligations of U.S. government corporations and agencies. As of March 31, 2021, 97% of the Company’s investments in rated securities carry an investment grade rating by nationally recognized statistical rating organizations. At March 31, 2021, the Company held certificates of deposit, equity securities, private equity investments and life insurance contracts, which did not carry a credit rating. Accrued interest income on available-for-sale debt securities was $91 million and $86 million at March 31, 2021 and December 31, 2020, respectively, and is included in other current assets on the Consolidated Balance Sheets.

The Company’s residential mortgage-backed securities are primarily issued by the Federal National Mortgage Association, Government National Mortgage Association or Federal Home Loan Mortgage Corporation, which carry implicit or explicit guarantees of the U.S. government. The Company’s commercial mortgage-backed securities are primarily senior tranches with a weighted average rating of AA and a weighted average duration of 4 years at March 31, 2021.

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The fair value of available-for-sale debt securities with gross unrealized losses by investment type and length of time that individual securities have been in a continuous unrealized loss position were as follows ($ in millions):
 March 31, 2021December 31, 2020
 Less Than 12 Months12 Months or MoreLess Than 12 Months12 Months or More
 Unrealized LossesFair
Value
Unrealized LossesFair
Value
Unrealized LossesFair
Value
Unrealized LossesFair
Value
Corporate securities$(61)$2,711 $(3)$100 $(7)$953 $(1)$24 
Municipal securities(13)759 (1)13 (2)238   
Asset-backed securities(1)296 (1)58 (2)302 (1)105 
Residential mortgage-backed securities
(8)442  2  59  2 
Commercial mortgage-backed securities
(10)245 (1)53 (5)147  13 
Total$(93)$4,453 $(6)$226 $(16)$1,699 $(2)$144 

As of March 31, 2021, the gross unrealized losses were generated from 1,829 positions out of a total of 6,470 positions. The change in fair value of fixed income securities is primarily a result of movement in interest rates subsequent to the purchase of the security.

For each security in an unrealized loss position, the Company assesses whether it intends to sell the security or if it is more likely than not the Company will be required to sell the security before recovery of the amortized cost basis for reasons such as liquidity, contractual or regulatory purposes. If the security meets this criterion, the decline in fair value is recorded in earnings. The Company does not intend to sell these securities prior to maturity and it is not likely that the Company will be required to sell these securities prior to maturity; therefore, the Company did not record the unrealized loss in earnings for these securities.

In addition, the Company continuously monitors available-for-sale debt securities for credit losses. Certain investments have experienced a decline in fair value due to changes in credit quality, market interest rates and/or general economic conditions. The Company recognizes an allowance when evidence demonstrates that it is credit related. Evidence of a credit related loss may include rating agency actions, adverse conditions specifically related to the security, or failure of the issuer of the security to make scheduled payments.

The contractual maturities of short-term and long-term debt securities and restricted deposits are as follows ($ in millions):
 March 31, 2021December 31, 2020
 InvestmentsRestricted DepositsInvestmentsRestricted Deposits
 Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
One year or less$1,488 $1,497 $845 $846 $1,407 $1,414 $817 $818 
One year through five years
5,082 5,227 240 241 4,748 4,937 221 223 
Five years through ten years
3,589 3,637 26 26 3,460 3,639 18 19 
Greater than ten years70 73   81 87   
Asset-backed securities3,056 3,086   2,970 3,032   
Total$13,285 $13,520 $1,111 $1,113 $12,666 $13,109 $1,056 $1,060 
 
Actual maturities may differ from contractual maturities due to call or prepayment options. Equity securities, private equity investments and life insurance contracts are excluded from the table above because they do not have a contractual maturity. The Company has an option to redeem at amortized cost substantially all of the securities included in the greater than ten years category listed above.
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3. Fair Value Measurements

Assets and liabilities recorded at fair value in the Consolidated Balance Sheets are categorized based upon observable or unobservable inputs used to estimate fair value. Level inputs are as follows:
Level Input:Input Definition:
Level IInputs are unadjusted, quoted prices for identical assets or liabilities in active markets at the measurement date.
 
Level IIInputs other than quoted prices included in Level I that are observable for the asset or liability through corroboration with market data at the measurement date.
 
Level IIIUnobservable inputs that reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date.

The following table summarizes fair value measurements by level at March 31, 2021, for assets and liabilities measured at fair value on a recurring basis ($ in millions):
 Level ILevel IILevel IIITotal
Assets    
Cash and cash equivalents$9,627 $ $ $9,627 
Investments:    
U.S. Treasury securities and obligations of U.S. government corporations and agencies
$145 $ $ $145 
Corporate securities 7,035  7,035 
Municipal securities 3,172