10-Q: Quarterly report pursuant to Section 13 or 15(d)

Published on July 26, 2022

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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 June 30, 2022
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)
Delaware 42-1406317
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
7700 Forsyth Boulevard  
St. Louis, Missouri 63105
(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 Class Trading Symbol(s) Name of Each Exchange on Which Registered
Common Stock $0.001 Par Value CNC New 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 Filer Accelerated 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 July 15, 2022, the registrant had 580,070,624 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.



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, value creation strategy, competition, expected activities in connection with completed and future acquisitions and dispositions, including statements about the impact of our recently completed acquisition of Magellan Health, Inc. (the Magellan Acquisition), other recent and future acquisitions and dispositions, our 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," and Part II, Item 1. "Legal Proceedings."

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:

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 ongoing impact of COVID-19;
the risk that the election of new directors, changes in senior management, and any inability to retain key personnel may create uncertainty or negatively impact our ability to execute quickly and effectively;
uncertainty as to the expected financial performance of the combined company following the recent completion of the Magellan Acquisition;
the possibility that the expected synergies and value creation from the Magellan Acquisition or the acquisition of WellCare Health Plans, Inc. (the WellCare Acquisition) or other acquired businesses will not be realized, or will not be realized within the respective expected time periods;
disruption from the integration of the Magellan Acquisition or the WellCare Acquisition, unexpected costs, or similar risks from other acquisitions or dispositions 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;
the risk that the closing conditions, including applicable regulatory approvals, for the pending dispositions of Magellan Rx and our Spanish and Central European businesses, may be delayed or not obtained;
impairments to real estate, investments, goodwill and intangible assets;
a downgrade of the credit rating of our indebtedness;
competition;
membership and revenue declines or unexpected trends;
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;
i

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 legal or regulatory proceedings or matters, including, but not limited to, our ability to resolve claims and/or allegations made by states with regard to past practices, including at Envolve Pharmacy Solutions, Inc. (Envolve), as our pharmacy benefits manager (PBM) subsidiary, within the reserve estimate we recorded in 2021 and on other acceptable terms, or at all, or whether additional claims, reviews or investigations relating to our PBM business will be brought by states, the federal government or shareholder litigants, or government investigations;
the timing and extent of benefits from strategic value creation initiatives, including the possibility that these initiatives will not be successful, or will not be realized within the expected time periods;
challenges to our contract awards;
cyber-attacks or other privacy or data security incidents;
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 or dispositions;
any changes in expected closing dates, estimated purchase price and accretion for acquisitions or dispositions;
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;
the 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. 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.
ii

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 and divestiture 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 June 30, Six Months Ended June 30,
2022 2021 2022 2021
GAAP net earnings (loss) attributable to Centene $ (172) $ (535) $ 677  $ 164 
Amortization of acquired intangible assets 199  188  398  383 
Acquisition and divestiture related expenses 22  40  119  87 
Other adjustments (1)
1,445  1,314  1,447  1,416 
Income tax effects of adjustments (2)
(452) (270) (519) (353)
Adjusted net earnings $ 1,042  $ 737  $ 2,122  $ 1,697 
GAAP diluted earnings (loss) per share attributable to Centene $ (0.29) $ (0.92) $ 1.15  $ 0.28 
Amortization of acquired intangible assets 0.34  0.33  0.68  0.65 
Acquisition and divestiture related expenses 0.04  0.07  0.20  0.15 
Other adjustments (1)
2.45  2.23  2.45  2.40 
Income tax effects of adjustments (2)
(0.77) (0.46) (0.88) (0.60)
Adjusted diluted earnings per share (EPS) $ 1.77  $ 1.25  $ 3.60  $ 2.88 
(1) Other adjustments include the following pre-tax items:
2022:
(a) for the three months ended June 30, 2022: real estate impairments of $1,454 million, or $2.46 per share ($1.80 after-tax), gain on debt extinguishment of $13 million, or $0.02 per share, and costs related to the PBM legal settlement of $4 million, or $0.01 per share;

(b) for the six months ended June 30, 2022: real estate impairments of $1,454 million, or $2.46 per share ($1.80 after-tax), gain on debt extinguishment of $13 million, or $0.02 per share, and costs related to the PBM legal settlement of $6 million, or $0.01 per share.

2021:
(a) for the three months ended June 30, 2021: PBM legal settlement expense of $1,250 million, or $2.12 per share ($1.78 after-tax), a reduction to the previously reported gain on divestiture of certain products of our Illinois health plan of $62 million, or $0.10 per share, severance costs of $2 million, or $0.00 per share, and the $0.01 per share impact of 8 million diluted shares in the calculation of adjusted diluted EPS;

(b) for the six months ended June 30, 2021: PBM legal settlement expense of $1,250 million, or $2.12 per share ($1.78 after-tax), a reduction to the previously reported gain on divestiture of certain products of our Illinois health plan of $62 million, or $0.10 per share, severance costs of $58 million, or $0.10 per share, and debt extinguishment costs of $46 million, or $0.08 per share.

iii

(2) The income tax effects of adjustments are based on the effective income tax rates applicable to each adjustment. The three and six months ended June 30, 2022 also include an $18 million, or $0.03 per share, increase to the tax benefit on the previously reported non-cash impairment of our equity method investment in RxAdvance.

Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
GAAP selling, general and administrative expenses $ 2,800  $ 2,139  $ 5,545  $ 4,373 
Less:
Acquisition and divestiture related expenses 22  39  121  85 
Restructuring costs —  —  58 
Costs related to the PBM legal settlement —  — 
Real estate optimization —  — 
Adjusted selling, general and administrative expenses $ 2,772  $ 2,098  $ 5,416  $ 4,230 
Note: Beginning in 2022, we have included a separate line item for depreciation expense on the Consolidated Statements of Operations, which was previously included in selling, general and administrative (SG&A) expenses. Prior period SG&A expenses have been conformed to the current presentation.
iv

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)
June 30, 2022 December 31, 2021
(Unaudited)
ASSETS    
Current assets:
   
Cash and cash equivalents
$ 13,435  $ 13,118 
Premium and trade receivables
14,153  12,238 
Short-term investments
1,794  1,539 
Other current assets
3,024  1,602 
Total current assets 32,406  28,497 
Long-term investments
13,671  14,043 
Restricted deposits
1,225  1,068 
Property, software and equipment, net
2,557  3,391 
Goodwill
20,310  19,771 
Intangible assets, net
7,671  7,824 
Other long-term assets
3,220  3,781 
Total assets $ 81,060  $ 78,375 
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND STOCKHOLDERS’ EQUITY  
Current liabilities:    
Medical claims liability $ 16,581  $ 14,243 
Accounts payable and accrued expenses 9,303  8,493 
Return of premium payable 2,379  2,328 
Unearned revenue 523  434 
Current portion of long-term debt 300  267 
Total current liabilities 29,086  25,765 
Long-term debt 18,456  18,571 
Deferred tax liability 746  1,407 
Other long-term liabilities 6,209  5,610 
Total liabilities 54,497  51,353 
Commitments and contingencies
Redeemable noncontrolling interests 133  82 
Stockholders’ equity:    
Preferred stock, $0.001 par value; authorized 10,000 shares; no shares issued or outstanding at June 30, 2022 and December 31, 2021
   
Common stock, $0.001 par value; authorized 800,000 shares; 606,444 issued and 581,124 outstanding at June 30, 2022, and 602,704 issued and 582,479 outstanding at December 31, 2021
1  1 
Additional paid-in capital 19,899  19,672 
Accumulated other comprehensive earnings (loss) (913) 77 
Retained earnings 8,816  8,139 
Treasury stock, at cost (25,320 and 20,225 shares, respectively)
(1,514) (1,094)
Total Centene stockholders’ equity 26,289  26,795 
Nonredeemable noncontrolling interest 141  145 
Total stockholders’ equity 26,430  26,940 
Total liabilities, redeemable noncontrolling interests and stockholders’ equity $ 81,060  $ 78,375 
The accompanying notes to the consolidated financial statements are an integral part of these statements. 
1

CENTENE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except shares in thousands and per share data in dollars)
(Unaudited)
  Three Months Ended June 30, Six Months Ended June 30,
  2022 2021 2022 2021
Revenues:
Premium $ 31,510  $ 27,627  $ 63,399  $ 54,560 
Service 2,458  1,235  4,801  2,416 
Premium and service revenues 33,968  28,862  68,200  56,976 
Premium tax 1,968  2,163  4,921  4,032 
Total revenues 35,936  31,025  73,121  61,008 
Expenses:    
Medical costs 27,312  24,389  55,150  47,780 
Cost of services 2,099  1,107  4,087  2,155 
Selling, general and administrative expenses 2,800  2,139  5,545  4,373 
Depreciation expense 164  134  320  267 
Amortization of acquired intangible assets 199  188  398  383 
Premium tax expense 2,041  2,236  5,047  4,164 
Impairment 1,450    1,450   
Legal settlement   1,250    1,250 
Total operating expenses 36,065  31,443  71,997  60,372 
Earnings (loss) from operations (129) (418) 1,124  636 
Other income (expense):    
Investment and other income 42  39  94  142 
Debt extinguishment 13    16  (46)
Interest expense (162) (163) (322) (333)
Earnings (loss) before income tax (236) (542) 912  399 
Income tax expense (benefit) (65) (7) 231  237 
Net earnings (loss) (171) (535) 681  162 
(Earnings) loss attributable to noncontrolling interests (1)   (4) 2 
Net earnings (loss) attributable to Centene Corporation $ (172) $ (535) $ 677  $ 164 

Net earnings (loss) per common share attributable to Centene Corporation:
Basic earnings (loss) per common share $ (0.29) $ (0.92) $ 1.16  $ 0.28 
Diluted earnings (loss) per common share $ (0.29) $ (0.92) $ 1.15  $ 0.28 

Weighted average number of common shares outstanding:
Basic 583,644  582,804  583,435  582,331 
Diluted 583,644  582,804  590,226  589,799 

The accompanying notes to the consolidated financial statements are an integral part of these statements.
2

CENTENE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS (LOSS)
(In millions)
(Unaudited)
  Three Months Ended June 30, Six Months Ended June 30,
  2022 2021 2022 2021
Net earnings (loss) $ (171) $ (535) $ 681  $ 162 
Reclassification adjustment, net of tax 7  (15) 9  (17)
Change in unrealized gain (loss) on investments, net of tax (340) 76  (884) (78)
Foreign currency translation adjustments (95) 2  (115) (3)
Other comprehensive earnings (loss) (428) 63  (990) (98)
Comprehensive earnings (loss) (599) (472) (309) 64 
Comprehensive (earnings) loss attributable to noncontrolling interests (1)   (4) 2 
Comprehensive earnings (loss) attributable to Centene Corporation $ (600) $ (472) $ (313) $ 66 

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

3

CENTENE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In millions, except shares in thousands and per share data in dollars)
(Unaudited)
Three and Six Months Ended June 30, 2022
  Centene Stockholders’ Equity    
  Common Stock       Treasury Stock    
 
$0.001 Par
Value
Shares
Amt Additional
Paid-in
Capital
Accumulated
Other
Comprehensive Earnings
(Loss)
Retained
Earnings
$0.001 Par
Value
Shares
Amt Non-redeemable
Non-
controlling
Interest
Total
Balance, December 31, 2021 602,704  $ 1  $ 19,672  $ 77  $ 8,139  20,225  $ (1,094) $ 145  $ 26,940 
Comprehensive Earnings:                  
Net earnings (loss) —  —  —  —  849  —  —  (1) 848 
Other comprehensive loss, net of $(171) tax
—  —  —  (562) —  —  —  —  (562)
Common stock issued for employee benefit plans 3,221  —  28  —  —  —  —  —  28 
Fair value of unvested equity awards in connection with acquisition —  —  60  —  —  —  —  —  60 
Common stock repurchases —  —  —  —  —  846  (71) —  (71)
Stock compensation expense —  —  70  —  —  —  —  —  70 
Balance, March 31, 2022 605,925  $ 1  $ 19,830  $ (485) $ 8,988  21,071  $ (1,165) $ 144  $ 27,313 
Comprehensive Earnings:                  
Net earnings (loss) —  —  —  —  (172) —  —  (3) (175)
Other comprehensive loss, net of $(106) tax
—  —  —  (428) —  —  —  —  (428)
Common stock issued for employee benefit plans 519  —  10  —  —  —  —  —  10 
Common stock repurchases —  —  —  —  —  4,249  (349) —  (349)
Stock compensation expense —  —  59  —  —  —  —  —  59 
Balance, June 30, 2022 606,444  $ 1  $ 19,899  $ (913) $ 8,816  25,320  $ (1,514) $ 141  $ 26,430 

4

Three and Six Months Ended June 30, 2021
  Centene Stockholders’ Equity    
  Common Stock       Treasury Stock    
 
$0.001 Par
Value
Shares
Amt Additional
Paid-in
Capital
Accumulated
Other
Comprehensive Earnings
(Loss)
Retained
Earnings
$0.001 Par
Value
Shares
Amt Non-redeemable
 Non-
controlling
Interest
Total
Balance, December 31, 2020 598,249  $ 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 plans 1,675  —  9  —  —  —  —  —  9 
Common stock repurchases (316) —  (19) —  —  156  (10) —  (29)
Stock compensation expense —  —  51  —  —  —  —  —  51 
Contribution from noncontrolling interest —  —  —  —  —  —  —  9  9 
Balance, March 31, 2021 599,608  $ 1  $ 19,500  $ 176  $ 7,491  16,926  $ (826) $ 116  $ 26,458 
Comprehensive Earnings:                  
Net earnings (loss) —  —  —  —  (535) —  —  (3) (538)
Other comprehensive earnings, net of $19 tax
—  —  —  63  —  —  —  —  63 
Common stock issued for employee benefit plans 390  —  9  —  —  —  —  —  9 
Common stock repurchases (10) —  —  —  —  60  (4) —  (4)
Stock compensation expense —  —  36  —  —  —  —  —  36 
Contribution from noncontrolling interest —  —  —  —  —  —  —  21  21 
Balance, June 30, 2021 599,988  $ 1  $ 19,545  $ 239  $ 6,956  16,986  $ (830) $ 134  $ 26,045 

The accompanying notes to the consolidated financial statements are an integral part of these statements.
5

CENTENE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions, unaudited)
  Six Months Ended June 30,
  2022 2021
Cash flows from operating activities:    
Net earnings $ 681  $ 162 
Adjustments to reconcile net earnings to net cash provided by operating activities
Depreciation and amortization 787  717 
Stock compensation expense 129  87 
Impairment 1,450   
(Gain) loss on debt extinguishment (16) 46 
Gain on acquisition (2)  
Deferred income taxes (417) (76)
Gain on divestiture   62 
Other adjustments, net 162  14 
Changes in assets and liabilities    
Premium and trade receivables (1,288) (1,514)
Other assets (245) (458)
Medical claims liabilities 2,089  325 
Unearned revenue 75  (83)
Accounts payable and accrued expenses 41  1,285 
Other long-term liabilities 1,058  1,161 
Other operating activities, net 1   
Net cash provided by operating activities 4,505  1,728 
Cash flows from investing activities:    
Capital expenditures (524) (437)
Purchases of investments (3,114) (3,590)
Sales and maturities of investments 2,005  2,809 
Acquisitions, net of cash acquired (1,512) (140)
Divestiture proceeds, net of divested cash   (62)
Net cash used in investing activities (3,145) (1,420)
Cash flows from financing activities:    
Proceeds from long-term debt 331  2,398 
Payments of long-term debt (900) (2,353)
Common stock repurchases (420) (33)
Payments for debt extinguishment (27) (54)
Debt issuance costs   (28)
Other financing activities, net 32  24 
Net cash used in financing activities (984) (46)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash (9) (24)
Net increase in cash, cash equivalents and restricted cash and cash equivalents 367  238 
Cash, cash equivalents, and restricted cash and cash equivalents, beginning of period
13,214  10,957 
Cash, cash equivalents, and restricted cash and cash equivalents, end of period
$ 13,581  $ 11,195 
Supplemental disclosures of cash flow information:    
Interest paid $ 327  $ 355 
Income taxes paid $ 411  $ 406 
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:
June 30,
2022 2021
Cash and cash equivalents $ 13,435  $ 11,018 
Restricted cash and cash equivalents, included in restricted deposits 146  177 
Total cash, cash equivalents, and restricted cash and cash equivalents $ 13,581  $ 11,195 
The accompanying notes to the consolidated financial statements are an integral part of these statements.
6

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, 2021. 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, 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.

Certain 2021 amounts in the consolidated financial statements and notes to the consolidated financial statements have been reclassified to conform to the 2022 presentation. Beginning in 2022, the Company has included a separate line item for depreciation expense on the Consolidated Statement of Operations, which was previously included in selling, general and administrative (SG&A) expenses. Prior period SG&A expense ratios have also been conformed to the current presentation. These reclassifications have no effect on net earnings or stockholders’ equity as previously reported.

On January 4, 2022, the Company acquired all of the issued and outstanding shares of Magellan Health, Inc. (Magellan) (the Magellan Acquisition). The acquisition was accounted for as a business combination. See Note 2. Acquisitions and Divestitures for further details.

Accounting Guidance Not Yet Adopted

The Company has determined that there are no recently issued accounting pronouncements that will have a material impact on its consolidated financial position, results of operations, or cash flows.

2. Acquisitions and Divestitures

Magellan Acquisition

On January 4, 2022, the Company acquired all of the issued and outstanding shares of Magellan. Total consideration for the acquisition was $2,561 million, consisting of $2,501 million in cash and $60 million related to the fair value of replacement equity awards associated with pre-combination service. The Company recognized $7 million and $92 million of acquisition related expenses related to Magellan, that were in the Consolidated Statement of Operations for the three and six months ended June 30, 2022.

The Magellan Acquisition was accounted for as a business combination using the acquisition method of accounting that requires assets acquired and liabilities assumed to be recognized at fair value as of the acquisition date. The assessment of fair value on all assets acquired and liabilities assumed is preliminary and, accordingly, the Company has recorded provisional amounts which are subject to adjustment. Measurement period adjustments will be recorded in the period in which they are determined, as if they had been completed at the acquisition date.

7

The Company's preliminary allocation of the fair value of assets acquired and liabilities assumed as of the acquisition date of January 4, 2022 is as follows ($ in millions):
Assets acquired and liabilities assumed  
Cash and cash equivalents
$ 997 
Premium and related receivables
855 
Short-term investments
144 
Other current assets
225 
Long-term investments
43 
Restricted deposits
7 
Property, software and equipment
90 
Intangible assets (a)
600 
Other long-term assets 50 
Total assets acquired 3,011 
Medical claims liability 249 
Accounts payable and accrued expenses 495 
Return of premium payable 75 
Unearned revenue 8 
Current portion of long-term debt 5 
Long-term debt (b)
542 
Deferred tax liabilities (c)
81 
Other long-term liabilities 68 
Total liabilities assumed 1,523 
Mezzanine equity 32 
Total identifiable net assets 1,456 
Goodwill (d)
1,105 
Total assets acquired and liabilities assumed
$ 2,561 

The Company has made the following preliminary fair value adjustments based on information reviewed through June 30, 2022. Significant fair value adjustments are noted as follows:

(a) 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 will be 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, will be considered in estimating the fair value. The identifiable intangible assets include purchased contract rights, trade names, provider contracts and developed technologies. The Company has estimated the preliminary fair value of intangible assets to be $600 million with a weighted average life of 12 years.

The preliminary fair values and weighted average useful lives for identifiable intangible assets acquired are as follows:
Fair Value Weighted Average Useful Life (in years)
Purchased contract rights $ 400 
Provider contracts 100 
Trade names 50 
Developed technologies 50 
Total intangible assets acquired $ 600  12

(b) Debt is required to be measured at fair value under the acquisition method of accounting. The fair value of Magellan's Senior Notes and Credit Agreement assumed in the acquisition was $535 million. In January 2022, the Company paid off Magellan's debt acquired in the transaction using Magellan's cash on hand.

(c) The preliminary deferred tax liabilities are presented net of $115 million of deferred tax assets.
8


(d) Goodwill is estimated at $1,105 million and primarily relates to synergies expected from the acquisition and the assembled workforce of Magellan. The assignment of goodwill to the Company’s respective segments has not been completed at this time, but the majority of goodwill is expected to be allocated to the Specialty segment. The majority of the goodwill is not deductible for income tax purposes.

PANTHERx Rare Divestiture

On May 5, 2022, the Company signed a definitive agreement to sell PANTHERx Rare (PANTHERx), which is included in the Specialty Services segment. As of June 30, 2022, the assets and liabilities of PANTHERx were considered held for sale resulting in $1,274 million of assets held for sale in Other Current Assets and $318 million of liabilities held for sale in Accounts Payable and Accrued Expenses on the Consolidated Balance Sheet. The majority of the of held for sale assets were previously reported as goodwill and intangible assets. On July 14, 2022, the Company completed the previously announced sale of PANTHERx for approximately $1,400 million. The Company estimates that it will recognize an after-tax gain of approximately $400 million, subject to purchase price adjustments.

Spanish and Central European Divestiture

On July 25, 2022, as part of the Company’s previously announced review of strategic alternatives for its international portfolio, the Company announced it has signed a definitive agreement to sell its ownership stakes in its Spanish and Central European businesses, including Ribera Salud, Torrejón Salud, and Pro Diagnostics Group. The Company estimates it will recognize an after-tax loss of approximately $125 million to $150 million, which will fluctuate with changes in the foreign currency exchange rate and the carrying value of the businesses. The pending divestiture is subject to regulatory approvals and satisfaction of customary closing conditions.

3. 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):
  June 30, 2022 December 31, 2021
  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
$ 719  $   $ (13) $ 706  $ 642  $   $ (2) $ 640 
Corporate securities 8,995  4  (627) 8,372  8,145  130  (75) 8,200 
Restricted certificates of deposit
4      4  4      4 
Restricted cash equivalents
146      146  96