Item 8. Financial Statements and Supplementary Data

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Item 8. Financial Statements and Supplementary Data

Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors

Centene Corporation:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Centene Corporation and subsidiaries (the Company) as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive earnings, stockholders' equity, and cash flows for each of the years in the three‑year period ended December 31, 2020, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the years in the three‑year period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 22, 2021 expressed an unqualified opinion on the effectiveness of the Company's internal control over financial reporting.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Evaluation of acquisition-date fair value of purchased contract rights and customer relationships intangible assets acquired in the WellCare Health Plans, Inc. business combination

As discussed in Note 3 to the consolidated financial statements, the Company acquired WellCare Health Plans, Inc. (WellCare) in a business combination on January 23, 2020. In connection with the transaction, the Company recorded purchased contract rights and customer relationships intangible assets associated with the generation of future income from WellCare’s existing contracts and customers. The acquisition-date fair value for the purchased contract rights and customer relationships assets was $5,737 million.

We identified the evaluation of the acquisition-date fair value of purchased contract rights and customer relationships intangible assets acquired in the WellCare business combination as a critical audit matter. There was a higher degree of

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auditor judgment involved in evaluating certain of management’s assumptions used in determining the fair value of these intangible assets. Specifically, the assumptions for the contract renewal probabilities for Medicaid contracts and member attrition rates for Medicare and Prescription Drug Plans were challenging to assess as there was limited observable market information. The determination of the fair value of the purchased contract rights and customer relationships assets was sensitive to possible changes in the assumptions used in the forecast for contract renewal probabilities and member attrition rates.

The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the critical audit matter. This included controls related to the Company’s acquisition-date fair value process and the development of the relevant assumptions identified above. We evaluated the estimated contract renewal probabilities for Medicaid contracts by comparing to the historical managed care contract renewal results of the Company and certain internal and external factors. We evaluated the estimated member attrition rates for Medicare and Prescription Drug Plans by comparing to the historical Medicare and Prescription Drug Plans member attrition rates of WellCare. We also compared the member attrition rates to previous acquisitions made by the Company and certain internal and external factors. We performed sensitivity analyses over the contract renewal probabilities and member attrition rate assumptions to assess their impact on the Company’s determination of the fair value of the purchased contract rights and customer relationships assets. We involved valuation professionals with specialized skills and knowledge, who compared the models used by the Company to calculate the contract renewal probabilities and member attrition rate assumptions to generally accepted valuation practices.

Evaluation of the estimated medical claims liability

As discussed in Note 2 to the consolidated financial statements, the Company's medical claims liability includes claims reported but not yet paid, estimates for claims incurred but not reported, and estimates for the costs necessary to process unpaid claims. As discussed in Note 8 to the consolidated financial statements, the balance at December 31, 2020 was $12,438 million.

We identified the evaluation of the estimated medical claims liability as a critical audit matter. The Company estimates its medical claims liability using actuarial methods. Specialized skills were required to evaluate these actuarial methods, which include analyzing historical claims data in order to estimate the medical claims liability. The medical claims liability included an estimate for medical claims developing under moderately adverse conditions, which represents the risk of adverse deviation in the Company's actuarial methods of reserving, which required auditor judgment to evaluate.

The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the critical audit matter. This included controls over the Company's process to evaluate the estimate of the medical claims liability including the results of the Company's independent actuaries' analysis. We involved actuarial professionals with specialized skills and knowledge who evaluated the actuarial methods used by the Company to estimate the medical claims liability. With the assistance of the actuarial professionals, we challenged the Company's estimate of the medical claims liability, including the effects of moderately adverse conditions, by developing an independent estimate for certain health plans using the Company's medical claims data, and relative range. We assessed the potential for management bias by evaluating the Company's position and movement within the actuarial professionals' relative range.

Evaluation of the estimated Affordable Care Act risk adjustment accruals

As discussed in Note 2 to the consolidated financial statements, the Affordable Care Act (ACA) established a permanent risk adjustment program. This program transfers funds from qualified individual and small group insurance plans with below average risk scores to those insurance plans with above average risk scores within each state. The final settlement of the December 31, 2020 ACA risk adjustment accruals is scheduled to be determined by the Centers for Medicare and Medicaid Services (CMS) in June 2021, based on data submitted by insurance companies through April 2021. As discussed in Note 9, the Company recorded an estimated asset and liability (the ACA risk adjustment accruals) of $340 million, and $1,224 million, respectively at December 31, 2020.

We identified the evaluation of the estimated ACA risk adjustment accruals as a critical audit matter. Specialized skills and a higher degree of auditor judgment were required to evaluate the Company's estimates. The Company's estimates are based on its analysis of member data, claims data, and projections of claims data expected to be submitted by the Company, and other insurance plans, to CMS for settlement.

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The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls over the Company's process to develop the estimated ACA risk adjustment accruals. We involved actuarial professionals with specialized skills and knowledge who assisted in evaluating the Company's methodology used in estimating the ACA risk adjustment accruals for consistency with the federally developed risk adjustment methodology. Additionally, the actuarial professionals assisted in evaluating the projections of claims data utilized to estimate the ACA risk adjustment accruals, and assessed the methodologies utilized by the Company for consistency with industry practice. We assessed the Company's process to estimate the ACA risk adjustment accruals, in order to consider the potential for management bias, by performing a retrospective review of the prior period ACA risk adjustment accruals and assessing the consistency of those estimated balances with the subsequent settlement.

/s/ KPMG LLP

We have served as the Company's auditor since 2005.

St. Louis, Missouri

February 22, 2021

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CENTENE CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In millions, except shares in thousands and per share data in dollars)


	December 31, 2020		December 31, 2019
ASSETS
Current assets:
Cash and cash equivalents	$	10,800	$	12,123
Premium and trade receivables	9,696		6,247
Short-term investments	1,580		863
Other current assets	1,317		1,090
Total current assets	23,393		20,323
Long-term investments	12,853		7,717
Restricted deposits	1,060		658
Property, software and equipment, net	2,774		2,121
Goodwill	18,652		6,863
Intangible assets, net	8,388		2,063
Other long-term assets	1,599		1,249
Total assets	$	68,719	$	40,994
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND STOCKHOLDERS' EQUITY
Current liabilities:
Medical claims liability	$	12,438	$	7,473
Accounts payable and accrued expenses	7,069		4,164
Return of premium payable	1,458		824
Unearned revenue	523		383
Current portion of long-term debt	97		88
Total current liabilities	21,585		12,932
Long-term debt	16,682		13,638
Deferred tax liability	1,534		189
Other long-term liabilities	2,956		1,543
Total liabilities	42,757		28,302
Commitments and contingencies
Redeemable noncontrolling interests	77		33
Stockholders' equity:

Preferred stock, $0.001 par value; authorized 10,000 shares; no shares issued or outstanding at December 31, 2020 and December 31, 2019	—		—
Common stock, $0.001 par value; authorized 800,000 shares; 598,249 issued and 581,479 outstanding at December 31, 2020, and 421,508 issued and 415,048 outstanding at December 31, 2019	1		—
Additional paid-in capital	19,459		7,647

Accumulated other comprehensive earnings	337		134
Retained earnings	6,792		4,984
Treasury stock, at cost (16,770 and 6,460 shares, respectively)	(816)		(214)
Total Centene stockholders' equity	25,773		12,551
Noncontrolling interest	112		108
Total stockholders' equity	25,885		12,659
Total liabilities, redeemable noncontrolling interests and stockholders' equity	$	68,719	$	40,994

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)


	Year Ended December 31,
	2020		2019		2018
Revenues:
Premium	$	100,055	$	67,439	$	53,629
Service	3,745		2,925		2,806
Premium and service revenues	103,800		70,364		56,435
Premium tax and health insurer fee	7,315		4,275		3,681
Total revenues	111,115		74,639		60,116
Expenses:
Medical costs	86,264		58,862		46,057
Cost of services	3,303		2,465		2,386
Selling, general and administrative expenses	9,867		6,533		6,043
Amortization of acquired intangible assets	719		258		211
Premium tax expense	6,332		4,469		3,252
Health insurer fee expense	1,476		—		709
Impairment loss	72		271		—
Total operating expenses	108,033		72,858		58,658
Earnings from operations	3,082		1,781		1,458
Other income (expense):
Investment and other income	480		443		253
Debt extinguishment costs	(61)		(30)		—
Interest expense	(728)		(412)		(343)
Earnings before income tax expense	2,773		1,782		1,368
Income tax expense	979		473		474


Net earnings	1,794		1,309		894
Loss attributable to noncontrolling interests	14		12		6
Net earnings attributable to Centene Corporation	$	1,808	$	1,321	$	900






Net earnings per common share attributable to Centene Corporation:



Basic earnings per common share	$	3.17	$	3.19	$	2.31




Diluted earnings per common share	$	3.12	$	3.14	$	2.26

Weighted average number of common shares outstanding:
Basic	570,722		413,487		390,248
Diluted	579,135		420,409		398,506

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

(In millions)


	Year Ended December 31,
	2020		2019		2018
Net earnings	$	1,794	$	1,309	$	894
Reclassification adjustment, net of tax	(3)		(5)		2
Change in unrealized gain (loss) on investments, net of tax	191		203		(52)
Defined benefit pension plan net gain (loss), net of tax	—		(6)		1
Foreign currency translation adjustments	15		(2)		(4)
Other comprehensive earnings (loss)	203		190		(53)
Comprehensive earnings	1,997		1,499		841
Comprehensive loss attributable to noncontrolling interests	14		12		6
Comprehensive earnings attributable to Centene Corporation	$	2,011	$	1,511	$	847

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)


	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 controlling Interest		Total
Balance, December 31, 2017	360,758	$	—	$	4,349	$	(3)	$	2,748	13,884	$	(244)	$	14	$	6,864
Net earnings (loss)	—	—		—		—		900		—	—		(2)		898
Other comprehensive loss, net of $(15) tax	—	—		—		(53)		—		—	—		—		(53)
Common stock issued for acquisitions	—	—		331		—		—		(9,787)	176		—		507
Common stock issued for stock offering	53,207			2,779		—		—		—	—		—		2,779
Common stock issued for employee benefit plans	3,730	—		17		—		—		—	—		—		17
Common stock repurchases	—	—		—		—		—		1,120	(71)		—		(71)
Stock compensation expense	—	—		145		—		—		—	—		—		145
Cumulative-effect of adopting new accounting guidance	—	—		—		—		15		—	—		—		15
Purchase of noncontrolling interest	—	—		(172)		—		—		—	—		(15)		(187)
Acquisition resulting in noncontrolling interest	—	—		—		—		—		—	—		99		99

Balance, December 31, 2018	417,695	$	—	$	7,449	$	(56)	$	3,663	5,217	$	(139)	$	96	$	11,013
Net earnings (loss)	—	—		—		—		1,321		—	—		(9)		1,312
Other comprehensive earnings, net of $59 tax	—	—		—		190		—		—	—		—		190
Common stock issued for employee benefit plans	3,813	—		21		—		—		—	—		—		21
Common stock repurchases	—	—		—		—		—		1,243	(75)		—		(75)
Stock compensation expense	—	—		177		—		—		—	—		—		177
Contribution from noncontrolling interest	—	—		—		—		—		—	—		21		21
Balance, December 31, 2019	421,508	$	—	$	7,647	$	134	$	4,984	6,460	$	(214)	$	108	$	12,659
Net earnings (loss)	—	—		—		—		1,808		—	—		(24)		1,784
Other comprehensive earnings, net of $60 tax	—	—		—		203		—		—	—		—		203
Common stock issued for acquisitions	171,225	1		11,526		—		—		—	—		—		11,527

Common stock issued for employee benefit plans	5,923	—		29		—		—		—	—		—		29
Common stock repurchases	(407)	—		(24)		—		—		10,310	(602)		—		(626)
Stock compensation expense	—	—		281		—		—		—	—		—		281


Contribution from noncontrolling interest	—	—		—		—		—		—	—		28		28


Balance, December 31, 2020	598,249	$	1	$	19,459	$	337	$	6,792	16,770	$	(816)	$	112	$	25,885

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

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CENTENE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)


	Year Ended December 31,
	2020		2019		2018
Cash flows from operating activities:
Net earnings	$	1,794	$	1,309	$	894
Adjustments to reconcile net earnings to net cash provided by operating activities
Depreciation and amortization	1,259		643		495
Stock compensation expense	281		177		145
Impairment	72		271		—
Loss on debt extinguishment	57		30		—
Deferred income taxes	(51)		55		(129)
Gain on divestiture	(104)		—		—
Changes in assets and liabilities
Premium and trade receivables	(52)		(1,076)		(1,173)
Other assets	(30)		(234)		(38)
Medical claims liabilities	1,117		578		1,325
Unearned revenue	(528)		(9)		(52)
Accounts payable and accrued expenses	585		(421)		(533)
Other long-term liabilities	1,078		185		258
Other operating activities, net	25		(25)		42
Net cash provided by operating activities	5,503		1,483		1,234
Cash flows from investing activities:
Capital expenditures	(869)		(730)		(675)
Purchases of investments	(7,402)		(2,575)		(3,846)
Sales and maturities of investments	4,921		1,809		1,991
Acquisitions, net of cash acquired	(4,049)		(36)		(2,055)
Divestiture proceeds, net of divested cash	466		—		—

Other investing activities, net	(22)		—		—
Net cash used in investing activities	(6,955)		(1,532)		(4,585)
Cash flows from financing activities:
Proceeds from the issuance of common stock	—		—		2,779
Proceeds from long-term debt	5,107		24,721		6,077
Payments of long-term debt	(4,067)		(17,803)		(4,083)
Common stock repurchases	(626)		(75)		(71)



Payments for debt extinguishment	(81)		(23)		—
Debt issuance costs	(120)		(25)		(25)
Other financing activities, net	47		37		(65)
Net cash provided by financing activities	260		6,832		4,612
Effect of exchange rate changes on cash, cash equivalents, and restricted cash	18		(2)		—
Net increase (decrease) in cash, cash equivalents, and restricted cash and equivalents	(1,174)		6,781		1,261
Cash, cash equivalents, and restricted cash and cash equivalents, beginning of period	12,131		5,350		4,089
Cash, cash equivalents, and restricted cash and cash equivalents, end of period	$	10,957	$	12,131	$	5,350
Supplemental disclosures of cash flow information:
Interest paid	$	725	$	374	$	323
Income taxes paid	$	1,191	$	612	$	448
Equity issued in connection with acquisitions	$	11,526	$	—	$	507
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:
	2020		2019		2018
Cash and cash equivalents	$	10,800	$	12,123	$	5,342
Restricted cash and cash equivalents, included in restricted deposits	157		8		8
Total cash, cash equivalents, and restricted cash and cash equivalents	$	10,957	$	12,131	$	5,350

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

1. Organization and Operations

Centene Corporation, or the Company, is a leading multi-national healthcare enterprise that is committed to helping people live healthier lives. The Company takes a local approach - with local brands and local teams - to provide fully integrated, high-quality, and cost-effective services to government-sponsored and commercial healthcare programs, focusing on under-insured and uninsured individuals. The Company operates in two segments: Managed Care and Specialty Services. The Managed Care segment provides health plan coverage to individuals through government subsidized programs, including Medicaid, the State Children's Health Insurance Program (CHIP), Long-Term Services and Supports (LTSS), Foster Care, Medicare-Medicaid Plans (MMP), which cover beneficiaries who are dually eligible for Medicaid and Medicare, the Supplemental Security Income Program, also known as the Aged, Blind or Disabled Program (ABD), Medicare (including Medicare Prescription Drug Plans), and the Health Insurance Marketplace. The Company also offers a variety of individual, small group, and large group commercial healthcare products, both to employers and directly to members in the Managed Care segment. The Specialty Services segment consists of the Company's specialty companies offering auxiliary healthcare services and products to state programs, correctional facilities, healthcare organizations, employer groups and other commercial organizations, as well as to the Company's own subsidiaries. The Specialty Services segment also includes the government contracts business which includes the Company's government-sponsored managed care support contract with the U.S. Department of Defense (DoD) under the TRICARE program and other healthcare related government contracts.

On January 23, 2020, the Company acquired all of the issued and outstanding shares of WellCare. The transaction was valued at approximately $19,555 million, including the assumption of $1,950 million of outstanding debt. The WellCare Acquisition brought a high-quality Medicare platform and further extended the Company's robust Medicaid offerings. The combination enables the Company to provide access to more comprehensive and differentiated solutions across more markets with a continued focus on affordable, high-quality, culturally-sensitive healthcare services.

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying consolidated financial statements include the accounts of Centene Corporation and all majority owned subsidiaries and subsidiaries over which the Company exercises the power and control to direct activities significantly impacting financial performance. All material intercompany balances and transactions have been eliminated.

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

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles in the United States (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Future events and their effects cannot be predicted with certainty; accordingly, the accounting estimates require the exercise of judgment. The accounting estimates used in the preparation of the consolidated financial statements will change as new events occur, as more experience is acquired, as additional information is obtained and as the operating environment changes. The Company evaluates and updates its assumptions and estimates on an ongoing basis and may employ outside experts to assist in its evaluation, as considered necessary. Actual results could differ from those estimates.

Business Combinations

Business combinations are accounted for using the acquisition method of accounting. The Company allocates the fair value of purchase consideration to the assets acquired and liabilities assumed based on their fair values at the acquisition date. The excess of the fair value of consideration transferred over the fair value of the net assets acquired is recorded as goodwill. Goodwill is generally attributable to the value of the synergies between the combined companies and the value of the acquired assembled workforce, neither of which qualifies for recognition as an intangible asset.

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The Company uses its best estimates and assumptions to value assets acquired and liabilities assumed at the acquisition date; however, these estimates are sometimes preliminary and, in some instances, all information required to value the assets acquired and liabilities assumed may not be available or final as of the end of a reporting period subsequent to the business combination. If the accounting for the business combination is incomplete, provisional amounts are recorded. The provisional amounts are updated during the period determined, up to one year from the acquisition date. The Company includes the results of operations of acquired businesses in the Company's consolidated results prospectively from the date of acquisition.

Acquisition related expenses and post-acquisition restructuring costs are recognized separately from the business combination and are expensed as incurred.

Cash and Cash Equivalents

Investments with original maturities of three months or less are considered to be cash equivalents. Cash equivalents consist of money market funds, bank certificates of deposit and savings accounts.

The Company maintains amounts on deposit with various financial institutions, which may exceed federally insured limits. However, management periodically evaluates the credit-worthiness of those institutions, and the Company has not experienced any losses on such deposits.

Investments

Short-term investments include securities with maturities greater than three months to one year. Long-term investments include securities with maturities greater than one year.

Short-term and long-term investments are generally classified as available-for-sale and are carried at fair value. Certain equity investments are recorded using the fair value or equity method. The Company monitors the difference between the carrying value and fair value of its available-for-sale debt investments and whether declines in fair value are credit related. Unrealized gains and losses on debt investments available-for-sale are excluded from earnings and reported in accumulated other comprehensive earnings (loss), a separate component of stockholders' equity, net of income tax effects. If a loss is deemed to be credit related, the Company recognizes an allowance through earnings. 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 through investment and other income. Premiums and discounts are amortized or accreted over the life of the related security using the effective interest method. To calculate realized gains and losses on the sale of investments, the Company uses the specific amortized cost of each investment sold. Realized gains and losses are recorded in investment and other income.

The Company uses the equity method to account for investments in entities that it does not control but has the ability to exercise significant influence over operating and financial policies. Generally, under the equity method, original investments in these entities are recorded at cost and subsequently adjusted by the Company's share of equity in income or losses after the date of acquisition as well as capital contributions to and distributions from these companies.

Restricted Deposits

Restricted deposits consist of investments required by various state statutes to be deposited or pledged to state agencies. These investments are classified as long-term, regardless of the contractual maturity date, due to the nature of the states' requirements. The Company is required to annually adjust the amount of the deposit pledged to certain states.

Fair Value Measurements

In the normal course of business, the Company invests in various financial assets and incurs various financial liabilities. Fair values are disclosed for all financial instruments, whether or not such values are recognized in the Consolidated Balance Sheets. Management obtains quoted market prices and other observable inputs for these disclosures. The carrying amounts reported in the Consolidated Balance Sheets for cash and cash equivalents, premium and trade receivables, medical claims liability, accounts payable and accrued expenses, unearned revenue, and certain other current assets and liabilities are carried at cost, which approximates fair value because of their short-term nature.

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The following methods and assumptions were used to estimate the fair value of each financial instrument:

Available-for-sale investments and restricted deposits: The carrying amount is stated at fair value, based on quoted market prices, where available. For securities not actively traded, fair values were estimated using values obtained from independent pricing services or quoted market prices of comparable instruments.
Senior unsecured notes: Estimated based on third-party quoted market prices for the same or similar issues.
Variable rate debt: The carrying amount of the Company's floating rate debt approximates fair value since the interest rates adjust based on market rate adjustments.
Contingent consideration: Estimated based on expected achievement of metrics included in the acquisition agreement considering circumstances that exist as of the acquisition date.

Property, Software and Equipment

Property, software and equipment are stated at cost less accumulated depreciation. Computer hardware and software includes certain costs incurred in the development of internal-use software, including external direct costs of materials and services and payroll costs of employees devoted to specific software development. Depreciation is calculated principally by the straight-line method over estimated useful lives. Leasehold improvements are depreciated using the straight-line method over the shorter of the expected useful life or the remaining term of the lease. Property, software and equipment are depreciated over the following periods:


Fixed Asset						Depreciation Period
Buildings and improvements						5 - 40 years
Computer hardware and software						3 - 5 years
Furniture and equipment						3 - 10 years
Land improvements						10 - 20 years
Leasehold improvements						1 - 20 years

The carrying amounts of all long-lived assets are evaluated to determine if adjustment to the depreciation and amortization period or to the unamortized balance is warranted. Such evaluation is based principally on the expected utilization of the long-lived assets.

The Company retains fully depreciated assets in property and accumulated depreciation accounts until it removes them from service. In the case of sale, retirement, or disposal, the asset cost and related accumulated depreciation balance is removed from the respective account, and the resulting net amount, less any proceeds, is included as a component of earnings from operations in the Consolidated Statements of Operations.

Goodwill and Intangible Assets

Intangible assets represent assets acquired in purchase transactions and consist primarily of purchased contract rights and customer relationships, provider contracts, trade names, developed technologies and goodwill. Intangible assets are amortized using the straight-line method over the following periods:


Intangible Asset						Amortization Period
Purchased contract rights and customer relationships						3 - 21 years
Provider contracts						4 - 15 years
Trade names						7 - 20 years
Developed technologies						2 - 7 years

The Company tests for impairment of intangible assets, as well as long-lived assets, whenever events or changes in circumstances indicate that the carrying value of an asset or asset group (hereinafter referred to as "asset group") may not be recoverable by comparing the sum of the estimated undiscounted future cash flows expected to result from use of the asset group and its eventual disposition to the carrying value. Such factors include, but are not limited to, significant changes in membership, state funding, state contracts, and provider networks and contracts. If the sum of the estimated undiscounted future cash flows is less than the carrying value, an impairment determination is required. The amount of impairment is calculated by subtracting the fair value of the asset group from the carrying value of the asset group. An impairment charge, if any, is recognized within earnings from operations.

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The Company tests goodwill for impairment using a fair value approach. The Company is required to test for impairment at least annually, absent a triggering event, which could include a significant decline in operating performance that would require an impairment assessment. Absent any impairment indicators, the Company performs its goodwill impairment testing during the fourth quarter of each year. The Company recognizes an impairment charge for any amount by which the carrying amount of goodwill exceeds its fair value.

The Company first assesses qualitative factors to determine whether it is necessary to perform the quantitative goodwill impairment test. The Company generally does not calculate the fair value of a reporting unit unless it determines, based on a qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount.

If the quantitative test is deemed necessary, the Company determines an appropriate valuation technique to estimate a reporting unit's fair value as of the testing date. The Company utilizes either the income approach or the market approach, whichever is most appropriate for the respective reporting unit. The income approach is based on an internally developed discounted cash flow model that includes many assumptions related to future growth rates, discount factors, future tax rates and other various assumptions. The market approach is based on financial multiples of comparable companies derived from current market data. The Company then compares the fair value of the reporting unit calculated using the income approach or market approach with its carrying amount and recognizes an impairment charge for the amount by which the carrying amount exceeds fair value. The impairment charge is limited to the total amount of goodwill allocated to the reporting unit. Changes in economic and operating conditions impacting assumptions used in the Company's analyses could result in goodwill impairment in future periods.

Medical Claims Liability

Medical claims liability includes claims reported but not yet paid, or inventory, estimates for claims incurred but not reported, or IBNR, and estimates for the costs necessary to process unpaid claims at the end of each period. The Company estimates its medical claims liability using actuarial methods that are commonly used by health insurance actuaries and meet Actuarial Standards of Practice. These actuarial methods consider factors such as historical data for payment patterns, cost trends, product mix, seasonality, utilization of healthcare services and other relevant factors.

Actuarial Standards of Practice generally require that the medical claims liability estimates be adequate to cover obligations under moderately adverse conditions. Moderately adverse conditions are situations in which the actual claims are expected to be higher than the otherwise estimated value of such claims at the time of estimate. In many situations, the claims amounts ultimately settled will be different than the estimate that satisfies the Actuarial Standards of Practice. The Company includes in its IBNR an estimate for medical claims liability under moderately adverse conditions which represents the risk of adverse deviation of the estimates in its actuarial method of reserving.

The Company uses its judgment to determine the assumptions to be used in the calculation of the required estimates. The assumptions it considers when estimating IBNR include, without limitation, claims receipt and payment experience (and variations in that experience), changes in membership, provider billing practices, healthcare service utilization trends, cost trends, product mix, seasonality, prior authorization of medical services, benefit changes, known outbreaks of disease or increased incidence of illness such as influenza, provider contract changes, changes to fee schedules, and the incidence of high dollar or catastrophic claims.

The Company's development of the medical claims liability estimate is a continuous process which it monitors and refines on a monthly basis as additional claims receipts and payment information becomes available. As more complete claims information becomes available, the Company adjusts the amount of the estimates, and includes the changes in estimates in medical costs in the period in which the changes are identified. In every reporting period, the operating results include the effects of more completely developed medical claims liability estimates associated with previously reported periods. The Company consistently applies its reserving methodology from period to period. As additional information becomes known, it adjusts the actuarial model accordingly to establish medical claims liability estimates.

The Company reviews actual and anticipated experience compared to the assumptions used to establish medical costs. The Company establishes premium deficiency reserves if actual and anticipated experience indicates that existing policy liabilities together with the present value of future gross premiums will not be sufficient to cover the present value of future benefits, settlement and maintenance costs.

Revenue Recognition

The Company's health plans generate revenues primarily from premiums received from the states in which it operates health

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plans, premiums received from its members and the Centers for Medicare and Medicaid Services (CMS) for its Medicare product, and premiums from members of its commercial health plans. In addition to member premium payments, its Marketplace contracts also generate revenues from subsidies received from CMS. The Company generally receives a fixed premium per member per month pursuant to its contracts and recognizes premium revenues during the period in which it is obligated to provide services to its members at the amount reasonably estimable. In some instances, the Company's base premiums are subject to an adjustment, or risk score, based on the acuity of its membership. Generally, the risk score is determined by the State or CMS analyzing submissions of processed claims data to determine the acuity of the Company's membership relative to the entire state's membership. The Company estimates the amount of risk adjustment based upon the processed claims data submitted and expected to be submitted to CMS and records revenues on a risk adjusted basis. Some contracts allow for additional premiums related to certain supplemental services provided such as maternity deliveries.

The Company's contracts with states may require us to maintain a minimum health benefits ratio (HBR) or may require us to share profits in excess of certain levels. In certain circumstances, including commercial plans, its plans may be required to return premium to the state or policyholders in the event profits exceed established levels. The Company estimates the effect of these programs and recognizes reductions in revenue in the current period. Other states may require us to meet certain performance and quality metrics in order to receive additional or full contractual revenue. For performance-based contracts, the Company does not recognize revenue subject to refund until data is sufficient to measure performance.

Revenues are recorded based on membership and eligibility data provided by the states or CMS, which is adjusted on a monthly basis by the states or CMS for retroactive additions or deletions to membership data. These eligibility adjustments are estimated monthly and subsequent adjustments are made in the period known. The Company reviews and updates those estimates as new information becomes available. It is possible that new information could require us to make additional adjustments, which could be significant, to these estimates.

The Company's Medicare Advantage contracts are with CMS. CMS deploys a risk adjustment model which apportions premiums paid to all health plans according to health severity and certain demographic factors. The CMS risk adjustment model pays more for members whose medical history would indicate that they are expected to have higher medical costs. Under this risk adjustment methodology, CMS calculates the risk adjusted premium payment using diagnosis data from hospital inpatient, hospital outpatient, physician treatment settings as well as prescription drug events. The Company and the healthcare providers collect, compile and submit the necessary and available diagnosis data to CMS within prescribed deadlines. The Company estimates risk adjustment revenues based upon the diagnosis data submitted and expected to be submitted to CMS and records revenues on a risk adjusted basis.

For qualifying low income PDP members, CMS pays for some, or all, of the member's monthly premium. The Company receives certain Part D prospective subsidy payments from CMS for the its PDP members as a fixed monthly per member amount, based on the estimated costs of providing prescription drug benefits over the plan year, as reflected in the its bids. Approximately nine to ten months subsequent to the end of the plan year, or later in the case of the coverage gap discount subsidy, a settlement payment is made between CMS and the Company's plans based on the difference between the prospective payments and actual claims experience.

The Company's specialty services generate revenues under contracts with state and federal programs, healthcare organizations and other commercial organizations, as well as from its own subsidiaries. Revenues are recognized when the related services are provided or as ratably earned over the covered period of services. The Company recognizes revenue related to administrative services under the TRICARE government-sponsored managed care support contract for the DoD's TRICARE program on a straight-line basis over the option period, when the fees become fixed and determinable. The TRICARE contract includes various performance-based measures. For each of the measures, an estimate of the amount that has been earned is made at each interim date, and revenue is recognized accordingly.

Some states enact premium taxes, similar assessments and provider pass-through payments, collectively premium taxes, and these taxes are recorded as a separate component of both revenues and operating expenses. Additionally, the Company's insurance subsidiaries are subject to the Affordable Care Act annual health insurer fee (HIF), absent a HIF moratorium. The ACA imposed the HIF in 2014, 2015, 2016, 2018 and 2020. The HIF was suspended in 2017 and 2019. Beginning in 2021, the HIF was permanently repealed. If the Company is able to negotiate reimbursement of portions of these premium taxes or the HIF, it recognizes revenue associated with the HIF on a straight-line basis when the Company has binding agreements for such reimbursements, including the "gross-up" to reflect the HIFs non-tax deductible nature. Collectively, this revenue is recorded as premium tax and health insurer fee revenue in the Consolidated Statements of Operations. For certain products, premium taxes, state assessments and the HIF are not pass-through payments and are recorded as premium revenue and premium tax expense or health insurer fee expense in the Consolidated Statements of Operations.

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Some states require state directed payments that have minimal risk, but are administered as a premium adjustment. These payments are recorded as premium revenue and medical costs at close to a 100% HBR. The Company has little visibility to the timing of these payments until they are paid by the state.

Affordable Care Act

The Affordable Care Act (ACA) established risk spreading premium stabilization programs as well as minimum medical loss ratio (MLR) and cost sharing reductions.

The Company's accounting policies for the programs are as follows:

Risk Adjustment

The permanent risk adjustment program established by the ACA transfers funds from qualified individual and small group insurance plans with below average risk scores to those plans with above average risk scores within each state. The Company estimates the receivable or payable under the risk adjustment program based on its estimated risk score compared to the state average risk score. The Company may record a receivable or payable as an adjustment to premium revenues to reflect the year-to-date impact of the risk adjustment based on its best estimate. The Company refines its estimate as new information becomes available.

Minimum Medical Loss Ratio

Additionally, the ACA established a minimum MLR for the Health Insurance Marketplace. The risk adjustment program described above is taken into consideration to determine if the Company's estimated annual medical costs are less than the minimum MLR and require an adjustment to premium revenues to meet the minimum MLR.

Cost Sharing Reductions (CSRs)

The ACA directs issuers to reduce the Company's members' cost sharing for essential health benefits for individuals with Federal Poverty Levels (FPLs) between 100% and 250% who are enrolled in a silver tier product; eliminate cost sharing for Indians/Alaska Natives with a FPL less than 300% and eliminate cost sharing for Indians/Alaska Natives regardless of FPL when services are provided by an Indian Health Service. In order to compensate issuers for reduced cost sharing provided to enrollees, CMS pays an advance CSR payment to the Company each month based on the Company's certification data provided at the time of the qualified health plan application. After the close of the benefit year, the Company is required to provide CMS with data on the value of the CSRs provided to enrollees based on either a 'simplified' or 'standard' approach. A reconciliation will occur in order to calculate the difference between the Company's CSR advance payments received and the value of CSRs provided to enrollees. This reconciliation will produce either a payable or receivable to/from CMS. The Company has elected the standard methodology approach. In October 2017, the Trump Administration issued an executive order that immediately ceased payments of CSRs to issuers, and beginning in 2018 premium rates for Health Insurance Marketplace were set without factoring in the cost sharing subsidy payments from the federal government.

Premium and Trade Receivables and Unearned Revenue

Premium and service revenues collected in advance are recorded as unearned revenue. For performance-based contracts, the Company does not recognize revenue subject to refund until data is sufficient to measure performance. Premiums and service revenues due to the Company are recorded as premium and trade receivables and are recorded net of an allowance based on historical trends and management's judgment on the collectibility of these accounts. As the Company generally receives payments during the month in which services are provided, the allowance is typically not significant in comparison to total revenues and does not have a material impact on the presentation of the financial condition or results of operations. Amounts receivable under federal contracts are comprised primarily of contractually defined billings, accrued contract incentives under the terms of the contract and amounts related to change orders for services not originally specified in the contract.

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Activity in the allowance for uncollectible accounts for the years ended December 31, is summarized below ($ in millions):


	2020		2019		2018
Allowances, beginning of year	$	157	$	123	$	24

Amounts charged to expense	121		76		134
Write-offs of uncollectible receivables	(35)		(42)		(35)
Allowances, end of year	$	243	$	157	$	123

Significant Customers

The Company receives the majority of its revenues under contracts or subcontracts with state Medicaid managed care programs. Customers where the aggregate annual contract revenues exceeded 10% of total annual revenues included the state of California, where the percentage of the Company's total revenue was 11% and 13% for the years ended December 31, 2019 and 2018, respectively; the state of New York, where the percentage of the Company's total revenue was 11% and 15% for the years ended December 31, 2020 and 2019, respectively, and the state of Texas, where the percentage of the Company's total revenue was 10% for the year ended December 31, 2018.

Other Income (Expense)

Other income (expense) consists principally of investment income, interest expense and equity method earnings from investments. Investment income is derived from the Company's cash, cash equivalents, restricted deposits and investments. Interest expense relates to borrowings under the senior notes, credit facilities, mortgage and construction loans, and capital leases.

Income Taxes

Deferred tax assets and liabilities are recorded for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax law or tax rates is recognized in income in the period that includes the enactment date.

Valuation allowances are provided when it is considered more likely than not that deferred tax assets will not be realized. In determining if a deductible temporary difference or net operating loss can be realized, the Company considers future reversals of existing taxable temporary differences, future taxable income, taxable income in prior carryback periods and tax planning strategies.

Contingencies

The Company accrues for loss contingencies associated with outstanding litigation, claims and assessments for which it has determined it is probable that a loss contingency exists and the amount of loss can be reasonably estimated. The Company expenses professional fees associated with litigation claims and assessments as incurred.

Stock Based Compensation

Stock based compensation expense is recognized at grant date fair value over the period during which an employee is required to provide service in exchange for the award. Excess tax benefits related to stock compensation are presented as a cash inflow from operating activities. The Company accounts for forfeitures when they occur.

Foreign Currency Translation

The Company is exposed to foreign currency exchange risk through its international subsidiaries whose functional currencies include the Euro and British Pound. The assets and liabilities of the Company's subsidiaries are translated into United States dollars at the balance sheet date. The Company translates its proportionate share of earnings using average rates during the year. The resulting foreign currency translation adjustments are recorded as a separate component of accumulated other comprehensive earnings (loss).

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Recently Adopted Accounting Guidance

In June 2016, the Financial Accounting Standards Board (FASB) issued an Accounting Standards Update (ASU) which changes how entities measure credit losses for most financial assets and certain other investments that are not measured at fair value through net income. The ASU is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. The amended guidance requires the measurement of all expected credit losses for financial assets (or groups of financial assets) and available-for-sale debt securities held at the reporting date over the remaining life based on historical experience, current conditions, and reasonable and supportable forecasts. The guidance is effective for annual and interim periods beginning after December 15, 2019. The Company adopted the new guidance in the first quarter of 2020. The majority of the Company’s receivables and other financial instruments are with government entities and, therefore, the adoption did not have a material impact on its receivables and other financial instruments. The Company evaluated its investment portfolio under the new available-for-sale debt securities impairment model guidance. The vast majority of the Company’s investment portfolio are low risk, investment grade securities. The impact of the Company's evaluation of the investment portfolio resulted in an immaterial decrease to retained earnings at January 1, 2020. The Company evaluates available-for-sale debt securities on a regular basis and records an allowance for credit losses, if necessary. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. The new guidance did not have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

In August 2018, the FASB issued an ASU which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal use software license). The accounting for the service element of a hosting arrangement that is a service contract is not affected by the amendments in this update. The amendments in this ASU require an entity that is the customer in a hosting arrangement to follow the guidance on internal-use software to determine which implementation costs to capitalize and which costs to expense. The standard also requires an entity that is the customer to expense the capitalized implementation costs of a hosting arrangement over the term of the hosting arrangement. The new guidance requires an entity to present the expense related to the capitalized implementation costs in the same line item in the statement of income as the fees associated with the hosting element of the arrangement and classify payments for capitalized implementation costs in the statement of cash flows in the same manner as payments made for fees associated with the hosting element. The entity is also required to present the capitalized implementation costs in the statement of financial position in the same line item that a prepayment for the fees of the associated hosting arrangement would be presented. The guidance is effective for annual and interim periods beginning after December 15, 2019. The Company adopted the new guidance in the first quarter of 2020. The new guidance did not have a material impact on the Company's consolidated financial position, results of operations or cash flows.

Recent Accounting Guidance Not Yet Adopted

In December 2019, the FASB issued an ASU which simplifies the accounting for income taxes by removing certain exceptions to the general principles in ASC Topic 740. The ASU also clarifies and amends certain areas of ASC Topic 740 to improve consistent application of and simplify the generally accepted accounting principles within Topic 740. 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.

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

3. Acquisitions

WellCare Acquisition

On January 23, 2020, the Company acquired all of the issued and outstanding shares of WellCare. The transaction was valued at $19,555 million, including the assumption of debt. The WellCare Acquisition brought a high-quality Medicare platform and further extended the Company’s robust Medicaid offerings. The WellCare Acquisition also enables the Company to provide access to more comprehensive and differentiated solutions across more markets with a continued focus on affordable, high-quality, culturally-sensitive healthcare services. With the WellCare Acquisition, the Company further broadened its product offerings by adding a Medicare prescription drug plan (PDP) to its existing business lines.

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Total consideration paid for the acquisition was $17,605 million, consisting of Centene common shares valued at $11,431 million (based on Centene's stock price of $66.76), $6,079 million in cash, and $95 million related to the fair value of replacement equity awards associated with pre-combination service. Each WellCare share was converted into 3.38 shares of validly issued, fully paid, non-assessable Centene common stock and $120.00 in cash. In total, 171 million shares of Centene common stock were issued to the WellCare stockholders. The cash portion of the acquisition was funded through the issuance of long-term debt as further discussed in Note 10. Debt. The Company recognized $602 million of acquisition related costs, primarily related to WellCare, that are included in the Consolidated Statements of Operations for the year ended December 31, 2020.

The acquisition of WellCare 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 valuation of all assets acquired and liabilities assumed was finalized in the fourth quarter of 2020.

The Company's allocation of the fair value of assets acquired and liabilities assumed as of the acquisition date of January 23, 2020 is as follows ($ in millions):


Assets acquired and liabilities assumed
Cash and cash equivalents	$	2,947
Premium and related receivables	3,699
Short-term investments	355
Other current assets	1,205
Long-term investments	2,725
Restricted deposits	320
Property, software and equipment	237
Intangible assets (a)	6,632
Other long-term assets	338
Total assets acquired	18,458

Medical claims liability	4,122
Accounts payable and accrued expenses	3,035
Return of premium payable	192
Unearned revenue	657
Long-term debt (b)	2,055
Deferred tax liabilities (c)	1,428
Other long-term liabilities	475
Total liabilities assumed	11,964

Total identifiable net assets	6,494
Goodwill (d)	11,111
Total assets acquired and liabilities assumed	$	17,605

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 is 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, were also considered in estimating the fair value. The Company has estimated the fair value of intangible assets to be $6,632 million with a weighted average life of 14 years. The identifiable intangible assets include purchased contract rights and customer relationships, provider contracts, trade names and developed technologies.

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The 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 and customer relationships	$	5,737	14
Provider contracts	227		15
Trade names	561		16
Developed technologies	107		3
Total intangible assets acquired	$	6,632	14

(b) Debt is required to be measured at fair value under the acquisition method of accounting. The fair value of WellCare's aggregate principle of $1,950 million Senior Notes assumed in the acquisition was $2,055 million. The $105 million increase is amortized as a reduction to interest expense over the remaining life of the debt.

(d) The acquisition resulted in $11,111 million of goodwill primarily related to synergies expected from the acquisition and the assembled workforce of WellCare. Substantially all of the goodwill has been assigned to the Managed Care segment. The majority of the goodwill is not deductible for income tax purposes.

Divestitures

Immediately prior to the closing of the WellCare Acquisition, Anthem, Inc. acquired WellCare's Missouri Medicaid health plan, a WellCare Missouri Medicare Advantage health plan, and WellCare's Nebraska Medicaid health plan. CVS Health Corporation acquired portions of Centene's Illinois Medicaid and Medicare Advantage health plans as part of previously announced divestiture agreements. The Company recorded $104 million in pre-tax gains for the year ended December 31, 2020, as a result of the Illinois divestiture, which is included in investment and other income on the Consolidated Statements of Operations.

Statement of Operations

From the acquisition date through December 31, 2020, the Company's Consolidated Statement of Operations include total WellCare revenues of $30,709 million. It is impracticable for the Company to determine the effect on net income resulting from the WellCare acquisition for the year ended December 31, 2020, as the Company immediately began integrating WellCare into its ongoing operations.

Unaudited Pro Forma Financial Information

The following table presents supplemental pro forma information for the year ended December 31, 2019 ($ in millions, except per share data):


	Year Ended December 31, 2019
Total revenues	$	102,379
Net earnings attributable to common stockholders	1,496
Diluted earnings per share	$	2.53

The unaudited pro forma total revenues for the year ended December 31, 2020 was $112,905 million. It is impracticable for the Company to determine the pro forma earnings information for the year ended December 31, 2020 due to the nature of obtaining that information as the Company immediately began integrating WellCare into its ongoing operations.

The unaudited pro forma financial information reflects the historical results of Centene and WellCare adjusted as if the acquisition had occurred on January 1, 2019, primarily for the following:

Interest expense associated with debt incurred to finance the transaction.
Elimination of historical WellCare intangible asset amortization expense and addition of amortization expense based on the fair value of identifiable intangible assets of approximately $6,632 million.

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Issuance of 171 million shares of Centene common stock in connection with the per share common stock consideration.
Elimination of acquisition related costs.
Adjustments to income tax expense related to pro forma adjustments and increased income tax expense related to IRS Regulation 162(m)(6).

The pro forma results do not reflect any anticipated synergies, efficiencies, or other cost savings of the acquisition. Accordingly, the unaudited pro forma financial information is not indicative of the results if the acquisition had been completed on January 1, 2019 and is not a projection of future results. The unaudited pro forma financial information does not reflect the previously discussed divestitures as the impact would be impracticable to quantify.

Magellan Acquisition

In January 2021, the Company announced that it entered into a definitive merger agreement under which it will acquire Magellan Health for $95.00 per share in cash for a total enterprise value of approximately $2,200 million.

The transaction is subject to clearance under the Hart-Scott Rodino Act, receipt of required state regulatory approvals, the approval of the definitive merger agreement by Magellan Health's stockholders and other customary closing conditions. The transaction is not contingent upon financing. The Company intends to fund the acquisition primarily through debt financing. The transaction is expected to close in the second half of 2021.

4. 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):


	December 31, 2020								December 31, 2019
	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	$	907	$	4	$	—	$	911	$	211	$	1	$	—	$	212
Corporate securities	6,560		262		(8)		6,814		3,629		108		(4)		3,733
Restricted certificates of deposit	105		—		—		105		482		—		—		482
Restricted cash equivalents	157		—		—		157		8		—		—		8
Short-term time deposits	53		—		—		53		—		—		—		—
Municipal securities	2,970		129		(2)		3,097		2,320		69		(1)		2,388
Asset-backed securities	1,154		13		(3)		1,164		741		5		(2)		744
Residential mortgage-backed securities	1,068		27		—		1,095		464		8		(1)		471
Commercial mortgage- backed securities	748		30		(5)		773		380		9		(1)		388
Equity securities (1)	318		—		—		318		—		—		—		—
Private equity investments	838		—		—		838		664		—		—		664
Life insurance contracts	168		—		—		168		148		—		—		148
Total	$	15,046	$	465	$	(18)	$	15,493	$	9,047	$	200	$	(9)	$	9,238

(1) Investments in equity securities primarily consists of exchange traded funds in fixed income securities.

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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 December 31, 2020, 97% of the Company's investments in rated securities carry an investment grade rating by nationally recognized statistical rating organizations. At December 31, 2020, 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 $86 million and $62 million at December 31, 2020 and 2019, respectively, and is included in other current assets on the Consolidated Balance Sheet.

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 December 31, 2020.

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):


	December 31, 2020								December 31, 2019
	Less Than 12 Months				12 Months or More				Less Than 12 Months				12 Months or More
	Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value

Corporate securities	$	(7)	$	953	$	(1)	$	24	$	(2)	$	192	$	(2)	$	48
Municipal securities	(2)		238		—		—		(1)		185		—		11
Asset-backed securities	(2)		302		(1)		105		(1)		153		(1)		151
Residential mortgage- backed securities	—		59		—		2		—		44		(1)		81
Commercial mortgage- backed securities	(5)		147		—		13		(1)		118		—		21

Total	$	(16)	$	1,699	$	(2)	$	144	$	(5)	$	692	$	(4)	$	312

As of December 31, 2020, the gross unrealized losses were generated from 967 positions out of a total of 6,327 positions. The change in fair value of available-for-sale debt 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 an impairment for these securities.

In addition, the Company 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 the decline in fair value 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.

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The contractual maturities of short-term and long-term debt securities and restricted deposits are as follows ($ in millions):


	December 31, 2020								December 31, 2019
	Investments				Restricted Deposits				Investments				Restricted Deposits
	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value
One year or less	$	1,407	$	1,414	$	817	$	818	$	750	$	752	$	550	$	550
One year through five years	4,748		4,937		221		223		3,034		3,106		106		108
Five years through ten years	3,460		3,639		18		19		2,162		2,257		—		—
Greater than ten years	81		87		—		—		48		50		—		—
Asset-backed securities	2,970		3,032		—		—		1,585		1,603		—		—
Total	$	12,666	$	13,109	$	1,056	$	1,060	$	7,579	$	7,768	$	656	$	658

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.

5. 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 I						Inputs are unadjusted, quoted prices for identical assets or liabilities in active markets at the measurement date.

Level II						Inputs 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 III						Unobservable inputs that reflect management's best estimate of what market participants would use in pricing the asset or liability at the measurement date.

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The following table summarizes fair value measurements by level at December 31, 2020, for assets and liabilities measured at fair value on a recurring basis ($ in millions):


	Level I		Level II		Level III		Total
Assets
Cash and cash equivalents	$	10,800	$	—	$	—	$	10,800
Investments:
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	165	$	—	$	—	$	165
Corporate securities	—		6,789		—		6,789
Municipal securities	—		3,070		—		3,070
Short-term time deposits	—		53		—		53
Asset-backed securities	—		1,164		—		1,164
Residential mortgage-backed securities	—		1,095		—		1,095
Commercial mortgage-backed securities	—		773		—		773
Equity securities	316		2		—		318
Total investments	$	481	$	12,946	$	—	$	13,427
Restricted deposits:
Cash and cash equivalents	$	157	$	—	$	—	$	157
Certificates of deposit	—		105		—		105
Corporate securities	—		25		—		25
Municipal securities	—		27		—		27
U.S. Treasury securities and obligations of U.S. government corporations and agencies	746		—		—		746
Total restricted deposits	$	903	$	157	$	—	$	1,060






Total assets at fair value	$	12,184	$	13,103	$	—	$	25,287

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The following table summarizes fair value measurements by level at December 31, 2019, for assets and liabilities measured at fair value on a recurring basis ($ in millions):


	Level I		Level II		Level III		Total
Assets
Cash and cash equivalents	$	12,123	$	—	$	—	$	12,123
Investments:
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	73	$	—	$	—	$	73
Corporate securities	—		3,713		—		3,713
Municipal securities	—		2,379		—		2,379
Asset-backed securities	—		744		—		744
Residential mortgage-backed securities	—		471		—		471
Commercial mortgage-backed securities	—		388		—		388
Total investments	$	73	$	7,695	$	—	$	7,768
Restricted deposits:
Cash and cash equivalents	$	8	$	—	$	—	$	8
Certificates of deposit	—		482		—		482
Corporate securities	—		20		—		20
Municipal securities	—		9		—		9
U.S. Treasury securities and obligations of U.S. government corporations and agencies	139		—		—		139
Total restricted deposits	$	147	$	511	$	—	$	658
Other long-term assets:
Interest rate swap agreements	$	—	$	10	$	—	$	10
Total assets at fair value	$	12,343	$	8,216	$	—	$	20,559

Liabilities
Other long-term liabilities:
Interest rate swap agreements	$	—	$	11	$	—	$	11
Total liabilities at fair value	$	—	$	11	$	—	$	11

The Company utilizes matrix pricing services to estimate fair value for securities which are not actively traded on the measurement date. The Company designates these securities as Level II fair value measurements. In addition, the aggregate carrying amount of the Company's private equity investments and life insurance contracts, which approximates fair value, was $1,006 million and $812 million as of December 31, 2020, and December 31, 2019, respectively.

6. Property, Software and Equipment

Property, software and equipment consist of the following as of December 31 ($ in millions):


	2020		2019
Computer software	$	1,465	$	1,018
Building	891		778
Furniture and office equipment	600		457
Leasehold improvements	532		390
Computer hardware	525		378
Land	238		202
Property, software and equipment, at cost	4,251		3,223
Less: accumulated depreciation	(1,477)		(1,102)
Property, software and equipment, net	$	2,774	$	2,121

Depreciation expense for the years ended December 31, 2020, 2019 and 2018 was $487 million, $342 million and $237 million, respectively.

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7. Goodwill and Intangible Assets

The following table summarizes the changes in goodwill by operating segment ($ in millions):


	Managed Care		Specialty Services		Total
Balance as of December 31, 2018	$	5,686	$	1,329	$	7,015
Acquisitions and purchase accounting adjustments	61		47		108
Impairment	(16)		(243)		(259)
Translation impact	(1)		—		(1)
Balance as of December 31, 2019	5,730		1,133		6,863
Acquisitions and purchase accounting adjustments	11,114		756		11,870
Divestitures	(68)		(5)		(73)
Reallocation	197		(197)		—
Impairment	—		(9)		(9)
Translation impact	1		—		1
Balance as of December 31, 2020	$	16,974	$	1,678	$	18,652

The majority of the increase in the managed care segment goodwill in 2020 was related to the acquisition and fair value allocations related to the WellCare acquisition discussed in Note 3. Acquisitions. The majority of the increase in the specialty services segment goodwill related to the acquisitions of Apixio and PANTHERx. As part of the sale of certain products of the Illinois health plan due to the WellCare acquisition, the Company allocated goodwill of $68 million to the Illinois health plan as part of the divestiture. The Company reallocated goodwill of $197 million from the Specialty Services segment to the Managed Care segment related to its pharmacy benefit management business based on the completion of the shift to transparent pricing. During the first quarter of 2020, the Company recorded $9 million of non-cash goodwill impairment related to its third-party care management software business in the Specialty Services segment.

During the third quarter of 2019, the Company recorded $271 million of non-cash goodwill ($259 million) and intangible asset ($12 million) impairment, substantially all associated with the Company's U.S. Medical Management (USMM) physician home health business in the Specialty Services segment. The impairment was identified as part of the Company's quarterly review procedures, which included an analysis of new information related to its shared savings demonstration programs, slower than expected penetration of the physician home health business model into its Medicaid population, and the related impact to revised forecasts. The Company conducted an impairment analysis of the identifiable intangible assets and goodwill of the reporting unit using the income approach, in which fair value is derived based on the present value of discounted expected cash flows.

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Intangible assets at December 31 consist of the following ($ in millions):


					Weighted Average Life in Years
	2020		2019		2020	2019
Purchased contract rights and customer relationships	$	8,102	$	2,026	13.4	12.0
Provider contracts	526		299		13.5	12.4
Trade names	939		361		13.8	15.2
Developed technologies	336		179		4.8	5.2
Other intangibles	—		5		—	2.7
Intangible assets	9,903		2,870		13.1	12.0
Less accumulated amortization:
Purchased contract rights and customer relationships	(1,046)		(497)
Provider contracts	(152)		(115)
Trade names	(140)		(80)
Developed technologies	(177)		(111)
Other intangibles	—		(4)
Total accumulated amortization	(1,515)		(807)
Intangible assets, net	$	8,388	$	2,063

Amortization expense was $719 million, $258 million and $211 million for the years ended December 31, 2020, 2019 and 2018, respectively. Estimated total amortization expense related to the December 31, 2020 intangible assets for each of the five succeeding fiscal years is as follows ($ in millions):


Year	Expense
2021	$	768
2022	762
2023	727
2024	718
2025	710

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8. Medical Claims Liability

The Specialty Services segment has an insignificant amount of medical claims liability and, therefore, disclosures related to medical claims liabilities have been aggregated and are presented on a consolidated basis.

The following table summarizes the change in medical claims liability ($ in millions):


	Year Ended December 31,
	2020		2019		2018
Balance, January 1	$	7,473	$	6,831	$	4,286
Less: Reinsurance recoverable	20		27		18
Balance, January 1, net	7,453		6,804		4,268
Acquisitions and divestitures	3,856		59		1,204
Less: Acquired reinsurance recoverable	—		—		8
Incurred related to:
Current year	86,765		59,539		46,484
Prior years	(501)		(677)		(427)
Total incurred	86,264		58,862		46,057
Paid related to:
Current year	78,838		52,453		41,161
Prior years	6,320		5,819		3,556
Total paid	85,158		58,272		44,717
Balance at December 31, net	12,415		7,453		6,804
Plus: Reinsurance recoverable	23		20		27
Balance, December 31	$	12,438	$	7,473	$	6,831

Reinsurance recoverables related to medical claims are included in premium and trade receivables. Changes in estimates of incurred claims for prior years are primarily attributable to reserving under moderately adverse conditions. Additionally, as a result of minimum HBR and other return of premium programs, the Company recorded approximately $86 million, $49 million, and $25 million of the "Incurred related to: Prior years" as a reduction to premium revenues in 2020, 2019, and 2018, respectively. Further, claims processing initiatives yielded increased claim payment recoveries and coordination of benefits related to prior year dates of service. Changes in medical utilization and cost trends and the effect of population health management initiatives may also contribute to changes in medical claim liability estimates. While the Company has evidence that population health management initiatives are effective on a case by case basis, population health management initiatives primarily focus on events and behaviors prior to the incurrence of the medical event and generation of a claim. Accordingly, any change in behavior, leveling of care, or coordination of treatment occurs prior to claim generation and as a result, the costs prior to the population health management initiative are not known by the Company. Additionally, certain population health management initiatives are focused on member and provider education with the intent of influencing behavior to appropriately align the medical services provided with the member's acuity. In these cases, determining whether the population health management initiative changed the behavior cannot be determined. Because of the complexity of its business, the number of states in which it operates, and the volume of claims that it processes, the Company is unable to practically quantify the impact of these initiatives on its changes in estimates of IBNR.

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Information about incurred and paid claims development as of December 31, 2020 is included in the table below and is inclusive of claims incurred and paid related to the WellCare and Fidelis Care businesses prior and subsequent to the acquisition date. The claims development information for all periods preceding the most recent reporting period is considered required supplementary information. Incurred and paid claims development as of December 31, 2020 is as follows ($ in millions):


Cumulative Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
For the Years Ended December 31,
Claim Year	2018 (unaudited)		2019 (unaudited)		2020

2018	$	71,013	$	70,023	$	69,999
2019			84,027		83,329
2020					88,206
	Total incurred claims				$	241,534

Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
For the Years Ended December 31,
Claim Year	2018 (unaudited)		2019 (unaudited)		2020

2018	$	61,851	$	69,523	$	69,807
2019			73,889		82,690
2020					76,722
	Total payment of incurred claims				$	229,219
	All outstanding liabilities prior to 2018, net of reinsurance				100
	Medical claims liability, net of reinsurance				$	12,415

Incurred claims and allocated claim adjustment expenses, net of reinsurance, total IBNR plus expected development on reported claims and cumulative claims data as of December 31, 2020 are included in the following table and are inclusive of the acquired WellCare and Fidelis Care businesses. For claims frequency information summarized below, a claim is defined as the financial settlement of a single medical event in which remuneration was paid to the servicing provider. Total IBNR plus expected development on reported claims represents estimates for claims incurred but not reported, development on reported claims, and estimates for the costs necessary to process unpaid claims at the end of each period. The Company estimates its liability using actuarial methods that are commonly used by health insurance actuaries and meet Actuarial Standards of Practice. These actuarial methods consider factors such as historical data for payment patterns, cost trends, product mix, seasonality, utilization of healthcare services and other relevant factors. Information is summarized as follows (in millions):


	December 31, 2020
	Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance		Total IBNR Plus Expected Development on Reported Claims		Cumulative Paid Claims


2018	$	69,999	$	3	469.7
2019	83,329		81		515.7
2020	88,206		8,364		542.9

9. Affordable Care Act

The Affordable Care Act established risk spreading premium stabilization programs as well as a minimum annual MLR and cost sharing reductions.

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The Company's net receivables (payables) for each of the programs are as follows ($ in millions):


	December 31, 2020		December 31, 2019
Risk adjustment receivable	$	340	$	245
Risk adjustment payable	(1,224)		(1,239)
Risk corridor receivable	—		4
Minimum medical loss ratio	(238)		(367)
Cost sharing reduction receivable	101		73
Cost sharing reduction payable	(1)		(1)

In April 2020, the U.S. Supreme Court ruled that the federal government was required to pay health insurers for payments due under the risk corridor program, originally established under the Affordable Care Act (ACA). In the third quarter of 2020, the Company recorded a pre-tax net benefit related to the ACA risk corridor receivable settlement of $398 million (net of minimum medical loss ratio payback and related expenses). The Company collected the risk corridor receivable in 2020.

In July 2020, CMS announced the final risk adjustment transfers for the 2019 benefit year. As a result of the announcement, the Company reduced its risk adjustment net payables by $94 million from December 31, 2019. After consideration of minimum MLR, estimated Risk Adjustment Data Validation (RADV) audit results, and other related impacts, the net pre-tax benefit recognized of $63 million was recorded in the second quarter of 2020.

10. Debt

Debt consists of the following ($ in millions):


	December 31, 2020		December 31, 2019
$1,000 million 4.75% Senior Notes, due May 15, 2022	$	—	$	1,004
$1,000 million 6.125% Senior Notes, due February 15, 2024	—		1,000
$2,200 million 4.75% Senior Notes, due January 15, 2025	2,230		2,228
$1,800 million 5.375% Senior Notes, due June 1, 2026	1,800		1,800
$750 million 5.375% Senior Notes, due August 15, 2026	794		—
$2,500 million 4.25% Senior Notes, due December 15, 2027	2,482		2,479
$3,500 million 4.625% Senior Notes, due December 15, 2029	3,500		3,500
$2,000 million 3.375% Senior Notes, due February 15, 2030	2,000		—
$2,200 million 3.00% Senior Notes due October 15, 2030	2,200		—
Fair value of interest rate swap agreements	—		(1)
Total senior notes	15,006		12,010
Term loan credit facility	1,450		1,450
Revolving credit agreement	97		93
Mortgage notes payable	50		54
Construction loan payable	180		140
Finance leases and other	153		122
Debt issuance costs	(157)		(143)
Total debt	16,779		13,726
Less current portion	(97)		(88)
Long-term debt	$	16,682	$	13,638

Senior Notes

In February 2021, the Company issued $2,200 million 2.50% Senior Notes due 2031 (the 2031 Notes). In conjunction with the 2031 Notes offering, the Company completed a tender offer (the Tender Offer) to purchase for cash, subject to certain conditions, any and all of the outstanding aggregate principal amount of the $2,200 million 4.75% Senior Notes due 2025 (the 2025 Notes). The Company used the net proceeds from the 2031 Notes, together with available cash on hand, to fund the purchase price for the 2025 Notes accepted for purchase in the Tender Offer (approximately 36% of the aggregate principal

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amount outstanding) and intends to use the remaining proceeds to redeem any of the 2025 Notes that remain outstanding following the Tender Offer, including all premiums, accrued interest and costs and expenses related to the redemption.

In October 2020, the Company issued $2,200 million 3.0% Senior Notes due October 2030 (the $2,200 million 2030 Notes). The Company used the net proceeds from the offering, together with cash on hand, to redeem all of the $1,000 million 4.75% Senior Notes due May 15, 2022 (the 2022 Notes) and the $1,200 million 5.25% Senior Notes due 2025, including all premiums, accrued interest and expenses related to the redemptions. The Company recognized a pre-tax loss on extinguishment of $17 million on the redemption of the 2022 Notes and the $1,200 million 5.25% Senior Notes due 2025 in the fourth quarter of 2020, including the call premium and write-off of unamortized debt issuance costs.

In May 2020, the Company completed an exchange offer, whereby it exchanged substantially all of the outstanding $2,000 million 3.375% Senior Notes due February 15, 2030, $1,000 million 4.75% Senior Notes due January 15, 2025, $2,500 million 4.25% Senior Notes due December 15, 2027, and $3,500 million 4.625% Senior Notes due December 15, 2029 for identical securities that have been registered under the Securities Act of 1933.

In February 2020, the Company issued $2,000 million 3.375% Senior Notes due February 15, 2030 (the $2,000 million 2030 Notes). The Company used the net proceeds from the $2,000 million 2030 Notes to redeem and all of its outstanding $1,000 million 6.125% Senior Notes, due February 15, 2024 (the 2024 Notes). The Company recognized a pre-tax loss on extinguishment of $44 million, including the call premium, the write-off of unamortized debt issuance costs and the loss on the termination of the $1,000 million interest rate swap associated with the 2024 Notes. The Company intended to use remaining proceeds to redeem the 2022 Notes. However, as a result of the spread of COVID-19 and the resulting disruption and volatility in the global capital markets, the Company deferred the redemption of the 2022 Notes. The 2022 Notes were redeemed in the fourth quarter of 2020 in connection with an additional offering of senior notes as further described above, and the Company decided to increase liquidity with the remaining proceeds of the $2,000 million 2030 Notes.

In connection with the WellCare Acquisition, in January 2020, the Company completed an exchange offer for up to $1,200 million of 5.25% Senior Notes due April 1, 2025 and $750 million of 5.375% Senior Notes due August 15, 2026 (collectively, the WellCare Notes) issued by WellCare and issued $1,146 million aggregate principal amount of 5.25% Senior Notes due April 1, 2025 and $747 million aggregate principal amount of 5.375% Senior Notes due August 15, 2026. Additionally, the Company's wholly owned subsidiary, WellCare Health Plans, Inc., assumed the remaining unexchanged WellCare Notes. The WellCare Notes were recorded at the acquisition date fair value of $2,055 million. The Company redeemed the $1,200 million of 5.25% Senior Notes due April 1, 2025 in October 2020.

In December 2019, the Company issued approximately $1,000 million 4.75% Senior Notes due 2025 (the Additional 2025 Notes), $2,500 million 4.25% Senior Notes due 2027 (the 2027 Notes), and $3,500 million 4.625% Senior Notes due 2029 (the 2029 Notes). The Company used the net proceeds of the 2027 Notes and the 2029 Notes and a portion of the net proceeds of the Additional 2025 Notes to fund the cash consideration of the WellCare acquisition, which closed on January 23, 2020.

In October 2019, the Company redeemed the outstanding principal balance on the $1,400 million 5.625% Senior Notes due February 15, 2021, plus applicable premium for early redemption and accrued and unpaid interest through the redemption date. The Company recognized a pre-tax loss on extinguishment of $30 million on the redemption of the $1,400 million 5.625% Senior Notes in the fourth quarter of 2019, including the call premium, the write-off of unamortized debt issuance costs and a loss on the termination of the $600 million interest rate swap agreement associated with the notes.

The indentures governing the senior notes listed in the table above contain restrictive covenants of Centene Corporation. At December 31, 2020, the Company was in compliance with all covenants.

Interest Rate Swaps

In February 2020, the Company terminated the interest rate swap agreements associated with the 2022 Notes and $2,200 million 4.75% Senior Notes, due January 15, 2025, (the 2025 Notes). The interest rate swaps associated with the 2024 Notes were also terminated in connection with the redemption of those notes as discussed above. In total, the Company terminated three interest rate swap contracts with a notional amount of $2,100 million. The swaps effectively converted $2,100 million of fixed rate notes to floating rates. As a result of the interest rate swap terminations, the Company received $9 million in cash.

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Revolving Credit Facility and Term Loan Credit Facility

The Company has (i) unsecured $2,000 million multi-currency revolving credit facility (the Revolving Credit Facility), which includes a $300 million sub-limit for letters of credit and a $200 million sub-limit for swingline loans and (ii) a $1,450 million unsecured delayed-draw term loan facility (the Term Loan Facility, and, together with the Revolving Credit Facility, the Company Credit Facility). Borrowings under the Revolving Credit Facility bear interest, at the Company's option, at LIBOR, EURIBOR, CDOR, BBR or base rates plus, in each case, an applicable margin based on total debt to EBITDA ratio. Borrowings under the Term Loan Facility bear interest, at the Company's option, at LIBOR or base rates plus, in each case, an applicable margin based on the total debt to EBITDA ratio. The Company has an uncommitted option to increase its Company Credit Facility by an additional $500 million plus certain additional amounts based on its total debt to EBITDA ratio.

The Company Credit Facility contains financial covenants including maintenance of a minimum fixed charge coverage ratio and a restriction on the Company's maximum total debt to EBITDA ratio not to exceed 3.5 to 1.0, except under certain circumstances and subject to certain elections made by the Company, the maximum total debt to EBITDA ratio may be increased for certain periods to 4.0 to 1.0. It also contains certain non-financial covenants including: limitations on incurrence of additional indebtedness; restrictions on incurrence of liens; restrictions on dividends and other restricted payments; restrictions on investments, mergers, consolidations and asset sales; and limitations on transactions with affiliates. As of December 31, 2020, the Company was in compliance with all financial and non-financial covenants under the Company Credit Facility.

As of December 31, 2020, the Company had $97 million of borrowings outstanding under the Revolving Credit Facility, with a weighted average interest rate of 1.25%. In October 2019, the Company borrowed $1,450 million under the Term Loan Facility. The proceeds of the Term Loan Facility were used to fund the redemption of certain senior notes discussed below and pay fees and expenses in connection therewith, with any remaining proceeds to be used for general corporate purposes.

The Revolving Credit Facility will mature on May 7, 2024. The Term Loan Facility will mature on September 11, 2022.

Mortgage Notes Payable

The Company has a non-recourse mortgage note of $50 million at December 31, 2020 collateralized by its corporate headquarters building. The mortgage note was paid January 1, 2021 and bore a 5.14% interest rate. The collateralized property had a net book value of $130 million at December 31, 2020.

Construction Loan

The Company has a $200 million non-recourse construction loan to fund the expansion of the Company's corporate headquarters. In February 2021, the Company extended the term of the construction loan for one year. The loan bears interest based on the one month LIBOR plus 2.70% and matures in April 2022. The agreement contains financial and non-financial covenants aligning with the Company Credit Facility. The Company has guaranteed completion of the construction project associated with the loan. As of December 31, 2020, the Company had $180 million in borrowings outstanding under the loan.

Letters of Credit & Surety Bonds

The Company had outstanding letters of credit of $129 million as of December 31, 2020, which were not part of the Revolving Credit Facility. The letters of credit bore interest at 0.6% as of December 31, 2020. The Company had outstanding surety bonds of $1,114 million as of December 31, 2020.

Aggregate maturities for the Company's debt are as follows ($ in millions):


2021	$	97
2022	1,674
2023	34
2024	113
2025	2,212
Thereafter	12,750
Total	$	16,880

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The fair value of outstanding debt was approximately $17,717 million and $14,160 million at December 31, 2020 and 2019, respectively.

11. Leases

The Company records right of use (ROU) assets and lease liabilities for non-cancelable operating leases primarily for real estate and equipment. Leases with an initial term of 12 months or less are not recorded on the balance sheet. Expense related to leases is recorded on a straight-line basis over the lease term, including rent holidays. The Company recognized operating lease expense of $341 million and $203 million during the years ended December 31, 2020 and 2019, respectively.

The following table sets forth the ROU assets and lease liabilities ($ in millions):


	December 31, 2020		December 31, 2019
Assets

ROU assets (recorded within other long-term assets)	$	1,311	$	661

Liabilities
Short-term (recorded within accounts payable and accrued expenses)	$	204	$	161
Long-term (recorded within other long-term liabilities)	1,334		622
Total lease liabilities	$	1,538	$	783

Cash paid for amounts included in the measurement of lease liabilities, recorded as operating cash flows in the Consolidated Statements of Cash Flows, was $276 million and $227 million during the years ended December 31, 2020 and 2019, respectively. New operating leases commenced resulting in the recognition of ROU assets and lease liabilities of $349 million and $162 million during the years ended December 31, 2020 and 2019, respectively. As of December 31, 2020, the Company had additional operating leases that have not yet commenced of $19 million. These operating leases will commence in 2021 with lease terms of five to seven years. In connection with the WellCare acquisition, the Company acquired $297 million of ROU assets and $298 million of lease liabilities.

The weighted average remaining lease term of the Company's operating leases was 9.3 years and 6.6 as of December 31, 2020 and 2019, respectively. The lease liabilities reflect a weighted average discount rate of 3.1% and 4.2% as of December 31, 2020 and 2019, respectively. Lease payments over the next five years and thereafter are as follows ($ in millions):


	December 31, 2020
2021	$	293
2022	238
2023	209
2024	186
2025	150
Thereafter	778
Total lease payments	1,854
Less: imputed interest	(316)
Total lease liabilities	$	1,538

12. Stockholders' Equity

The Company has 10 million authorized shares of preferred stock at $.001 par value. At December 31, 2020, there were no preferred shares outstanding.

The Company's Board of Directors has authorized a stock repurchase program of the Company's common stock from time to time on the open market or through privately negotiated transactions. The initial program, which was extended in 2009, authorized the repurchase of up to 16.0 million shares. In October 2019, the Company's Board of Directors approved a $500 million increase to the program based on the closing stock price on the date of the WellCare Acquisition. Based on the stock price of $66.76, an additional 7.5 million shares were approved. As of December 31, 2020, 5.5 million remaining shares are available under the program for repurchase. In February 2021, the Company's Board of Directors approved an increase in the Company's existing share repurchase program for its common stock. With the increase, the Company is authorized to

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repurchase up to $1,000 million of shares of the Company's common stock, inclusive of the previously approved stock repurchase program. No duration has been placed on the repurchase program. The Company reserves the right to discontinue the repurchase program at any time. During the first quarter of 2020, the Company used proceeds from divestitures to repurchase 8.7 million shares of Centene common stock for $500 million through the Company’s stock repurchase program. During the year ended December 31, 2019, the Company did not repurchase any shares through this publicly announced program.

As a component of the employee stock compensation plan, employees can use shares of stock which have vested to satisfy statutory tax withholding obligations. As part of this plan, the Company repurchased 1.6 million shares at an aggregate cost of $102 million in 2020 and 1 million shares at an aggregate cost of $75 million in 2019. These shares are included in the Company's treasury stock. In addition, in 2020, 407 thousand shares were withheld at an aggregate cost of $24 million to meet applicable tax withholding requirements related to the vesting of shares assumed in connection with the WellCare acquisition. Although these withheld shares are not issued or considered common stock repurchases under a stock repurchase program, they are treated as common stock repurchases as they reduce the number of shares that would have been issued upon vesting.

In January 2020, the Company issued 171 million shares of Centene common stock with a fair value of $11,431 million and paid $6,079 million in cash in exchange for all the outstanding shares of WellCare common stock. In addition, the Company recorded $95 million related to the fair value of replacement equity awards associated with pre-combination service.

13. Statutory Capital Requirements and Dividend Restrictions

Various state laws require Centene's regulated subsidiaries to maintain minimum capital levels specified by each state and restrict the amount of dividends that may be paid without prior regulatory approval. At December 31, 2020 and 2019, Centene's subsidiaries had aggregate statutory capital and surplus of $14,163 million and $8,725 million, respectively, compared with the required minimum aggregate statutory capital and surplus of $5,945 million and $3,407 million, respectively. As of December 31, 2020, the amount of capital and surplus or net worth that was unavailable for the payment of dividends or return of capital to the Company was $5,945 million in the aggregate.

14. Income Taxes

The consolidated income tax expense consists of the following for the years ended December 31 ($ in millions):


	2020		2019		2018
Current provision
Federal	$	959	$	381	$	498
State and local	152		41		107
International	4		—		—
Total current provision	1,115		422		605
Deferred provision	(136)		51		(131)
Total income tax expense	$	979	$	473	$	474

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The reconciliation of the tax provision at the U.S. federal statutory rate to income tax expense for the years ended December 31 is as follows ($ in millions):


	2020		2019		2018
Earnings before income tax expense	$	2,773	$	1,782	$	1,368
Loss (earnings) attributable to flow through noncontrolling interest	9		11		4
Earnings less noncontrolling interest before income tax expense	2,782		1,793		1,372

Tax provision at the U.S. federal statutory rate	584		377		288
State income taxes, net of federal income tax benefit	106		49		52
Nondeductible compensation	54		42		33

ACA Health Insurer Fee	316		—		149
Audit settlement	(71)		—		—
Valuation Allowance	(11)		—		(28)
Nondeductible goodwill	16		30		—
Other, net	(15)		(25)		(20)
Income tax expense	$	979	$	473	$	474

The tax effects of temporary differences which give rise to deferred tax assets and liabilities are presented below for the years ended December 31 ($ in millions):


	2020		2019
Deferred tax assets:
Medical claims liability	$	107	$	66
Nondeductible liabilities	145		97
Net operating loss and tax credit carryforwards	124		83
Compensation accruals	205		113

Premium and trade receivables	161		78
Operating lease liability	386		186

Other	69		46
Deferred tax assets	1,197		669
Valuation allowance	(73)		(66)
Net deferred tax assets	$	1,124	$	603

Deferred tax liabilities:
Goodwill and intangible assets	$	1,805	$	346
Prepaid assets	33		26
Fixed assets	351		187


Right of use asset	337		171
Unrealized gain/loss	105		45
Other	27		17
Deferred tax liabilities	2,658		792
Net deferred tax assets (liabilities)	$	(1,534)	$	(189)

Valuation allowances are provided when it is considered more likely than not that deferred tax assets will not be realized. The valuation allowances primarily relate to future tax benefits on certain federal, state and foreign net operating loss and tax credit carryforwards. The $7 million increase in valuation allowance relates to tax losses in multiple jurisdictions, offset by releases of certain valuation allowances.

Federal net operating loss and credit carryforwards of $46 million expire beginning in 2021 through 2040; state net operating loss and tax credit carryforwards of $58 million expire beginning in 2021 through 2040. Substantially all of the non-U.S. tax loss carryforwards of $20 million have indefinite carryforward periods.

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The Company maintains a reserve for uncertain tax positions that may be challenged by a tax authority. A rollforward of the beginning and ending amount of uncertain tax positions, exclusive of related interest and penalties, is as follows:


	Year Ended December 31,
	2020		2019
Gross unrecognized tax benefits, beginning of period	$	305	$	277
Gross increases:
Current year tax positions	31		39
Acquired reserves	118		—
Prior year tax positions	7		14
Gross decreases:
Settlements	(96)		(16)
Prior year tax positions	(11)		(8)
Statute of limitation lapses	—		(1)
Gross unrecognized tax benefits, end of period	$	354	$	305

Uncertain tax positions increased by $49 million primarily due to the acquisition of WellCare, offset by the release of a 2014 position acquired in the Health Net transaction due to audit settlement. As of December 31, 2020, $310 million of unrecognized tax benefits would impact the Company's effective tax rate in future periods, if recognized. The Company believes it is reasonably possible that its liability for unrecognized tax benefits will decrease in the next twelve months by $13 million as a result of the expiration of statutes of limitations and projected audit settlements in certain jurisdictions.

The table above excludes interest and penalties, net of related tax benefits, which are treated as income tax expense (benefit) under the Company's accounting policy. The Company recognized net interest expense and penalties related to uncertain positions of $2 million benefit and $2 million expense for the years ended December 31, 2020 and 2019, respectively. The Company had $42 million and $16 million of accrued interest and penalties for uncertain tax positions as of December 31, 2020 and 2019, respectively including a $27 million increase for positions acquired in the WellCare transaction.

The Company files tax returns for federal as well as numerous state and international tax jurisdictions. As of December 31, 2020, WellCare is under federal examination for its 2019 federal return as part of the Compliance Assurance Process program. Additionally, Centene’s tax returns are under federal examination for tax years 2014 through 2017.

15. Stock Incentive Plans

The Company's stock incentive plans allow for the granting of restricted stock or restricted stock unit awards and options to purchase common stock. Both incentive stock options and nonqualified stock options can be awarded under the plans. However, an immaterial amount of options were granted, exercised, or outstanding in 2020. The plans have 16 million shares available for future awards, however, 10 million shares relate to legacy WellCare shares and based on the terms of the WellCare acquisition, these shares are only available for awards to legacy WellCare employees and new Centene employees. Compensation expense for stock options and restricted stock unit awards is recognized on a straight-line basis over the vesting period, generally three to five years for stock options and one to three years for restricted stock or restricted stock unit awards. Vesting is accelerated by one year for individuals who qualify under the Company's retirement eligible provisions. Certain restricted stock unit awards contain performance-based as well as service-based provisions. Certain awards provide for accelerated vesting if there is a change in control as defined in the plans. The total compensation cost that has been charged against income for the stock incentive plans was $281 million, $177 million and $145 million for the years ended December 31, 2020, 2019 and 2018, respectively. The total income tax benefit recognized in the Statements of Operations for stock-based compensation arrangements was $34 million, $22 million and $34 million for the years ended December 31, 2020, 2019 and 2018, respectively.

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A summary of the Company's non-vested restricted stock and restricted stock unit shares as of December 31, 2020, and changes during the year ended December 31, 2020, is presented below (shares in thousands):


	Shares	Weighted Average Grant Date Fair Value
Non-vested balance as of December 31, 2019	6,987	$	56.19
Granted	3,633	53.30
Converted (1)	3,762	66.76
Vested	(6,098)	52.34
Forfeited	(599)	60.16
Non-vested balance as of December 31, 2020	7,685	$	62.74
(1) WellCare awards converted in connection with the acquisition.

The total fair value of restricted stock and restricted stock units vested during the years ended December 31, 2020, 2019 and 2018, was $364 million, $202 million and $209 million, respectively.

As of December 31, 2020, there was $246 million of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the plans; that cost is expected to be recognized over a weighted-average period of 2.0 years.

The Company maintains an employee stock purchase plan and issued 487 thousand shares, 416 thousand shares, and 256 thousand shares in 2020, 2019 and 2018, respectively.

16. Retirement Plan

Centene has a defined contribution plan which covers substantially all employees who are at least 21 years of age. Under the plan, eligible employees may contribute a percentage of their base salary, subject to certain limitations. Centene may elect to match a portion of the employee's contribution. Company expense related to matching contributions to the plan was $91 million, $64 million and $53 million during the years ended December 31, 2020, 2019 and 2018, respectively.

17. Commitments

In connection with obtaining regulatory approval of the Fidelis Care acquisition, the Company entered into certain undertakings with the New York State Department of Health in 2018. These undertakings contain various commitments by the Company effective upon completion of the Fidelis Care acquisition. One of the undertakings includes a $340 million contribution by the Company to the State of New York to be paid over a five-year period for initiatives consistent with the Company's mission of providing high quality healthcare to vulnerable populations within New York State. As a result of the closing of the Fidelis Care acquisition, the present value of the $340 million contribution to the State of New York, approximately $328 million, was expensed during 2018. As of December 31, 2020, the Company has paid $204 million.

The Company also committed to certain undertakings with the California Department of Insurance and the California Department of Managed Health Care in connection with obtaining regulatory approval of the Health Net acquisition in 2016 The Health Net commitments related to the undertakings are as follows:

invest an additional $30 million through the California Organized Investment Network over the five years following completion of the acquisition, and the Company fulfilled this undertaking in 2020;
build a service center in an economically distressed community in California, investing $200 million over 10 years and employing at least 300 people, of which the Company has incurred $80 million through 2020;
contribute $65 million to improve enrollee health outcomes ($10 million over five years), support locally-based consumer assistance programs ($5 million over five years) and strengthen the healthcare delivery system ($50 million over five years), of which the Company has contributed $34 million through 2020, and;
invest $75 million of its investment portfolio in vehicles supporting California's healthcare infrastructure, of which the Company has invested $48 million through 2020.

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18. Contingencies

Overview

The Company is routinely subjected to legal and regulatory proceedings in the normal course of business. These matters can include, without limitation:

periodic compliance and other reviews and investigations by various federal and state regulatory agencies with respect to requirements applicable to the Company's business, including, without limitation, those related to payment of out-of-network claims, submissions to CMS for risk adjustment payments or the False Claims Act, submissions to state agencies related to payments or state false claims acts, pre-authorization penalties, timely review of grievances and appeals, timely and accurate payment of claims, and the Health Insurance Portability and Accountability Act of 1996 and other federal and state fraud, waste and abuse laws;
litigation arising out of general business activities, such as tax matters, disputes related to healthcare benefits coverage or reimbursement, putative securities class actions and medical malpractice, privacy, real estate, intellectual property and employment-related claims;
disputes regarding reinsurance arrangements, claims arising out of the acquisition or divestiture of various assets, class actions and claims relating to the performance of contractual and non-contractual obligations to providers, members, employer groups and others, including, but not limited to, the alleged failure to properly pay claims and challenges to the manner in which the Company processes claims and claims alleging that the Company has engaged in unfair business practices.

Among other things, these matters may result in awards of damages, fines or penalties, which could be substantial, and/or could require changes to the Company's business. The Company intends to vigorously defend itself against legal and regulatory proceedings to which it is currently a party; however, these proceedings are subject to many uncertainties. In some of the cases pending against the Company, substantial non-economic or punitive damages are being sought.

The Company records reserves and accrues costs for certain legal proceedings and regulatory matters to the extent that it determines an unfavorable outcome is probable and the amount of the loss can be reasonably estimated. While such reserves and accrued costs reflect the Company's best estimate of the probable loss for such matters, the recorded amounts may differ materially from the actual amount of any such losses. In some cases, no estimate of the possible loss or range of loss in excess of amounts accrued, if any, can be made because of the inherently unpredictable nature of legal and regulatory proceedings, which may be exacerbated by various factors, including but not limited to, they may involve indeterminate claims for monetary damages or may involve fines, penalties or punitive damages; present novel legal theories or legal uncertainties; involve disputed facts; represent a shift in regulatory policy; involve a large number of parties, claimants or regulatory bodies; are in the early stages of the proceedings; involve a number of separate proceedings and/or a wide range of potential outcomes; or result in a change of business practices.

As of the date of this report, amounts accrued for legal proceedings and regulatory matters were not material. However, it is possible that in a particular quarter or annual period the Company's financial condition, results of operations, cash flow and/or liquidity could be materially adversely affected by an ultimate unfavorable resolution of or development in legal and/or regulatory proceedings, including as described below. Except for the proceeding discussed below, the Company believes that the ultimate outcome of any of the regulatory and legal proceedings that are currently pending against it should not have a material adverse effect on financial condition, results of operations, cash flow or liquidity.

California

On October 20, 2015, the Company's California subsidiary, Health Net of California, Inc. (Health Net California), was named as a defendant in a California taxpayer action filed in Los Angeles County Superior Court, captioned as Michael D. Myers v. State Board of Equalization, Dave Jones, Insurance Commissioner of the State of California, Betty T. Yee, Controller of the State of California, et al., Los Angeles Superior Court Case No. BS158655. This action is brought under a California statute that permits an individual taxpayer to sue a governmental agency when the taxpayer believes the agency has failed to enforce governing law. Plaintiff contends that Health Net California, a California licensed Health Care Service Plan (HCSP), is an "insurer" for purposes of taxation despite acknowledging it is not an "insurer" under regulatory law. Under California law, "insurers" must pay a gross premiums tax (GPT), calculated as 2.35% on gross premiums. As a licensed HCSP, Health Net California has paid the California Corporate Franchise Tax (CFT), the tax generally paid by California businesses. Plaintiff

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contends that Health Net California must pay the GPT rather than the CFT. Plaintiff seeks a writ of mandate directing the California taxing agencies to collect the GPT, and seeks an order requiring Health Net California to pay GPT, interest and penalties for a period dating to eight years prior to the October 2015 filing of the complaint. This lawsuit is being coordinated with similar lawsuits filed against other entities (collectively, "Related Actions"). In March 2018, the Court overruled the Company's demurrer seeking to dismiss the complaint and denied the Company's motion to strike allegations seeking retroactive relief. In August 2018, the trial court stayed all the Related Actions pending determination of a writ of mandate by the California Court of Appeals in two of the Related Actions. In March 2019, the California Court of Appeals denied the writ of mandate. The defendants in those Related Actions sought review by the California Supreme Court, which declined to review the matter. Upon the return of the matter to the Los Angeles County Superior Court, motions for summary judgment were scheduled. Health Net California’s motion for summary judgment was heard by the Court in March 2020. In March 2020, the Court granted Health Net California’s motion for summary judgment. In September 2020, the plaintiff appealed the Court’s decision. The Company intends to continue its vigorous defense against these claims; however, this matter is subject to many uncertainties, and an adverse outcome in this matter could potentially have a materially adverse impact on the Company's financial position, results of operations and cash flows.

19. Earnings Per Share

The following table sets forth the calculation of basic and diluted net earnings per common share for the years ended December 31 ($ in millions, except per share data in dollars and shares in thousands):


	2020		2019		2018



Earnings attributable to Centene Corporation	$	1,808	$	1,321	$	900

Shares used in computing per share amounts:
Weighted average number of common shares outstanding	570,722		413,487		390,248
Common stock equivalents (as determined by applying the treasury stock method)	8,413		6,922		8,258
Weighted average number of common shares and potential dilutive common shares outstanding	579,135		420,409		398,506

Net earnings per common share attributable to Centene Corporation:



Basic earnings per common share	$	3.17	$	3.19	$	2.31




Diluted earnings per common share	$	3.12	$	3.14	$	2.26

The calculation of diluted earnings per common share for 2020, 2019 and 2018 excludes the impact of 398 thousand shares, 1,048 thousand shares and 58 thousand shares, respectively, related to anti-dilutive stock options, restricted stock and restricted stock units.

20. Segment Information

Centene operates in two segments: Managed Care and Specialty Services. The Managed Care segment consists of Centene's health plans including all of the functions needed to operate them. Subsequent to the closing of the WellCare Acquisition, the Managed Care segment also includes WellCare’s legacy Medicaid Health Plans, Medicare Health Plans and Medicare Prescription Drug Plan (PDP) segments. The Specialty Services segment consists of Centene's specialty companies offering auxiliary healthcare services and products. Factors used in determining the reportable business segments include the nature of operating activities, the existence of separate senior management teams, and the type of information presented to the Company's chief operating decision-maker to evaluate all results of operations. The Company does not report total assets by segment since this is not a metric used to allocate resources or evaluate segment performance.

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Segment information for the year ended December 31, 2020, follows ($ in millions):


	Managed Care		Specialty Services		Eliminations		Consolidated Total
Total revenues from external customers	$	106,862	$	4,253	$	—	$	111,115
Total revenues from internal customers	434		11,902		(12,336)		—
Total revenues	$	107,296	$	16,155	$	(12,336)	$	111,115
Earnings from operations	$	3,031	$	51	$	—	$	3,082

Segment information for the year ended December 31, 2019, follows ($ in millions):


	Managed Care		Specialty Services		Eliminations		Consolidated Total
Total revenues from external customers	$	71,209	$	3,430	$	—	$	74,639
Total revenues from internal customers	170		10,351		(10,521)		—
Total revenues	$	71,379	$	13,781	$	(10,521)	$	74,639
Earnings from operations	$	1,806	$	(25)	$	—	$	1,781

Segment information for the year ended December 31, 2018, follows ($ in millions):


	Managed Care		Specialty Services		Eliminations		Consolidated Total
Total revenues from external customers	$	56,999	$	3,117	$	—	$	60,116
Total revenues from internal customers	100		9,389		(9,489)		—
Total revenues	$	57,099	$	12,506	$	(9,489)	$	60,116
Earnings from operations	$	1,310	$	148	$	—	$	1,458

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21. Condensed Financial Information of Registrant

Centene Corporation (Parent Company Only)

Condensed Balance Sheets

(In millions, except shares in thousands and per share data in dollars)


	December 31,
	2020		2019
ASSETS
Current assets:
Cash and cash equivalents	$	668	$	6,257

Short-term investments	1		3
Other current assets	24		50
Total current assets	693		6,310
Long-term investments	129		130
Investment in subsidiaries	41,565		19,561
Other long-term assets	101		337
Total assets	$	42,488	$	26,338
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND STOCKHOLDERS' EQUITY
Current liabilities	$	133	$	198
Long-term debt	16,393		13,411
Other long-term liabilities	—		37
Total liabilities	16,526		13,646
Redeemable noncontrolling interest	77		33
Stockholders' equity:
Preferred stock, $0.001 par value; authorized 10,000 shares; no shares issued or outstanding at December 31, 2020 and December 31, 2019	—		—
Common stock, $0.001 par value; authorized 800,000 shares; 598,249 issued and 581,479 outstanding at December 31, 2020, and 421,508 issued and 415,048 outstanding at December 31, 2019	1		—
Additional paid-in capital	19,459		7,647
Accumulated other comprehensive earnings	337		134
Retained earnings	6,792		4,984
Treasury stock, at cost (16,770 and 6,460 shares, respectively)	(816)		(214)
Total Centene stockholders' equity	25,773		12,551
Noncontrolling interest	112		108
Total stockholders' equity	25,885		12,659
Total liabilities, redeemable noncontrolling interests and stockholders' equity	$	42,488	$	26,338

See notes to condensed financial information of registrant.

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Centene Corporation (Parent Company Only)

Condensed Statements of Operations

(In millions, except per share data in dollars)


	Year Ended December 31,
	2020		2019		2018
Expenses:
Selling, general and administrative expenses	$	13	$	11	$	28
Contingent consideration	(1)		(24)		(4)
Other income (expense):
Investment and other income	5		11		3
Gain on divestiture	104		—		—
Debt extinguishment costs	(61)		(30)		—
Interest expense	(723)		(394)		(334)
Loss before income taxes	(687)		(400)		(355)
Income tax benefit	(331)		(172)		(64)
Net (loss) before equity in subsidiaries	(356)		(228)		(291)
Equity in earnings from subsidiaries	2,150		1,537		1,185
Net earnings	1,794		1,309		894
Loss attributable to noncontrolling interests	14		12		6
Net earnings attributable to Centene	$	1,808	$	1,321	$	900

Net earnings per share:
Basic earnings per common share	$	3.17	$	3.19	$	2.31
Diluted earnings per common share	$	3.12	$	3.14	$	2.26

See notes to condensed financial information of registrant.

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Centene Corporation (Parent Company Only)

Condensed Statements of Cash Flows

(In millions)


	Year Ended December 31,
	2020		2019		2018
Cash flows from operating activities:
Dividends from subsidiaries, return on investment	$	739	$	429	$	464
Other operating activities, net	(287)		(231)		(317)
Net cash provided by operating activities	452		198		147
Cash flows from investing activities:
Capital contributions to subsidiaries	(761)		(731)		(681)
Purchases of investments	(111)		(124)		(23)
Sales and maturities of investments	11		—		7
Dividends from subsidiaries, return of investment	87		291		11
Investments in acquisitions	(7,188)		(302)		(4,226)
Proceeds from divestitures	533		—		—
Intercompany activities	1,185		140		215
Other investing activities, net	(12)		—		—
Net cash used in investing activities	(6,256)		(726)		(4,697)
Cash flows from financing activities:
Proceeds from the issuance of common stock	—		—		2,778
Proceeds from long-term debt	4,870		24,647		6,014
Payments of long-term debt	(3,875)		(17,778)		(4,080)
Common stock repurchases	(626)		(75)		(71)

Payments for debt extinguishment	(81)		(23)		—
Debt issuance costs	(120)		(25)		(25)

Other financing activities, net	47		33		(66)
Net cash provided by financing activities	215		6,779		4,550

Net increase (decrease) in cash and cash equivalents	(5,589)		6,251		—
Cash and cash equivalents, beginning of period	6,257		6		6
Cash and cash equivalents, end of period	$	668	$	6,257	$	6

See notes to condensed financial information of registrant.

Notes to Condensed Financial Information of Registrant

Note A - Basis of Presentation and Significant Accounting Policies

The parent company only financial statements should be read in conjunction with Centene Corporation's audited consolidated financial statements and the notes to consolidated financial statements included in this Form 10-K.

The parent company's investment in subsidiaries is stated at cost plus equity in undistributed earnings of the subsidiaries. The parent company's share of net income of its unconsolidated subsidiaries is included in income using the equity method of accounting. Certain unrestricted subsidiaries receive monthly management fees from the Company's restricted subsidiaries. The management and service fees received by its unrestricted subsidiaries are associated with all of the functions required to manage the restricted subsidiaries including but not limited to salaries and wages for all personnel, rent, utilities, population health management, provider contracting, compliance, member services, claims processing, information technology, cash management, finance and accounting, and other services. The management fees are based either on a percentage of the restricted subsidiaries' revenue or a cost basis reimbursement.

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Due to the Company's centralized cash management function, cash flows generated by its unrestricted subsidiaries are utilized by the parent company to the extent required, primarily to repay borrowings on the parent company's credit facilities, make acquisitions, fund capital contributions to subsidiaries and fund its operations.

Certain amounts presented in the parent company only financial statements are eliminated in the consolidated financial statements of Centene Corporation.

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