Item 1. Financial Statements.

CENTENE CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

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

			September 30, 2022						December 31, 2021
			(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents			$	14,987					$	13,118
Premium and trade receivables			13,770						12,238
Short-term investments			2,191						1,539
Other current assets			2,327						1,602
Total current assets			33,275						28,497
Long-term investments			14,053						14,043
Restricted deposits			1,205						1,068
Property, software and equipment, net			2,479						3,391
Goodwill			20,040						19,771
Intangible assets, net			7,523						7,824
Other long-term assets			2,597						3,781
Total assets			$	81,172					$	78,375
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND STOCKHOLDERS’ EQUITY
Current liabilities:
Medical claims liability			$	16,465					$	14,243
Accounts payable and accrued expenses			9,995						8,493
Return of premium payable			2,205						2,328
Unearned revenue			2,416						434
Current portion of long-term debt			249						267
Total current liabilities			31,330						25,765
Long-term debt			18,084						18,571
Deferred tax liability			480						1,407
Other long-term liabilities			5,678						5,610
Total liabilities			55,572						51,353
Commitments and contingencies
Redeemable noncontrolling interests			66						82
Stockholders’ equity:
Preferred stock, $0.001 par value; authorized 10,000 shares; no shares issued or outstanding at September 30, 2022 and December 31, 2021			—						—
Common stock, $0.001 par value; authorized 800,000 shares; 606,931 issued and 570,091 outstanding at September 30, 2022, and 602,704 issued and 582,479 outstanding at December 31, 2021			1						1
Additional paid-in capital			19,774						19,672
Accumulated other comprehensive earnings			(1,394)						77
Retained earnings			9,554						8,139
Treasury stock, at cost (36,840 and 20,225 shares, respectively)			(2,557)						(1,094)
Total Centene stockholders’ equity			25,378						26,795
Nonredeemable noncontrolling interest			156						145
Total stockholders’ equity			25,534						26,940
Total liabilities, redeemable noncontrolling interests and stockholders’ equity			$	81,172					$	78,375

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

CENTENE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

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

(Unaudited)

			Three Months Ended September 30,												Nine Months Ended September 30,
			2022						2021						2022						2021
Revenues:
Premium			$	31,848					$	28,876					$	95,247					$	83,436
Service			1,878						1,638						6,679						4,054
Premium and service revenues			33,726						30,514						101,926						87,490
Premium tax			2,139						1,892						7,060						5,924
Total revenues			35,865						32,406						108,986						93,414
Expenses:
Medical costs			28,111						25,430						83,261						73,210
Cost of services			1,571						1,355						5,658						3,510
Selling, general and administrative expenses			2,846						2,537						8,391						6,910
Depreciation expense			150						147						470						414
Amortization of acquired intangible assets			211						198						609						581
Premium tax expense			2,211						1,965						7,258						6,129
Impairment			289						229						1,739						229
Legal settlement			—						—						—						1,250
Total operating expenses			35,389						31,861						107,386						92,233
Earnings from operations			476						545						1,600						1,181
Other income (expense):
Investment and other income			692						424						786						566
Debt extinguishment			10						(79)						26						(125)
Interest expense			(169)						(170)						(491)						(503)
Earnings before income tax			1,009						720						1,921						1,119
Income tax expense			269						139						500						376
Net earnings			740						581						1,421						743
(Earnings) loss attributable to noncontrolling interests			(2)						3						(6)						5
Net earnings attributable to Centene Corporation			$	738					$	584					$	1,415					$	748
Net earnings per common share attributable to Centene Corporation:
Basic earnings per common share			$	1.29					$	1.00					$	2.44					$	1.28
Diluted earnings per common share			$	1.27					$	0.99					$	2.41					$	1.27
Weighted average number of common shares outstanding:
Basic			573,961						583,244						580,277						582,636
Diluted			580,607						590,702						587,084						590,154

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

CENTENE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS (LOSS)

(In millions)

(Unaudited)

			Three Months Ended September 30,												Nine Months Ended September 30,
			2022						2021						2022						2021
Net earnings			$	740					$	581					$	1,421					$	743
Reclassification adjustment, net of tax			3						1						12						(16)
Change in unrealized gain (loss) on investments, net of tax			(383)						(47)						(1,267)						(125)
Foreign currency translation adjustments			(101)						(17)						(216)						(20)
Other comprehensive earnings (loss)			(481)						(63)						(1,471)						(161)
Comprehensive earnings (loss)			259						518						(50)						582
Comprehensive (earnings) loss attributable to noncontrolling interests			(2)						3						(6)						5
Comprehensive earnings (loss) attributable to Centene Corporation			$	257					$	521					$	(56)					$	587

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

CENTENE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

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

(Unaudited)

Three and Nine Months Ended September 30, 2022

			Centene Stockholders’ Equity
			Common Stock																														Treasury Stock
			$0.001 Par Value Shares						Amt						Additional Paid-in Capital						Accumulated Other Comprehensive Earnings (Loss)						Retained Earnings						$0.001 Par Value Shares						Amt						Non-redeemable Non- controlling Interest						Total
Balance, December 31, 2021			602,704						$	1					$	19,672					$	77					$	8,139					20,225						$	(1,094)					$	145					$	26,940
Comprehensive Earnings:
Net earnings (loss)			—						—						—						—						849						—						—						(1)						848
Other comprehensive loss, net of $(171) tax			—						—						—						(562)						—						—						—						—						(562)
Common stock issued for employee benefit plans			3,221						—						28						—						—						—						—						—						28
Fair value of unvested equity awards in connection with acquisition			—						—						60						—						—						—						—						—						60
Common stock repurchases			—						—						—						—						—						846						(71)						—						(71)
Stock compensation expense			—						—						70						—						—						—						—						—						70
Balance, March 31, 2022			605,925						$	1					$	19,830					$	(485)					$	8,988					21,071						$	(1,165)					$	144					$	27,313
Comprehensive Earnings:
Net earnings (loss)			—						—						—						—						(172)						—						—						(3)						(175)
Other comprehensive loss, net of $(106) tax			—						—						—						(428)						—						—						—						—						(428)
Common stock issued for employee benefit plans			519						—						10						—						—						—						—						—						10
Common stock repurchases			—						—						—						—						—						4,249						(349)						—						(349)
Stock compensation expense			—						—						59						—						—						—						—						—						59
Balance, June 30, 2022			606,444						$	1					$	19,899					$	(913)					$	8,816					25,320						$	(1,514)					$	141					$	26,430
Comprehensive Earnings:
Net earnings (loss)			—						—						—						—						738						—						—						(2)						736
Other comprehensive loss, net of $(120) tax			—						—						—						(481)						—						—						—						—						(481)
Common stock issued for employee benefit plans			487						—						24						—						—						—						—						—						24
Common stock repurchases			—						—						(200)						—						—						11,520						(1,043)						—						(1,243)
Stock compensation expense			—						—						51						—						—						—						—						—						51
Reclassification to non-redeemable noncontrolling interest			—						—						—						—						—						—						—						17						17
Balance, September 30, 2022			606,931						$	1					$	19,774					$	(1,394)					$	9,554					36,840						$	(2,557)					$	156					$	25,534

Three and Nine Months Ended September 30, 2021

			Centene Stockholders’ Equity
			Common Stock																														Treasury Stock
			$0.001 Par Value Shares						Amt						Additional Paid-in Capital						Accumulated Other Comprehensive Earnings (Loss)						Retained Earnings						$0.001 Par Value Shares						Amt						Non-redeemable Non- controlling Interest						Total
Balance, December 31, 2020			598,249						$	1					$	19,459					$	337					$	6,792					16,770						$	(816)					$	112					$	25,885
Comprehensive Earnings:
Net earnings (loss)			—						—						—						—						699						—						—						(5)						694
Other comprehensive loss, net of $(49) tax			—						—						—						(161)						—						—						—						—						(161)
Common stock issued for employee benefit plans			1,675						—						9						—						—						—						—						—						9
Common stock repurchases			(316)						—						(19)						—						—						156						(10)						—						(29)
Stock compensation expense			—						—						51						—						—						—						—						—						51
Contribution from noncontrolling interest			—						—						—						—						—						—						—						9						9
Balance, March 31, 2021			599,608						$	1					$	19,500					$	176					$	7,491					16,926						$	(826)					$	116					$	26,458
Comprehensive Earnings:
Net earnings (loss)			—						—						—						—						(535)						—						—						(3)						(538)
Other comprehensive earnings, net of $19 tax			—						—						—						63						—						—						—						—						63
Common stock issued for employee benefit plans			390						—						9						—						—						—						—						—						9
Common stock repurchases			(10)						—						—						—						—						60						(4)						—						(4)
Stock compensation expense			—						—						36						—						—						—						—						—						36
Contribution from noncontrolling interest			—						—						—						—						—						—						—						21						21
Balance, June 30, 2021			599,988						$	1					$	19,545					$	239					$	6,956					16,986						$	(830)					$	134					$	26,045
Comprehensive Earnings:
Net earnings (loss)			—						—						—						—						584						—						—						(8)						576
Other comprehensive loss, net of $(15) tax			—						—						—						(63)						—						—						—						—						(63)
Common stock issued for employee benefit plans			720						—						9						—						—						—						—						—						9
Common stock repurchases			—						—						—						—						—						222						(15)						—						(15)
Stock compensation expense			—						—						40						—						—						—						—						—						40
Contribution from noncontrolling interest			—						—						—						—						—						—						—						5						5
Divestiture of noncontrolling interests			—						—												—						—						—						—						(10)						(10)
Acquisition resulting in noncontrolling interests			—						—												—						—						—						—						3						3
Balance, September 30, 2021			600,708						$	1					$	19,594					$	176					$	7,540					17,208						$	(845)					$	124					$	26,590

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

CENTENE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions, unaudited)

			Nine Months Ended September 30,
			2022						2021
Cash flows from operating activities:
Net earnings			$	1,421					$	743
Adjustments to reconcile net earnings to net cash provided by operating activities
Depreciation and amortization			1,178						1,098
Stock compensation expense			180						127
Impairment			1,739						229
(Gain) loss on debt extinguishment			(26)						125
(Gain) on acquisition			(2)						(309)
Deferred income taxes			(682)						(143)
(Gain) loss on divestitures			(503)						62
Other adjustments, net			164						(6)
Changes in assets and liabilities
Premium and trade receivables			(1,274)						(1,723)
Other assets			152						(124)
Medical claims liabilities			1,976						1,661
Unearned revenue			1,964						(169)
Accounts payable and accrued expenses			686						993
Other long-term liabilities			863						964
Other operating activities, net			1						2
Net cash provided by operating activities			7,837						3,530
Cash flows from investing activities:
Capital expenditures			(771)						(662)
Purchases of investments			(5,118)						(5,253)
Sales and maturities of investments			2,842						4,069
Acquisitions, net of cash acquired			(1,457)						(534)
Divestiture proceeds, net of divested cash			1,362						(62)
Net cash used in investing activities			(3,142)						(2,442)
Cash flows from financing activities:
Proceeds from long-term debt			357						9,247
Payments and repurchases of long-term debt			(1,202)						(7,411)
Common stock repurchases			(1,663)						(49)
Payments for debt extinguishment			(14)						(157)
Debt issuance costs			—						(72)
Other financing activities, net			57						39
Net cash (used in) provided by financing activities			(2,465)						1,597
Effect of exchange rate changes on cash, cash equivalents, and restricted cash			(37)						(8)
Net increase in cash, cash equivalents, and restricted cash and cash equivalents			2,193						2,677
Cash and cash equivalents reclassified from (to) held for sale			(192)						—
Cash, cash equivalents, and restricted cash and cash equivalents, beginning of period			13,214						10,957
Cash, cash equivalents, and restricted cash and cash equivalents, end of period			$	15,215					$	13,634
Supplemental disclosures of cash flow information:
Interest paid			$	462					$	479
Income taxes paid			$	448					$	477
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:
			September 30,
			2022						2021
Cash and cash equivalents			$	14,987					$	13,423
Restricted cash and cash equivalents, included in restricted deposits			228						211
Total cash, cash equivalents, and restricted cash and cash equivalents			$	15,215					$	13,634

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

CENTENE CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Organization and Operations

Basis of Presentation

The accompanying interim financial statements have been prepared under the presumption that users of the interim financial information have either read or have access to the audited financial statements included in the Form 10-K for the fiscal year ended December 31, 2021. The unaudited interim financial statements herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, footnote disclosures that would substantially duplicate the disclosures contained in the December 31, 2021 audited financial statements have been omitted from these interim financial statements, where appropriate. In the opinion of management, these financial statements reflect all adjustments, consisting only of normal recurring adjustments, which are necessary for a fair presentation of the results of the interim periods presented.

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

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

Accounting Guidance Not Yet Adopted

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

2. Acquisitions and Divestitures

Magellan Acquisition

On January 4, 2022, the Company acquired all of the issued and outstanding shares of Magellan. Total consideration for the acquisition was $2,491 million, consisting of $2,431 million in cash and $60 million related to the fair value of replacement equity awards associated with pre-combination service. The purchase price has been adjusted to reflect the net effective settlement of preexisting relationships between the Company and Magellan of $70 million. The Company recognized $8 million and $100 million of acquisition related expenses related to Magellan for the three and nine months ended September 30, 2022, respectively.

The Magellan Acquisition was accounted for as a business combination using the acquisition method of accounting that requires assets acquired and liabilities assumed to be recognized at fair value as of the acquisition date. The significant areas of the assessment of fair value that remain preliminary include identifiable intangible assets and goodwill, premium and related receivables, medical claims liability, and income taxes, and accordingly, the Company has recorded provisional amounts which are subject to adjustment. Measurement period adjustments will be recorded in the period in which they are determined, as if they had been completed at the acquisition date.

The Company's preliminary allocation of the fair value of assets acquired and liabilities assumed as of the acquisition date of January 4, 2022 is as follows ($ in millions):

Assets acquired and liabilities assumed
Cash and cash equivalents						$	998
Premium and related receivables						791
Short-term investments						144
Other current assets						194
Long-term investments						43
Restricted deposits						7
Property, software and equipment						90
Intangible assets (a)						751
Other long-term assets						50
Total assets acquired						3,068
Medical claims liability						247
Accounts payable and accrued expenses						495
Return of premium payable						53
Unearned revenue						8
Current portion of long-term debt						5
Long-term debt (b)						542
Deferred tax liabilities (c)						123
Other long-term liabilities						69
Total liabilities assumed						1,542
Mezzanine equity						32
Total identifiable net assets						1,494
Goodwill (d)						997
Total assets acquired and liabilities assumed						$	2,491

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

(a) The identifiable intangible assets acquired are to be measured at fair value as of the completion of the acquisition. The fair value of intangible assets will be determined primarily using variations of the income approach, which is based on the present value of the future after-tax cash flows attributable to each identified intangible asset. Other valuation methods, including the market approach and cost approach, will be considered in estimating the fair value. The identifiable intangible assets include purchased contract rights, trade names, provider contracts, and developed technologies. The Company has estimated the fair value of intangible assets to be $751 million with a weighted average life of 13 years. The Company adjusted its estimate of the identifiable intangible assets during the third quarter, resulting in additional amortization of $15 million.

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						$	470					13
Provider contracts						100						15
Trade names						80						17
Developed technologies						101						5
Total intangible assets acquired						$	751					13

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

(c) The preliminary deferred tax liabilities are presented net of $116 million of deferred tax assets.

(d) Goodwill is estimated at $997 million and primarily relates to synergies expected from the acquisition and the assembled workforce of Magellan. The assignment of goodwill to the Company’s respective segments has not been completed at this time, but the majority of goodwill is expected to be allocated to the Specialty segment. The majority of the goodwill is not deductible for income tax purposes.

PANTHERx Rare Divestiture

On July 14, 2022, the Company completed the previously announced sale of PANTHERx Rare (PANTHERx) for $1,373 million. The Company recognized a gain of $490 million, or $382 million after-tax, which is included in investment and other income on the Consolidated Statements of Operations.

Spanish and Central European Divestiture

On July 25, 2022, as part of the Company’s previously announced review of strategic alternatives for its international portfolio, the Company announced it has signed a definitive agreement to sell its ownership stakes in its Spanish and Central European businesses, including Ribera Salud, Torrejón Salud, and Pro Diagnostics Group.

As of September 30, 2022, the assets and liabilities of the Spanish and Central European businesses were considered held for sale resulting in $666 million of assets held for sale in Other Current Assets and $582 million of liabilities held for sale in Accounts Payable and Accrued Expenses on the Consolidated Balance Sheet. The majority of the held for sale assets were previously reported as cash and cash equivalents, premium and trade receivables, and property, software and equipment. During the third quarter, the Company recorded an impairment charge primarily related to intangible assets and goodwill associated with the pending divestiture of $165 million, or $138 million after-tax.

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

Short-term and long-term investments and restricted deposits by investment type consist of the following ($ in millions):

			September 30, 2022																								December 31, 2021
			Amortized Cost						Gross Unrealized Gains						Gross Unrealized Losses						Fair Value						Amortized Cost						Gross Unrealized Gains						Gross Unrealized Losses						Fair Value
Debt securities:
U.S. Treasury securities and obligations of U.S. government corporations and agencies			$	666					$	—					$	(18)					$	648					$	642					$	—					$	(2)					$	640
Corporate securities			9,648						1						(897)						8,752						8,145						130						(75)						8,200
Restricted certificates of deposit			4						—						—						4						4						—						—						4
Restricted cash equivalents			228						—						—						228						96						—						—						96
Short-term time deposits			275						—						—						275						109						—						—						109
Municipal securities			3,980						—						(320)						3,660						3,398						85						(15)						3,468
Asset-backed securities			1,335						—						(68)						1,267						1,308						5						(5)						1,308
Residential mortgage-backed securities			1,154						—						(135)						1,019						850						10						(7)						853
Commercial mortgage-backed securities			970						—						(96)						874						870						13						(10)						873
Equity securities (1)			6						—						—						6						326						—						—						326
Private equity investments			551						—						—						551						587						—						—						587
Life insurance contracts			165						—						—						165						186						—						—						186
Total			$	18,982					$	1					$	(1,534)					$	17,449					$	16,521					$	243					$	(114)					$	16,650
(1) Investments in equity securities as of December 31, 2021 primarily consisted of exchange traded funds in fixed income securities.

The Company's investments are debt securities classified as available-for-sale with the exception of equity securities, certain private equity investments and life insurance contracts. The Company's investment policies are designed to provide liquidity, preserve capital and maximize total return on invested assets with the focus on high credit quality securities. The Company limits the size of investment in any single issuer other than U.S. treasury securities and obligations of U.S. government corporations and agencies. As of September 30, 2022, 98% of the Company's investments in rated securities carry an investment grade rating by nationally recognized statistical rating organizations. At September 30, 2022, 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 $119 million and $96 million at September 30, 2022 and December 31, 2021, respectively, and is included in other current assets on the Consolidated Balance Sheets.

The Company's residential mortgage-backed securities are primarily issued by the Federal National Mortgage Association, Government National Mortgage Association, or Federal Home Loan Mortgage Corporation, which carry implicit or explicit guarantees of the U.S. government. The Company's commercial mortgage-backed securities are primarily senior tranches with a weighted average rating of AAA and a weighted average duration of 4 years at September 30, 2022.

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):

			September 30, 2022																								December 31, 2021
			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
U.S. Treasury securities and obligations of U.S. government corporations and agencies			$	(14)					$	556					$	(4)					$	67					$	(2)					$	598					$	—					$	3
Corporate securities			(562)						6,737						(335)						1,975						(66)						4,209						(9)						209
Municipal securities			(228)						2,998						(92)						586						(14)						1,173						(1)						39
Asset-backed securities			(57)						1,094						(11)						166						(5)						770						—						33
Residential mortgage-backed securities			(86)						770						(49)						244						(7)						472						—						15
Commercial mortgage-backed securities			(59)						650						(37)						218						(8)						380						(2)						32
Total			$	(1,006)					$	12,805					$	(528)					$	3,256					$	(102)					$	7,602					$	(12)					$	331

As of September 30, 2022, the gross unrealized losses were generated from 6,688 positions out of a total of 6,847 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.

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

			September 30, 2022																								December 31, 2021
			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			$	2,053					$	2,029					$	521					$	518					$	1,390					$	1,396					$	368					$	368
One year through five years			7,296						6,752						518						482						6,212						6,294						460						457
Five years through ten years			4,077						3,496						241						205						3,647						3,681						244						243
Greater than ten years			95						85						—						—						73						78						—						—
Asset-backed securities			3,459						3,160						—						—						3,028						3,034						—						—
Total			$	16,980					$	15,522					$	1,280					$	1,205					$	14,350					$	14,483					$	1,072					$	1,068

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.

4. 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.

The following table summarizes fair value measurements by level at September 30, 2022, 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			$	14,987					$	—					$	—					$	14,987
Investments:
U.S. Treasury securities and obligations of U.S. government corporations and agencies			$	313					$	—					$	—					$	313
Corporate securities			—						8,721						—						8,721
Municipal securities			—						3,053						—						3,053
Short-term time deposits			—						275						—						275
Asset-backed securities			—						1,267						—						1,267
Residential mortgage-backed securities			—						1,019						—						1,019
Commercial mortgage-backed securities			—						874						—						874
Equity securities			4						2						—						6
Total investments			$	317					$	15,211					$	—					$	15,528
Restricted deposits:
Cash and cash equivalents			$	228					$	—					$	—					$	228
Certificates of deposit			—						4						—						4
Corporate securities			—						31						—						31
Municipal securities			—						607						—						607
U.S. Treasury securities and obligations of U.S. government corporations and agencies			335						—						—						335
Total restricted deposits			$	563					$	642					$	—					$	1,205
Total assets at fair value			$	15,867					$	15,853					$	—					$	31,720

The following table summarizes fair value measurements by level at December 31, 2021, 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			$	13,118					$	—					$	—					$	13,118
Investments:
U.S. Treasury securities and obligations of U.S. government corporations and agencies			$	171					$	—					$	—					$	171
Corporate securities			—						8,170						—						8,170
Municipal securities			—						2,999						—						2,999
Short-term time deposits			—						109						—						109
Asset backed securities			—						1,308						—						1,308
Residential mortgage backed securities			—						853						—						853
Commercial mortgage backed securities			—						873						—						873
Equity securities			324						2						—						326
Total investments			$	495					$	14,314					$	—					$	14,809
Restricted deposits:
Cash and cash equivalents			$	96					$	—					$	—					$	96
Certificates of deposit			—						4						—						4
Corporate securities			—						30						—						30
Municipal securities			—						469						—						469
U.S. Treasury securities and obligations of U.S. government corporations and agencies			469						—						—						469
Total restricted deposits			$	565					$	503					$	—					$	1,068
Other long-term assets:
Interest rate swap agreements			$	—					$	15					$	—					$	15
Total assets at fair value			$	14,178					$	14,832					$	—					$	29,010

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 $716 million and $773 million as of September 30, 2022 and December 31, 2021, respectively.

5. Property, Software and Equipment

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

			September 30, 2022						December 31, 2021
Computer software			$	2,211					$	1,825
Building			641						1,116
Furniture and office equipment			407						753
Leasehold improvements			454						732
Computer hardware			648						617
Land			178						248
Property, software and equipment, at cost			4,539						5,291
Less: accumulated depreciation			(2,060)						(1,900)
Property, software and equipment, net			$	2,479					$	3,391

During the second quarter of 2022, in connection with the adoption of a more modern, flexible work environment, the Company undertook a real estate optimization initiative to evaluate future real estate needs and downsize its real estate footprint for owned and leased properties. As a result of this evaluation, during the second quarter of 2022, the Company substantially changed the use or abandoned various properties and assessed for impairment. The Company engaged a third-party real estate specialist to determine the fair value of its owned properties. The valuation primarily considered comparable properties in each market as well as future cash flows.

As a result of the optimization, the Company has recognized impairment charges related to owned real estate of $57 million and $763 million for the three and nine months ended September 30, 2022, respectively. The Company also recognized impairment on fixed assets related to leased real estate of $14 million and $237 million for the three and nine months ended September 30, 2022, respectively. These impairments are primarily related to the Managed Care segment. The remainder of the $1,574 million charge relates to right-of-use (ROU) asset impairments, which is included within Other Long-term assets on the balance sheet, refer to Note 9. Leases.

6. Medical Claims Liability

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

						Nine Months Ended September 30,
						2022						2021
Balance, January 1						$	14,243					$	12,438
Less: Reinsurance recoverable						23						23
Balance, January 1, net						14,220						12,415
Acquisitions and divestitures						249						—
Incurred related to:
Current year						84,457						74,736
Prior years						(1,196)						(1,526)
Total incurred						83,261						73,210
Paid related to:
Current year						70,305						62,205
Prior years						10,968						9,344
Total paid						81,273						71,549
Balance, September 30, net						16,457						14,076
Plus: Reinsurance recoverable						8						23
Balance, September 30						$	16,465					$	14,099

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. The impact from COVID-19 on healthcare utilization and medical claims submission patterns continues to provide increased estimation uncertainty on the incurred but not reported liability. Additionally, as a result of minimum health benefits ratio (HBR) and other return of premium programs, the Company recorded $121 million and $438 million as a reduction to premium revenue in the nine months ended September 30, 2022 and 2021, respectively.

Incurred but not reported (IBNR) plus expected development on reported claims as of September 30, 2022 was $11,130 million. 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.

7. Affordable Care Act

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

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

			September 30, 2022						December 31, 2021
Risk adjustment receivable			$	1,068					$	522
Risk adjustment payable			(652)						(536)
Minimum medical loss ratio			(69)						(196)
Cost sharing reduction receivable			10						69
Cost sharing reduction payable			(81)						(42)

In June 2022, CMS announced the final risk adjustment transfers for the 2021 benefit year. As a result of the announcement, the Company increased its risk adjustment net receivables by $403 million from December 31, 2021. After consideration of minimum MLR and other related impacts, the net pre-tax benefit recognized was approximately $368 million in the nine months ended September 30, 2022.

8. Debt

Debt consists of the following ($ in millions):

			September 30, 2022						December 31, 2021
$2,500 million 4.25% Senior Notes due December 15, 2027			$	2,403					$	2,484
$2,300 million 2.45% Senior Notes due July 15, 2028			2,304						2,304
$3,500 million 4.625% Senior Notes due December 15, 2029			3,324						3,500
$2,000 million 3.375% Senior Notes due February 15, 2030			2,000						2,000
$2,200 million 3.00% Senior Notes due October 15, 2030			2,200						2,200
$2,200 million 2.50% Senior Notes due March 1, 2031			2,200						2,200
$1,300 million 2.625% Senior Notes due August 1, 2031			1,300						1,300
Total senior notes			15,731						15,988
Term loan facility			2,196						2,195
Revolving credit agreement			120						149
Construction loan payable			181						184
Finance leases and other			258						493
Debt issuance costs			(153)						(171)
Total debt			18,333						18,838
Less current portion			(249)						(267)
Long-term debt			$	18,084					$	18,571

Of the Company's total debt, approximately 15% is variable rate debt tied to London Interbank Offered Rate (LIBOR). The debt agreements that may be impacted by the discontinuation of LIBOR include provisions that the Company believes are sufficient to transition from the existing LIBOR rates to the prevailing successor market rates as necessary.

Senior Notes

In connection with the Magellan Acquisition in January 2022, the Company redeemed Magellan’s existing outstanding 4.4% Senior Notes due 2024 and paid off the existing Credit Agreement using Magellan’s cash on hand. The Company recognized an immaterial net pre-tax gain on extinguishment including related fees and expenses and the write-off of the unamortized premium.

During the third quarter of 2022, the Company utilized a portion of the proceeds from the PANTHERx divestiture to repurchase $83 million of its par value Senior Notes due 2027 and $176 million of its par value Senior Notes due 2029 through the Company’s debt repurchase program. The Company recognized a $10 million gain on the redemptions of the notes.

Foreign Currency Swap

In order to manage the foreign exchange risk associated with an intercompany note receivable related to the Circle Health acquisition, the Company entered into a foreign currency swap agreement for a notional amount of $705 million, to purchase £509 million. The swap agreement was formally designated and qualified as a fair value hedge. All gains and losses due to changes in the fair value of the foreign currency swap completely offset changes in the remeasurement of the intercompany note receivable within investment and other income in the Consolidated Statement of Operations, resulting in no net impact to the Consolidated Statement of Operations.

On March 31, 2022, the foreign currency swap settled in connection with its expiration, and the Company received cash proceeds of $35 million. The Company does not hold or issue any derivative instruments for trading or speculative purposes.

Circle Health Debt Refinancing

In May 2022, the Company refinanced certain debt agreements for its Circle Health subsidiary with a new £250 million credit facility maturing in May 2025. The Company recognized a $13 million pre-tax gain on the extinguishment of the existing debt. As of September 30, 2022, £180 million was drawn on the facility, which is included within Finance leases and other in the table above. The new facility is guaranteed by the Company and has similar borrowing rates and covenants to the Company's Revolving Credit Agreement.

Construction Loan

In October 2017, the Company executed a $200 million non-recourse construction loan to fund the expansion of the Company's corporate headquarters. Until final completion of the construction project, which occurred in July 2021, the loan bore interest based on one month LIBOR plus 2.70%, which reduced to LIBOR plus 2.00% at the time construction was completed. The agreement contains financial and non-financial covenants similar to those contained in the Company Credit Facility. The Company guaranteed completion of the construction project associated with the loan. As of September 30, 2022, the Company had $181 million in borrowings outstanding under the loan, which is included in the current portion of long-term debt.

In April 2022, the Company extended the term of the loan for an additional one year. The extension reduced interest on the loan to the Secured Overnight Financing Rate (SOFR) plus 1.85% and matures in April 2023.

Debt Repurchase Program

In June 2022, the Company's Board of Directors authorized a new $1,000 million debt repurchase program in preparation for future debt reductions as part of the Company’s strategic value creation initiatives. During the quarter ended September 30, 2022, the Company repurchased $259 million of its par value senior notes, as described above, for $247 million.

As of September 30, 2022, there was $753 million available under the program. In October 2022, the Company repurchased an additional $58 million of its par value senior notes for $53 million.

9. Leases

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

			September 30, 2022						December 31, 2021
Assets
ROU assets (recorded within other long-term assets)			$	2,456					$	3,566
Liabilities
Short-term (recorded within accounts payable and accrued expenses)			$	193					$	204
Long-term (recorded within other long-term liabilities)			3,038						3,619
Total lease liabilities			$	3,231					$	3,823

As part of the real estate optimization initiative as described in Note 5. Property, Software and Equipment, the Company vacated and abandoned various domestic leased properties. As a result, the Company assessed the ROU assets for impairment. The Company engaged a third-party real estate specialist to determine the recoverability of the leased properties. The valuation primarily considered comparable leased properties in each market and the assessment of potential future rental income that could be generated by the ROU assets.

As a result of the optimization, the Company recognized $53 million and $574 million of ROU asset impairments in the three and nine months ended September 30, 2022, respectively, primarily related to the Managed Care segment. The remainder of the $1,574 million charge was recorded within Property, Software and Equipment, refer to Note 5. Property, Software and Equipment.

As of September 30, 2022, the weighted average remaining lease term for the Company was 20.1 years. The lease liabilities as of September 30, 2022 reflect a weighted average discount rate of 5.6%.

10. Stockholders' Equity

In June 2022, the Company's Board of Directors authorized an additional $3,000 million to the Company’s existing stock repurchase program for its common stock, for a total $4,000 million, in preparation for closing of the Magellan Rx and PANTHERx divestitures as well as planning for the future.

During the third quarter of 2022, the Company entered into an accelerated share repurchase (ASR) agreement with Bank of America to purchase $1,000 million of the Company's common stock in aggregate under the Company’s stock repurchase program. In July 2022, 8.6 million shares were delivered to the Company, representing 80% of the notional amount under the ASR. In October 2022, an additional 3.0 million shares were delivered upon settlement of the ASR based upon the volume-weighted average price (VWAP) over the term of the agreement, less a discount. In total, 11.6 million shares were purchased through the $1,000 million ASR.

The Company also repurchased an additional 2.9 million shares for $240 million during the third quarter. The remaining common stock repurchases relate to the purchase of shares to satisfy tax withholding requirements in connection with employee equity awards.

During the nine months ended September 30, 2022, the Company has repurchased a total of 15.7 million shares of Centene common stock for $1,384 million, exclusive of the $200 million unsettled portion under the ASR. As of September 30, 2022, the Company had a remaining amount of $2,216 million available under the Company’s stock repurchase program.

In October 2022, the Company repurchased an additional 828 thousand shares for $66 million.

11. Earnings Per Share

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

			Three Months Ended September 30,												Nine Months Ended September 30,
			2022						2021						2022						2021
Earnings attributable to Centene Corporation			$	738					$	584					$	1,415					$	748
Shares used in computing per share amounts:
Weighted average number of common shares outstanding			573,961						583,244						580,277						582,636
Common stock equivalents (as determined by applying the treasury stock method)			6,646						7,458						6,807						7,518
Weighted average number of common shares and potential dilutive common shares outstanding			580,607						590,702						587,084						590,154
Net earnings per common share attributable to Centene Corporation:
Basic earnings per common share			$	1.29					$	1.00					$	2.44					$	1.28
Diluted earnings per common share			$	1.27					$	0.99					$	2.41					$	1.27

The calculation of diluted earnings per common share for the three months ended September 30, 2022 and 2021 excludes 152 thousand shares and 111 thousand shares, respectively, related to anti-dilutive stock options, restricted stock, and restricted stock units.

The calculation of diluted earnings per common share for the nine months ended September 30, 2022 and 2021 excludes the impact of 193 thousand shares and 57 thousand shares, respectively, related to anti-dilutive stock options, restricted stock, and restricted stock units.

12. 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. 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.

Segment information for the three months ended September 30, 2022, is as follows ($ in millions):

			Managed Care						Specialty Services						Eliminations						Consolidated Total
Total revenues from external customers			$	33,722					$	2,143					$	—					$	35,865
Total revenues from internal customers			2						3,264						(3,266)						—
Total revenues			$	33,724					$	5,407					$	(3,266)					$	35,865
Earnings from operations			$	527					$	(51)					$	—					$	476

Segment information for the three months ended September 30, 2021, is as follows ($ in millions):

			Managed Care						Specialty Services						Eliminations						Consolidated Total
Total revenues from external customers			$	30,888					$	1,518					$	—					$	32,406
Total revenues from internal customers			1						3,209						(3,210)						—
Total revenues			$	30,889					$	4,727					$	(3,210)					$	32,406
Earnings from operations			$	699					$	(154)					$	—					$	545

Segment information for the nine months ended September 30, 2022, follows ($ in millions):

			Managed Care						Specialty Services						Eliminations						Consolidated Total
Total revenues from external customers			$	101,428					$	7,558					$	—					$	108,986
Total revenues from internal customers			6						9,939						(9,945)						—
Total revenues			$	101,434					$	17,497					$	(9,945)					$	108,986
Earnings from operations			$	1,634					$	(34)					$	—					$	1,600

Segment information for the nine months ended September 30, 2021, follows ($ in millions):

			Managed Care						Specialty Services						Eliminations						Consolidated Total
Total revenues from external customers			$	89,078					$	4,336					$	—					$	93,414
Total revenues from internal customers			4						9,217						(9,221)						—
Total revenues			$	89,082					$	13,553					$	(9,221)					$	93,414
Earnings from operations			$	1,240					$	(59)					$	—					$	1,181

13. 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, the calculation of minimum MLR and rebates related thereto, 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; and

• 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, claims related to network adequacy 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, except for the reserve estimate as described below with respect to claims or potential claims involving services provided by Envolve Pharmacy Solutions, Inc. (Envolve), as the Company's pharmacy benefits manager (PBM) subsidiary. 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 proceedings 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 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.

Beginning in April 2021, several lawsuits have been filed against the Company and its subsidiaries, alleging that the defendants failed to prevent Health Net members' personal and health data from being exposed in connection with a data breach involving Accellion's File Transfer Appliance. The Company denies any wrongdoing and is seeking indemnification from Accellion for these claims. In December 2021, the plaintiffs in three of the pending actions filed a motion for preliminary approval of a settlement with the Company and its subsidiaries, which, if approved by the court, should resolve most or all of the pending litigation. In addition, claims related to these lawsuits are anticipated to be covered in part by the Company's insurance carrier. As a result, while these matters are subject to many uncertainties, the Company does not believe that an adverse outcome in these matters is likely to have a materially adverse impact on the Company’s financial position, results of operations and cash flows.

Pharmacy Benefits Management Matters

On March 11, 2021, the State of Ohio filed a civil action against the Company and the Company's subsidiaries, Buckeye Health Plan Community Solutions, Inc. and Envolve, in Franklin County Court of Common Pleas, captioned as Ohio Department of Medicaid, et al. v. Centene Corporation, et al. The complaint alleged breaches of contract with the Ohio Department of Medicaid relating to the provision of PBM services and violations of Ohio law relating to such contracts, including among other things, by (i) seeking payment for services already reimbursed, (ii) not accurately disclosing to the Ohio Department of Medicaid the true cost of the PBM services and (iii) inflating dispensing fees for prescription drugs. The plaintiffs sought an undisclosed sum of money in damages, penalties, and possible termination of the contract with Buckeye Health Plan.

The Company has reached no-fault agreements with the Attorney Generals in 13 states, including Ohio, to resolve claims and/or allegations made by the states related to services provided by Envolve. As a result of the settlement, the Ohio Attorney General’s litigation against the Company was dismissed. Additionally, the Company is in discussions to bring final resolution to similar concerns in other affected states. Consistent with those discussions, the Company recorded a reserve estimate of $1,250 million in the second quarter of 2021 related to this issue, inclusive of the above settlements and rebates that the Company determined in the course of the matter are payable across products. Additional claims, reviews or investigations relating to the Company's PBM business across products may be brought by other states, the federal government or shareholder litigants, and there is no guarantee the Company will have the ability to settle such claims with other states within the reserve estimate the Company has recorded and on other acceptable terms, or at all. This matter is subject to many uncertainties, and an adverse outcome in this matter could have an adverse impact on the Company's financial position, results of operations and cash flows.