10-Q 1 cnc-20220331.htm 10-Q cnc-20220331
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
___________________________________________
FORM 10-Q
____________________________________________
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2022
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                  to
____________________________________________
Commission file number: 001-31826
____________________________________________
CENTENE CORPORATION
(Exact name of registrant as specified in its charter)
Delaware42-1406317
(State or other jurisdiction of(I.R.S. Employer
incorporation or organization)Identification Number)
7700 Forsyth Boulevard 
St. Louis,Missouri63105
(Address of principal executive offices)(Zip Code)

Registrant’s telephone number, including area code: (314) 725-4477 
Securities registered pursuant to Section 12(b) of the Act:
Title of Each ClassTrading Symbol(s)Name of Each Exchange on Which Registered
Common Stock $0.001 Par ValueCNCNew York Stock Exchange
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days Yes No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files) Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated file", "accelerated filer", "smaller reporting company", and "emerging growth company" in Rule 12b-2 of the Exchange Act. 
Large Accelerated FilerAccelerated filer
Non-accelerated filer   Smaller reporting company
Emerging growth company 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes       No  
As of April 15, 2022, the registrant had 584,886,987 shares of common stock outstanding.



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



CAUTIONARY STATEMENT ON FORWARD-LOOKING STATEMENTS

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

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

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

our ability to accurately predict and effectively manage health benefits and other operating expenses and reserves, including fluctuations in medical utilization rates due to the impact of COVID-19;
the risk that the election of new directors, changes in senior management, and inability to retain key personnel may create uncertainty or negatively impact our ability to execute quickly and effectively;
uncertainty as to the expected financial performance of the combined company following the recent completion of the Magellan Acquisition;
the possibility that the expected synergies and value creation from the Magellan Acquisition or the acquisition of WellCare Health Plans, Inc.(the WellCare Acquisition) (or other acquired businesses) will not be realized, or will not be realized within the respective expected time periods;
disruption from the integration of the Magellan Acquisition or from the integration of the WellCare Acquisition, unexpected costs, or similar risks from other acquisitions we may announce or complete from time to time, including potential adverse reactions or changes to business relationships with customers, employees, suppliers or regulators, making it more difficult to maintain business and operational relationships;
a downgrade of the credit rating of our indebtedness;
competition;
membership and revenue declines or unexpected trends;
changes in healthcare practices, new technologies, and advances in medicine;
increased healthcare costs;
changes in economic, political or market conditions;
changes in federal or state laws or regulations, including changes with respect to income tax reform or government healthcare programs as well as changes with respect to the Patient Protection and Affordable Care Act and the Health Care and Education Affordability Reconciliation Act (collectively referred to as the ACA) and any regulations enacted thereunder that may result from changing political conditions, the new administration or judicial actions;
rate cuts or other payment reductions or delays by governmental payors and other risks and uncertainties affecting our government businesses;
our ability to adequately price products;
tax matters;
i

disasters or major epidemics;
changes in expected contract start dates;
provider, state, federal, foreign and other contract changes and timing of regulatory approval of contracts;
the expiration, suspension, or termination of our contracts with federal or state governments (including, but not limited to, Medicaid, Medicare, TRICARE or other customers);
the difficulty of predicting the timing or outcome of legal or regulatory proceedings or matters, including, but not limited to, our ability to resolve claims and/or allegations made by states with regard to past practices, including at Envolve Pharmacy Solutions, Inc. (Envolve), as our pharmacy benefits manager (PBM) subsidiary, within the reserve estimate we recorded in 2021 and on other acceptable terms, or at all, or whether additional claims, reviews or investigations relating to our PBM business will be brought by states, the federal government or shareholder litigants, or government investigations;
timing and extent of benefits from strategic value creation initiatives, including the possibility that these initiatives will not be successful, or will not be realized within the expected time periods;
challenges to our contract awards;
cyber-attacks or other privacy or data security incidents;
the exertion of management's time and our resources, and other expenses incurred and business changes required in connection with complying with the undertakings in connection with any regulatory, governmental or third party consents or approvals for acquisitions;
changes in expected closing dates, estimated purchase price and accretion for acquisitions;
restrictions and limitations in connection with our indebtedness;
our ability to maintain or achieve improvement in the Centers for Medicare and Medicaid Services (CMS) Star ratings and maintain or achieve improvement in other quality scores in each case that can impact revenue and future growth;
availability of debt and equity financing, on terms that are favorable to us;
inflation; and
foreign currency fluctuations.

This list of important factors is not intended to be exhaustive. We discuss certain of these matters more fully, as well as certain other factors that may affect our business operations, financial condition and results of operations, in our filings with the Securities and Exchange Commission (SEC), including our annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K. Due to these important factors and risks, we cannot give assurances with respect to our future performance, including without limitation our ability to maintain adequate premium levels or our ability to control our future medical and selling, general and administrative costs.
ii


Non-GAAP Financial Presentation

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

Specifically, the Company believes the presentation of non-GAAP financial information that excludes amortization of acquired intangible assets and acquisition related expenses, as well as other items, allows investors to develop a more meaningful understanding of the Company's performance over time. The tables below provide reconciliations of non-GAAP items ($ in millions, except per share data):
Three Months Ended March 31,
20222021
GAAP net earnings attributable to Centene$849 $699 
Amortization of acquired intangible assets199 195 
Acquisition related expenses97 47 
Other adjustments (1)
102 
Income tax effects of adjustments (2)
(67)(83)
Adjusted net earnings $1,080 $960 
GAAP diluted earnings per share (EPS) attributable to Centene$1.44 $1.19 
Amortization of acquired intangible assets (3)
0.26 0.25 
Acquisition related expenses (4)
0.13 0.06 
Other adjustments (1)
— 0.13 
Adjusted Diluted EPS$1.83 $1.63 
(1) Other adjustments include the following items:

2022:
(a) Legal fees related to the PBM legal settlement reserve established in 2021 of $2 million, or $0.00 per diluted share, net of income tax benefit of $0.00, for the three months ended March 31, 2022.
2021:
(a) Debt extinguishment costs of $46 million, or $0.06 per diluted share, net of an income tax benefit of $0.02, for the three months ended March 31, 2021; and

(b) Severance costs due to a restructuring of $56 million, or $0.07 per diluted share, net of an income tax benefit of $0.02, for the three months ended March 31, 2021.

(2) The income tax effects of adjustments are based on the effective income tax rates applicable to each adjustment.

(3) The amortization of acquired intangible assets per diluted share presented above is net of an income tax benefit of $0.08 and $0.08 for the three months ended March 31, 2022 and 2021, respectively.

(4) Acquisition related expenses per diluted share presented above are net of an income tax benefit of $0.03 and $0.02 for the three months ended March 31, 2022 and 2021, respectively.
iii


Three Months Ended March 31,
20222021
GAAP selling, general and administrative expenses$2,745 $2,234 
Less:
Acquisition related expenses99 46 
Restructuring costs— 56 
Legal fees related to legal settlement— 
Adjusted selling, general and administrative expenses$2,644 $2,132 
Note: Beginning in 2022, we have included a separate line item for depreciation expense on the Consolidated Statements of Operations, which was previously included in selling, general and administrative (SG&A) expenses. Prior period SG&A expenses have been conformed to the current presentation.
iv

PART I
FINANCIAL INFORMATION

Item 1. Financial Statements.
CENTENE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In millions, except shares in thousands and per share data in dollars)
March 31, 2022December 31, 2021
(Unaudited)
ASSETS  
Current assets:
  
Cash and cash equivalents
$11,237 $13,118 
Premium and trade receivables
16,169 12,238 
Short-term investments
1,668 1,539 
Other current assets
2,036 1,602 
Total current assets31,110 28,497 
Long-term investments
14,129 14,043 
Restricted deposits
1,210 1,068 
Property, software and equipment, net
3,583 3,391 
Goodwill
20,903 19,771 
Intangible assets, net
8,138 7,824 
Other long-term assets
3,828 3,781 
Total assets$82,901 $78,375 
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND STOCKHOLDERS’ EQUITY
 
Current liabilities:
  
Medical claims liability
$16,259 $14,243 
Accounts payable and accrued expenses
9,980 8,493 
Return of premium payable
2,628 2,328 
Unearned revenue
526 434 
Current portion of long-term debt
292 267 
Total current liabilities29,685 25,765 
Long-term debt
18,640 18,571 
Deferred tax liability1,292 1,407 
Other long-term liabilities
5,854 5,610 
Total liabilities55,471 51,353 
Commitments and contingencies
Redeemable noncontrolling interests
117 82 
Stockholders’ equity:
  
Preferred stock, $0.001 par value; authorized 10,000 shares; no shares issued or outstanding at March 31, 2022 and December 31, 2021
  
Common stock, $0.001 par value; authorized 800,000 shares; 605,925 issued and 584,854 outstanding at March 31, 2022, and 602,704 issued and 582,479 outstanding at December 31, 2021
1 1 
Additional paid-in capital
19,830 19,672 
Accumulated other comprehensive earnings
(485)77 
Retained earnings
8,988 8,139 
Treasury stock, at cost (21,071 and 20,225 shares, respectively)
(1,165)(1,094)
Total Centene stockholders’ equity27,169 26,795 
Nonredeemable noncontrolling interest144 145 
Total stockholders’ equity
27,313 26,940 
Total liabilities, redeemable noncontrolling interests and stockholders’ equity
$82,901 $78,375 
The accompanying notes to the consolidated financial statements are an integral part of these statements. 
1

CENTENE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except shares in thousands and per share data in dollars)
(Unaudited)
 Three Months Ended March 31,
 20222021
Revenues:
Premium$31,889 $26,933 
Service2,343 1,181 
Premium and service revenues
34,232 28,114 
Premium tax2,953 1,869 
Total revenues
37,185 29,983 
Expenses:
Medical costs
27,838 23,391 
Cost of services
1,988 1,048 
Selling, general and administrative expenses
2,745 2,234 
Depreciation expense156 133 
Amortization of acquired intangible assets
199 195 
Premium tax expense
3,006 1,928 
Total operating expenses
35,932 28,929 
Earnings from operations1,253 1,054 
Other income (expense):
Investment and other income
52 103 
Debt extinguishment3 (46)
Interest expense
(160)(170)
Earnings before income tax expense1,148 941 
Income tax expense296 244 
Net earnings852 697 
(Earnings) loss attributable to noncontrolling interests(3)2 
Net earnings attributable to Centene Corporation$849 $699 

Net earnings per common share attributable to Centene Corporation:
Basic earnings per common share$1.46 $1.20 
Diluted earnings per common share$1.44 $1.19 

Weighted average number of common shares outstanding:
Basic
583,230 581,869 
Diluted
590,658 589,343 

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

CENTENE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
(In millions)
(Unaudited)
 Three Months Ended March 31,
 20222021
Net earnings$852 $697 
Reclassification adjustment, net of tax2 (2)
Change in unrealized gain (loss) on investments, net of tax(544)(154)
Foreign currency translation adjustments(20)(5)
Other comprehensive loss(562)(161)
Comprehensive earnings290 536 
Comprehensive (earnings) loss attributable to noncontrolling interests(3)2 
Comprehensive earnings attributable to Centene Corporation$287 $538 

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

3

CENTENE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In millions, except shares in thousands and per share data in dollars)
(Unaudited)
Three Months Ended March 31, 2022
 Centene Stockholders’ Equity  
 Common Stock   Treasury Stock  
 
$0.001 Par
Value
Shares
AmtAdditional
Paid-in
Capital
Accumulated
Other
Comprehensive Earnings
(Loss)
Retained
Earnings
$0.001 Par
Value
Shares
AmtNon-redeemable
Non-
controlling
Interest
Total
Balance, December 31, 2021602,704 $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 plans3,221 — 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, 2022605,925 $1 $19,830 $(485)$8,988 21,071 $(1,165)$144 $27,313 

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

The accompanying notes to the consolidated financial statements are an integral part of these statements.
4

CENTENE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions, unaudited)
 Three Months Ended March 31,
 20222021
Cash flows from operating activities:
  
Net earnings$852 $697 
Adjustments to reconcile net earnings to net cash provided by operating activities
Depreciation and amortization390 361 
Stock compensation expense70 51 
(Gain) loss on debt extinguishment(3)46 
Deferred income taxes12 156 
Other adjustments, net22 2 
Changes in assets and liabilities  
Premium and trade receivables(3,099)(1,891)
Other assets(299)(287)
Medical claims liabilities1,767 405 
Unearned revenue81 48 
Accounts payable and accrued expenses957 32 
Other long-term liabilities401 423 
Net cash provided by operating activities1,151 43 
Cash flows from investing activities:  
Capital expenditures(242)(187)
Purchases of investments(1,700)(1,653)
Sales and maturities of investments1,047 1,391 
Acquisitions, net of cash acquired(1,504)(158)
Other investing activities, net(2) 
Net cash used in investing activities(2,401)(607)
Cash flows from financing activities:  
Proceeds from long-term debt100 2,317 
Payments of long-term debt(526)(2,295)
Common stock repurchases(71)(29)
Payments for debt extinguishment(27)(54)
Debt issuance costs (27)
Other financing activities, net26 15 
Net cash used in financing activities(498)(73)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash33 (16)
Net decrease in cash, cash equivalents and restricted cash and cash equivalents(1,715)(653)
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
$11,499 $10,304 
Supplemental disclosures of cash flow information:  
Interest paid$139 $130 
Income taxes paid$11 $20 
The following table provides a reconciliation of cash, cash equivalents, and restricted cash and cash equivalents reported within the Consolidated Balance Sheets to the totals above:
March 31,
20222021
Cash and cash equivalents$11,237 $9,627 
Restricted cash and cash equivalents, included in restricted deposits262 677 
Total cash, cash equivalents, and restricted cash and cash equivalents$11,499 $10,304 
The accompanying notes to the consolidated financial statements are an integral part of these statements.
5

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 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

Magellan Acquisition

On January 4, 2022, the Company acquired all of the issued and outstanding shares of Magellan. The Magellan Acquisition enables Centene to provide whole-health, integrated healthcare solutions to deliver better health outcomes at lower costs for complex, high-cost populations. Total consideration for the acquisition was $2,561 million, consisting of $2,501 million in cash and $60 million related to the fair value of replacement equity awards associated with pre-combination service. The Company recognized $97 million of acquisition related expenses, primarily related to Magellan, that were in the Consolidated Statement of Operations for the three months ended March 31, 2022.

The Magellan Acquisition was accounted for as a business combination using the acquisition method of accounting that requires assets acquired and liabilities assumed to be recognized at fair value as of the acquisition date. Due to the timing of the acquisition, the valuation of assets acquired and liabilities assumed has not yet been finalized, and as a result, the preliminary estimates have been recorded and are subject to change. Any necessary adjustments from the preliminary estimates will be finalized within one year from the date of acquisition. Measurement period adjustments will be recorded in the period in which they are determined, as if they had been completed at the acquisition date.

6

The Company's preliminary allocation of the fair value of assets acquired and liabilities assumed as of the acquisition date of January 4, 2022 is as follows ($ in millions):
Assets acquired and liabilities assumed 
Cash and cash equivalents
$997 
Premium and related receivables
855 
Short-term investments
144 
Other current assets
225 
Long-term investments
43 
Restricted deposits
7 
Property, software and equipment
91 
Intangible assets (a)
600 
Other long-term assets50 
Total assets acquired 3,012 
Medical claims liability249 
Accounts payable and accrued expenses476 
Return of premium payable75 
Unearned revenue8 
Current portion of long-term debt5 
Long-term debt (b)
542 
Deferred tax liabilities (c)
81 
Other long-term liabilities82 
Total liabilities assumed1,518 
Mezzanine equity32 
Total identifiable net assets1,462 
Goodwill (d)
1,099 
Total assets acquired and liabilities assumed
$2,561 

The Company has made the following preliminary fair value adjustments based on information reviewed through March 31, 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.

(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 $117 million of deferred tax assets.

(d)    Goodwill is estimated at $1,099 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.


7

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):
 March 31, 2022December 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
$552 $ $(9)$543 $642 $ $(2)$640 
Corporate securities8,752 26 (368)8,410 8,145 130 (75)8,200 
Restricted certificates of deposit
4   4 4   4 
Restricted cash equivalents
262   262 96   96 
Short-term time deposits
130   130 109   109 
Municipal securities3,607 13 (136)3,484 3,398 85 (15)3,468 
Asset-backed securities1,308  (29)1,279 1,308 5 (5)1,308 
Residential mortgage-backed securities
919 1 (45)875 850 10 (7)853 
Commercial mortgage-backed securities
939 1 (43)897 870 13 (10)873 
Equity securities (1)
301 — — 301 326 — — 326 
Private equity investments
626 — — 626 587 — — 587 
Life insurance contracts
196 — — 196 186 — — 186 
Total$17,596 $41 $(630)$17,007 $16,521 $243 $(114)$16,650 
(1) Investments in equity securities primarily consist of exchange traded funds in fixed income securities.

The Company's investments are debt securities classified as available-for-sale with the exception of equity securities, certain private equity investments and life insurance contracts. The Company's investment policies are designed to provide liquidity, preserve capital and maximize total return on invested assets with the focus on high credit quality securities. The Company limits the size of investment in any single issuer other than U.S. treasury securities and obligations of U.S. government corporations and agencies. As of March 31, 2022, 98% of the Company's investments in rated securities carry an investment grade rating by nationally recognized statistical rating organizations. At March 31, 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 $101 million and $96 million at March 31, 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 AA and a weighted average duration of 4 years at March 31, 2022.

8

The fair value of available-for-sale debt securities with gross unrealized losses by investment type and length of time that individual securities have been in a continuous unrealized loss position were as follows ($ in millions):
 March 31, 2022December 31, 2021
 Less Than 12 Months12 Months or MoreLess Than 12 Months12 Months or More
 Unrealized LossesFair
Value
Unrealized LossesFair
Value
Unrealized LossesFair
Value
Unrealized LossesFair
Value
U.S. Treasury securities and obligations of U.S. government corporations and agencies
$(7)$495 $(2)$33 $(2)$598 $ $3 
Corporate securities(271)5,653 (97)1,024 (66)4,209 (9)209 
Municipal securities(125)2,336 (11)121 (14)1,173 (1)39 
Asset-backed securities(28)1,097 (1)65 (5)770  33 
Residential mortgage-backed securities(29)629 (16)172 (7)472  15 
Commercial mortgage-backed securities(27)680 (16)139 (8)380 (2)32 
Total$(487)$10,890 $(143)$1,554 $(102)$7,602 $(12)$331 

As of March 31, 2022, the gross unrealized losses were generated from 5,048 positions out of a total of 6,748 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):
 March 31, 2022December 31, 2021
 InvestmentsRestricted DepositsInvestmentsRestricted Deposits
 Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
One year or less$1,543 $1,540 $611 $609 $1,390 $1,396 $368 $368 
One year through five years6,519 6,327 400 382 6,212 6,294 460 457 
Five years through ten years3,903 3,665 238 219 3,647 3,681 244 243 
Greater than ten years93 91   73 78   
Asset-backed securities3,166 3,051   3,028 3,034   
Total$15,224 $14,674 $1,249 $1,210 $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