Condensed Financial Information of Registrant

Centene Corporation (Parent Company Only)

Condensed Balance Sheets

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



	December 31,
	2018			2017
ASSETS
Current assets:
Cash and cash equivalents	$	6		$	6
Short-term investments, at fair value (amortized cost $2 and $2, respectively)	2			2
Other current assets	61			46
Total current assets	69			54
Long-term investments, at fair value (amortized cost $14 and $17, respectively)	14			17
Investment in subsidiaries	17,409			11,303
Other long-term assets	278			302
Total assets	$	17,770		$	11,676

LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND STOCKHOLDERS' EQUITY
Current liabilities	$	109		$	100
Long-term debt	6,521			4,624
Other long-term liabilities	117			76
Total liabilities	6,747			4,800

Redeemable noncontrolling interest	10			12

Stockholders' equity:
Preferred stock, $.001 par value; authorized 10,000 shares; no shares issued or outstanding at December 31, 2018 and December 31, 2017	—			—
Common stock, $.001 par value; authorized 800,000 shares; 417,695 issued and 412,478 outstanding at December 31, 2018, and 360,758 issued and 346,874 outstanding at December 31, 2017	—			—
Additional paid-in capital	7,449			4,349
Accumulated other comprehensive loss	(56		)	(3		)
Retained earnings	3,663			2,748
Treasury stock, at cost (5,217 and 13,884 shares, respectively)	(139		)	(244		)
Total Centene stockholders' equity	10,917			6,850
Noncontrolling interest	96			14
Total stockholders' equity	11,013			6,864
Total liabilities, redeemable noncontrolling interests and stockholders' equity	$	17,770		$	11,676

See notes to condensed financial information of registrant.

Centene Corporation (Parent Company Only)

Condensed Statements of Operations

(In millions, except per share data in dollars)



	Year Ended December 31,
	2018			2017			2016
Expenses:
Selling, general and administrative expenses	$	24		$	6		$	5
Other income (expense):
Investment and other income	3			2			2
Interest expense	(334		)	(247		)	(201		)
Earnings (loss) before income taxes	(355		)	(251		)	(204		)
Income tax benefit	(64		)	(114		)	(76		)
Net earnings (loss) before equity in subsidiaries	(291		)	(137		)	(128		)
Equity in earnings from subsidiaries	1,185			945			689
Net earnings	894			808			561
Loss attributable to noncontrolling interests	6			20			1
Net earnings attributable to Centene	$	900		$	828		$	562

Net earnings per share:
Basic earnings per common share	$	2.31		$	2.40		$	1.76
Diluted earnings per common share	$	2.26		$	2.34		$	1.71

See notes to condensed financial information of registrant.

Centene Corporation (Parent Company Only)

Condensed Statements of Cash Flows

(In millions)



	Year Ended December 31,
	2018			2017			2016
Cash flows from operating activities:
Dividends from subsidiaries, return on investment	$	464		$	292		$	25
Other operating activities, net	(317		)	(132		)	(71		)
Net cash (used in) provided by operating activities	147			160			(46		)
Cash flows from investing activities:
Capital contributions to subsidiaries	(681		)	(339		)	(691		)
Purchases of investments	(23		)	(38		)	(112		)
Sales and maturities of investments	7			4			169
Dividends from subsidiaries, return of investment	11			28			100
Investments in acquisitions	(4,226		)	(59		)	(2,248		)
Intercompany activities	215			322			(575		)
Other investing activities, net	—			(1		)	—
Net cash used in investing activities	(4,697		)	(83		)	(3,357		)
Cash flows from financing activities:
Proceeds from the issuance of common stock	2,778			—			—
Proceeds from borrowings	6,014			1,400			8,934
Payment of long-term debt	(4,080		)	(1,350		)	(5,377		)
Common stock repurchases	(71		)	(65		)	(63		)
Debt issuance costs	(25		)	—			(76		)
Purchase of noncontrolling interest	(76		)	(66		)	(14		)
Other financing activities, net	10			5			—
Net cash provided by (used in) financing activities	4,550			(76		)	3,404
Net increase in cash and cash equivalents	—			1			1
Cash and cash equivalents, beginning of period	6			5			4
Cash and cash equivalents, end of period	$	6		$	6		$	5

See notes to condensed financial information of registrant.

Notes to Condensed Financial Information of Registrant

Note A - Basis of Presentation and Significant Accounting Policies

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

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

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

In August 2016, the FASB issued an ASU which clarifies how entities should classify certain cash receipts and cash payments on the statement of cash flows. The new guidance also clarifies how the predominance principle should be applied when cash receipts and cash payments have aspects of more than one class of cash flows. The Company early adopted the new guidance in the fourth quarter of 2017. Certain amounts in the 2016 parent company only financial statements have been reclassified to conform to the 2017 presentation, reflecting this adoption and a reclassification of intercompany activities from operating to investing cash flows. These reclassifications have no effect on net earnings or stockholders' equity as previously reported.

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