| Contact: | Edmund E. Kroll |
| | Senior Vice President, Finance & Investor Relations |
| | (212) 759-0382 |
| | |
| | Eric R. Slusser |
| | Executive Vice President and Chief Financial Officer |
| | (314) 725-4477 |
FOR IMMEDIATE RELEASE
CENTENE CORPORATION REPORTS 2007 FOURTH QUARTER RESULTS
ST. LOUIS, MISSOURI (February 8, 2008) -- Centene Corporation (NYSE: CNC) today announced its financial results for the quarter and year ended December 31, 2007. The results exclude the benefit of the July 1 through December 31, 2007 period rate increase for Georgia which was in our previous guidance and will now be recognized in the first quarter of 2008. Our updated guidance disclosed later in this press release reflects this change. As previously announced, premium taxes are now separately disclosed as a component of both revenues and operating expenses on our statement of operations. Related financial ratios included in this release exclude premium taxes. Additionally, we have reclassified and reported our Kansas and Missouri health plans, collectively FirstGuard, as discontinued operations. Unless specifically noted, the discussions below are in the context of continuing operations, and therefore, exclude the FirstGuard operations.
| | | | | | | | |
| | 2007 Highlights | |
| | | Q4 | | | Full Year | | |
| | Total Revenues (in millions) | $ | 777.4 | | | $ | 2,919.3 | | |
| | Medicaid/SCHIP HBR | | 84.0 | % | | | 83.2 | % | |
| | Diluted EPS (as reported) | $ | 0.07 | | | $ | 0.92 | | |
| | Diluted EPS (excluding restructuring charges) | $ | 0.20 | | | $ | 1.09 | | |
| | | | | | | | | | |
Fourth Quarter Summary
| - | 2007 fourth quarter earnings impacted by the inability to recognize the July 1, 2007 Georgia rate increase until the 2008 first quarter. |
| - | Quarter-end Medicaid Managed Care membership of 1.1 million. |
| - | Revenues of $777.4 million, a 25.8% increase over the 2006 fourth quarter. |
| - | Earnings per diluted share of $0.20 (excluding restructuring charges), compared to $0.21 in the 2006 fourth quarter. |
| - | Health Benefits Ratio (HBR) for Centene’s Medicaid and SCHIP populations, which reflects medical costs as a percent of premium revenues, of 84.0%. |
| - | Medicaid Managed Care G&A expense ratio of 11.8% and Specialty Services G&A ratio of 15.4%. |
| - | Total operating cash flows of $37.5 million. |
| - | Days in claims payable of 49.1. |
| - | Recognized previously announced restructuring charge totaling $9.4 million pre-tax. |
| - | Began participating in the state of South Carolina’s conversion to managed care. |
Centene Corporation Reports 2007 Fourth Quarter Results February 8, 2008 / Page 2
Michael F. Neidorff, Centene’s Chairman and Chief Executive Officer, stated, “We concluded the fourth quarter of 2007 with solid revenue, membership and earnings results. Additionally, our cash flows were strong, our Medicaid HBR improved to 84.0%, a decrease of 140 basis points from the 2006 fourth quarter, and our G&A was consistent with our expectations.
“In Ohio, our core Medicaid program growth was in line. Medical costs in the ABD population, not unexpectedly, continue to be challenging as we work to manage the integration of these members into our network. Over time, we believe that targeted margins are achievable as we reach critical mass and are able to more effectively manage their care.
“In Texas, we experienced growing membership in both SCHIP and the Texas STAR Plus (SSI) program. We are on track for the launch of the state’s Foster Care program on April 1, 2008.
“As we commence 2008, we will focus on growing our revenue stream to external third party vendors through our specialty company products and PBM. We are optimistic about the prospects for growth in both new and existing markets in Medicaid managed care and in our specialty businesses.” concluded Neidorff.
The following table depicts membership in Centene’s managed care organizations, by state, at December 31, 2007 and 2006:
The following table depicts membership in Centene’s managed care organizations, by member category, at December 31, 2007 and 2006:
| | | 2007 | | 2006 | |
| Medicaid | | | 848,100 | | | 887,300 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| ______________________________ | | | | | | | |
(a)1,111,500 at-risk; 35,100 ASO | | | | | | | |
(b) 1,112,700 at-risk; 10,600 ASO | | | | | | | |
Statement of Operations
| - | For the 2007 fourth quarter, revenues from continuing operations increased 25.8% to $777.4 million from $617.8 million in the 2006 fourth quarter. The increase was mainly driven by membership growth in Texas and Ohio, which are the two markets that added SSI products in 2007. The fourth quarter included an approximate $4.2 million reduction of premium revenue and pre-tax earnings due to a prior period true-up with the State of Indiana. |
| - | The HBR for Centene’s Medicaid and SCHIP populations, which reflects medical costs as a percent of premium revenues, was 84.0%, an increase from 81.3% in the 2007 third quarter. The increase resulted from pharmacy and other general seasonality and the previously mentioned premium true-up in Indiana. |
Centene Corporation Reports 2007 Fourth Quarter Results February 8, 2008 / Page 3
| - | G&A expense as a percent of premium and service revenues for the Medicaid Managed Care segment was 11.8% in the fourth quarter of 2007 compared to 10.4% in the fourth quarter of 2006. The increase in the Medicaid Managed Care G&A expense ratio for the three months ended December 31, 2007 primarily reflects our previously announced restructuring charge recorded in the fourth quarter. The pre-tax restructuring charge for asset impairment and severance totaled $9.4 million and increased our G&A ratio by 1.3%. |
| - | Operating earnings were $0.3 million, including the restructuring charge. Excluding the restructuring charge, operating earnings were $9.7 million compared to $9.8 million in the 2006 fourth quarter. |
| - | Reported GAAP earnings per diluted share from continuing operations were $0.07, or $0.20 excluding restructuring charges, compared to $0.21 in the 2006 fourth quarter. |
| - | Net earnings per diluted share (including discontinued operations) were $0.03. |
| - | For the year ended December 31, 2007, revenues from continuing operations increased 48.8% to $2.9 billion from $2.0 billion for the same period in the prior year. Medicaid Managed Care G&A expenses as a percent of premium and service revenues decreased to 11.1% in the year ended December 31, 2007, compared to 11.4% in the year ended December 31, 2006. Excluding the $12.4 million of restructuring charges, earnings from operations increased to $66.5 million in the year ended December 31, 2007 from $27.8 million in the year ended December 31, 2006. Net earnings from continuing operations, excluding the restructuring charges, were $49.0 million or $1.09 per diluted share in 2007. |
Balance Sheet and Cash Flow
At December 31, 2007, the Company had cash and investments of $659.2 million, including $626.2 million held by its regulated entities and $33.0 million held by its unregulated entities. Medical claims liabilities totaled $335.9 million, representing 49.1 days in claims payable, unchanged from September 30, 2007. Total debt was $207.4 million and debt to capitalization was 33.3%.
Outlook
The table below depicts the Company’s guidance for the 2008 first quarter and full year.
| | Q1 2008 | | 2008 | |
| | Low | | High | | Low | | High | |
Revenue (in millions)1 | $ 785 | | $ 795 | | $ 3,370 | | $ 3,470 | |
| Earnings per diluted share | $ 0.59 | | $ 0.64 | | $ 2.04 | | $ 2.14 | |
| _________________________ | | | | | | | | |
1 Revenue net of premium tax | | | | | | | | |
Eric R. Slusser, Centene’s Chief Financial Officer, stated, “This guidance reflects normal seasonality, previously mentioned start-up costs in Texas, South Carolina and Florida of approximately $0.09, and the state of Wisconsin’s decision to carve-out pharmacy benefits from our premium, effective February 1, 2008. This guidance also includes premium rate increases of 1.5% in Ohio, effective January 1, 6.3% in Indiana, effective January 1, 3.5% in Wisconsin, effective February 1, and a 3.8% rate increase in Georgia retroactive to July 1, 2007.”
Conference Call
As previously announced, the Company will host a conference call Friday, February 8, 2008, at 7:30 A.M. (Eastern Time) to review the financial results for the fourth quarter ended December 31, 2007, and to discuss its business outlook. Michael F. Neidorff and Eric R. Slusser will host the conference call. Investors are invited to participate in the conference call by dialing 800-273-1254 in the U.S. and Canada, 706-679-8592 from abroad, or via a live internet broadcast on the Company's website at www.centene.com, under the Investor Relations section. A replay will be available for on-demand listening shortly after the completion of the call until 11:59 P.M. (Eastern Time) on February 22, 2008 at the aforementioned URL, or by dialing 800-642-1687 in the U.S. and Canada, or 706-645-9291 from abroad, and entering access code 34562229.
Centene Corporation Reports 2007 Fourth Quarter Results February 8, 2008 / Page 4
Non-GAAP Financial Presentation
The Company is providing certain non-GAAP financial measures in this release as the Company believes these figures are helpful in allowing individuals to more accurately assess the ongoing nature of the Company's operations and measure the Company's performance more consistently.
The 2007 non-GAAP information presented above in the “highlights”table, third bullet under "Fourth Quarter Summary"and fourth, fifth and seventh bullet under "Statement of Operations" excludes the second quarter contribution to our charitable foundation with a portion of the proceeds from the sale of FirstGuard Missouri as well as the fourth quarter charges for fixed asset impairment and severance for an organizational realignment, collectively, restructuringcharges. This exclusion has been made in the non-GAAP financial measures as management believes these 2007 restructuringcharges are not indicative of future company operations.
The Company uses the presented non-GAAP financial measures internally to focus management on period-to-period changes in the Company's core businessoperations. Therefore, the Company believes 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.
The following tablesreconcile the Company’s Statement of Operations for the three months and yearended December 31, 2007 on a GAAP basis to a non-GAAP basis. The 2007 non-GAAP basis excludes the restructuringcharges mentioned above(in thousands, except share data).
| | | Three Months Ended December 31, 2007 |
| | GAAP | | Restructuring Charges | | Non-GAAP |
| | | | | | | |
| Total revenues | | $ | 777,439 | | $ | — | | $ | 777,439 |
| Expenses: | | | | | | | | | |
| Medical costs | | | 629,437 | | | — | | | 629,437 |
| Cost of services | | | 15,532 | | | — | | | 15,532 |
| General and administrative expenses | | | 110,978 | | | 9,392 | | | 101,586 |
| Premium tax expense | | | 21,145 | | | — | | | 21,145 |
| Total operating expenses | | | 777,092 | | | 9,392 | | | 767,700 |
| Earnings (loss) from operations | | | 347 | | | (9,392 | ) | | 9,739 |
| Investment and other income, net | | | 2,102 | | | — | | | 2,102 |
| Earnings (loss) before income taxes | | | 2,449 | | | (9,392 | ) | | 11,841 |
| Income tax expense (benefit) | | | (584 | ) | | (3,523 | ) | | 2,939 |
| Net earnings from continuing operations | | | 3,033 | | | (5,869 | ) | | 8,902 |
| Discontinued operations, net of income tax | | | (1,560 | ) | | — | | | (1,560) |
| Net earnings (loss) | | $ | 1,473 | | $ | (5,869 | ) | $ | 7,342 |
| | | | | | | | | | |
| Diluted earnings per common share from continuing operations | | $ | 0.07 | | | | | $ | 0.20 |
| | | | | | | | | | |
Centene Corporation Reports 2007 Fourth Quarter Results February 8, 2008 / Page 5
| | | Year Ended December 31, 2007 |
| | GAAP | | Restructuring Charges 1 | | Non-GAAP |
| | | | | | | |
| Total revenues | | $ | 2,919,292 | | $ | — | | $ | 2,919,292 |
| Expenses: | | | | | | | | | |
| Medical costs | | | 2,324,486 | | | — | | | 2,324,486 |
| Cost of services | | | 61,454 | | | — | | | 61,454 |
| General and administrative expenses | | | 399,687 | | | 12,392 | | | 387,295 |
| Premium tax expense | | | 79,572 | | | — | | | 79,572 |
| Total operating expenses | | | 2,865,199 | | | 12,392 | | | 2,852,807 |
| Earnings (loss) from operations | | | 54,093 | | | (12,392 | ) | | 66,485 |
| Investment and other income, net | | | 9,543 | | | — | | | 9,543 |
| Earnings (loss) before income taxes | | | 63,636 | | | (12,392 | ) | | 76,028 |
| Income tax expense (benefit) | | | 22,367 | | | (4,663 | ) | | 27,030 |
| Net earnings from continuing operations | | | 41,269 | | | (7,729 | ) | | 48,998 |
| Discontinued operations, net of income tax | | | 32,133 | | | — | | | 32,133 |
| Net earnings (loss) | | $ | 73,402 | | $ | (7,729 | ) | $ | 81,131 |
| | | | | | | | | | |
| Diluted earnings per common share from continuing operations | | $ | 0.92 | | | | | $ | 1.09 |
________________________________________________ | | | | | | | | | |
1 For the year ended December 31, 2007, restructuring charges include a $3,000 pre-tax contribution of a portion of the FirstGuard sale proceeds to the Company’s charitable foundation. |
| | | | | | | | | | |
Premium Tax Presentation
The following table shows the Company’s Medicaid/SCHIP HBR and the Medicaid Managed Care G&A ratio on a net basis as reported as well as on a gross basis for analytical purposes. On a net basis, the HBR is calculated as Medical costs divided by Premium revenues and the G&A ratio is recorded as G&A expense divided by the sum of Premium revenue and Service revenue. On a gross basis, the HBR is calculated as Medical costs divided by the sum of Premium revenues and Premium tax and the G&A ratio is recorded as G&A expense plus Premium tax expense, divided by Total revenues.
| | | | | Medicaid/SCHIP HBR | | | Medicaid Managed Care G&A Ratio | |
| | | Premium Taxes (in thousands) | | Current (Net) | | | Gross | | | Current (Net) | | | Gross | |
| 2007 | | | | | | | | | | | | | | |
| Q1 | $ | 17,816 | | 84.5 | % | | 82.0 | % | | 10.2 | % | | 12.7 | % |
| Q2 | | 19,874 | | 82.8 | | | 80.3 | | | 11.4 | | | 13.9 | |
| Q3 | | 20,737 | | 81.3 | | | 78.9 | | | 11.0 | | | 13.5 | |
| Q4 | | 21,145 | | 84.0 | | | 81.2 | | | 11.8 | | | 14.3 | |
| Total Year | $ | 79,572 | | 83.2 | | | 80.6 | | | 11.1 | | | 13.6 | |
| | | | | | | | | | | | | | | |
| 2006 | | | | | | | | | | | | | | |
| Q1 | $ | 3,250 | | 81.8 | % | | 80.9 | % | | 12.6 | % | | 13.4 | % |
| Q2 | | 5,806 | | 84.8 | | | 83.5 | | | 12.5 | | | 13.8 | |
| Q3 | | 12,590 | | 84.4 | | | 82.2 | | | 11.0 | | | 13.2 | |
| Q4 | | 16,315 | | 85.4 | | | 82.9 | | | 10.4 | | | 12.8 | |
| Total Year | $ | 37,961 | | 84.3 | | | 82.5 | | | 11.4 | | | 13.2 | |
| | | | | | | | | | | | | | | |
Centene Corporation Reports 2007 Fourth Quarter Results February 8, 2008 / Page 6
About Centene Corporation
Centene Corporation is a leading multi-linehealthcare enterprise that provides programs and related services to individuals receiving benefits under Medicaid, including the State Children’s Health Insurance Program (SCHIP) and Supplemental Security Income (SSI). The Company operates health plans in Georgia, Indiana, New Jersey, Ohio, South Carolina, Texasand Wisconsin. In addition, the Company contracts with other healthcare and commercial organizations to provide specialty services including behavioral health, life and healthmanagement, long-term care, managed vision, nurse triage, pharmacy benefits management and treatment compliance. Information regarding Centene is available via the Internet at www.centene.com.
The information provided in this press release contains forward-looking statements that relate to future events and future financial performance of Centene. Subsequent events and developments may cause the Company's estimates to change. The Company disclaims any obligation to update this forward-looking financial information in the future. Readers are cautioned that matters subject to forward-looking statements involve known and unknown risks and uncertainties, including economic, regulatory, competitive and other factors that may cause Centene's or its 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. Actual results may differ from projections or estimates due to a variety of important factors, including Centene's ability to accurately predict and effectively manage health benefits and other operating expenses, competition, changes in healthcare practices, changes in federal or state laws or regulations, inflation, provider contract changes, new technologies, reduction in provider payments by governmental payors, major epidemics, disasters and numerous other factors affecting the delivery and cost of healthcare. The expiration, cancellation or suspension of Centene's Medicaid Managed Care contracts by state governments would also negatively affect Centene.
[Tables Follow]
Centene Corporation Reports 2007 Fourth Quarter Results February 8, 2008 / Page 7
CENTENE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
| | | December 31, | |
| | | 2007 | | | 2006 | |
| | | (Unaudited) | |
| ASSETS | | | | | | |
| Current assets: | | | | | | |
| Cash and cash equivalents of continuing operations | | $ | 268,584 | | | $ | 253,370 | |
| Cash and cash equivalents of discontinued operations | | | — | | | | 17,677 | |
| Total cash and cash equivalents | | | 268,584 | | | | 271,047 | |
| Premium and related receivables | | | 90,072 | | | | 74,379 | |
| Short-term investments, at fair value (amortized cost $46,392 and $57,031, respectively) | | | 46,269 | | | | 56,790 | |
| Other current assets | | | 41,414 | | | | 17,279 | |
| Current assets of discontinued operations, other than cash | | | — | | | | 32,327 | |
| Total current assets | | | 446,339 | | | | 451,822 | |
| Long-term investments, at fair value (amortized cost $314,681 and $117,620, respectively) | | | 317,041 | | | | 116,052 | |
| Restricted deposits, at fair value (amortized cost $27,056 and $24,512, respectively) | | | 27,301 | | | | 24,355 | |
| Property, software and equipment, net | | | 138,139 | | | | 110,688 | |
| Goodwill | | | 141,030 | | | | 129,881 | |
| Other intangible assets, net | | | 13,205 | | | | 15,555 | |
| Other assets | | | 36,067 | | | | 9,209 | |
| Long-term assets of discontinued operations | | | — | | | | 37,418 | |
| Total assets | | $ | 1,119,122 | | | $ | 894,980 | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | | |
| Current liabilities: | | | | | | | | |
| Medical claims liabilities | | $ | 335,856 | | | $ | 249,864 | |
| Accounts payable and accrued expenses | | | 105,096 | | | | 63,893 | |
| Unearned revenue | | | 44,016 | | | | 33,816 | |
| Current portion of long-term debt and notes payable | | | 971 | | | | 971 | |
| Current liabilities of discontinued operations | | | 861 | | | | 39,407 | |
| Total current liabilities | | | 486,800 | | | | 387,951 | |
| Long-term debt | | | 206,406 | | | | 174,646 | |
| Other liabilities | | | 10,869 | | | | 5,853 | |
| Long-term liabilities of discontinued operations | | | — | | | | 107 | |
| Total liabilities | | | 704,075 | | | | 568,557 | |
| Stockholders’ equity: | | | | | | | | |
| Common stock, $.001 par value; authorized 100,000,000 shares; issued and outstanding 43,667,837 and 43,369,918 shares, respectively | | | 44 | | | | 44 | |
| Additional paid-in capital | | | 221,693 | | | | 209,340 | |
| Accumulated other comprehensive income: | | | | | | | | |
| Unrealized gain (loss) on investments, net of tax | | | 1,571 | | | | (1,251 | ) |
| Retained earnings | | | 191,739 | | | | 118,290 | |
| Total stockholders’ equity | | | 415,047 | | | | 326,423 | |
| Total liabilities and stockholders’ equity | | $ | 1,119,122 | | | $ | 894,980 | |
Centene Corporation Reports 2007 Fourth Quarter Results February 8, 2008 / Page 8
CENTENE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share data)
| | | Three Months Ended December 31, | | | Year EndedDecember 31, | |
| | | 2007 | | | 2006 | | | 2007 | | | 2006 | |
| | | (Unaudited) | | | (Unaudited) | |
| Revenues: | | | | | | | | | | | | | | | | |
| Premium | | $ | 736,895 | | | $ | 581,217 | | | $ | 2,759,018 | | | $ | 1,844,452 | |
| Premium tax | | | 21,145 | | | | 16,315 | | | | 79,572 | | | | 37,961 | |
| Service | | | 19,399 | | | | 20,263 | | | | 80,702 | | | | 79,581 | |
| Total revenues | | | 777,439 | | | | 617,795 | | | | 2,919,292 | | | | 1,961,994 | |
| Expenses: | | | | | | | | | | | | | | | | |
| Medical costs | | | 629,437 | | | | 495,712 | | | | 2,324,486 | | | | 1,555,658 | |
| Cost of services | | | 15,532 | | | | 15,396 | | | | 61,454 | | | | 60,506 | |
| General and administrative expenses | | | 110,978 | | | | 80,527 | | | | 399,687 | | | | 280,067 | |
| Premium tax expense | | | 21,145 | | | | 16,315 | | | | 79,572 | | | | 37,961 | |
| Total operating expenses | | | 777,092 | | | | 607,950 | | | | 2,865,199 | | | | 1,934,192 | |
| Earnings from operations | | | 347 | | | | 9,845 | | | | 54,093 | | | | 27,802 | |
| Other income (expense): | | | | | | | | | | | | | | | | |
| Investment and other income | | | 6,212 | | | | 6,251 | | | | 25,169 | | | | 16,416 | |
| Interest expense | | | (4,110 | ) | | | (3,100 | ) | | | (15,626 | ) | | | (10,636 | ) |
| Earnings before income taxes | | | 2,449 | | | | 12,996 | | | | 63,636 | | | | 33,582 | |
| Income tax expense | | | (584 | ) | | | 3,745 | | | | 22,367 | | | | 12,642 | |
| Net earnings from continuing operations | | | 3,033 | | | | 9,251 | | | | 41,269 | | | | 20,940 | |
| Discontinued operations, net of income tax (benefit) expense of $1,621, $3,904, $(30,899) and $9,335 respectively | | | (1,560 | ) | | | 4,582 | | | | 32,133 | | | | (64,569 | ) |
| Net earnings (loss) | | $ | 1,473 | | | $ | 13,833 | | | $ | 73,402 | | | $ | (43,629 | ) |
| | | | | | | | | | | | | | | | | |
| Net earnings (loss) per common share: | | | | | | | | | | | | | | | | |
| Basic: | | | | | | | | | | | | | | | | |
| Continuing operations | | $ | 0.07 | | | $ | 0.21 | | | $ | 0.95 | | | $ | 0.49 | |
| Discontinued operations | | | (0.04 | ) | | | 0.11 | | | | 0.74 | | | | (1.50 | ) |
| Basic earnings (loss) per common share | | $ | 0.03 | | | $ | 0.32 | | | $ | 1.69 | | | $ | (1.01 | ) |
| Diluted: | | | | | | | | | | | | | | | | |
| Continuing operations | | $ | 0.07 | | | $ | 0.21 | | | $ | 0.92 | | | $ | 0.47 | |
| Discontinued operations | | | (0.04 | ) | | | 0.10 | | | | 0.72 | | | | (1.45 | ) |
| Diluted earnings (loss) per common share | | $ | 0.03 | | | $ | 0.31 | | | $ | 1.64 | | | $ | (0.98 | ) |
| | | | | | | | | | | | | | | | | |
| Weighted average number of common shares outstanding: | | | | | | | | | | | | | | | | |
| Basic | | | 43,574,811 | | | | 43,263,237 | | | | 43,539,950 | | | | 43,160,860 | |
| Diluted | | | 44,951,016 | | | | 44,631,117 | | | | 44,823,082 | | | | 44,613,622 | |
| | | | | | | | | | | | | | | | | |
Centene Corporation Reports 2007 Fourth Quarter Results February 8, 2008 / Page 9
CENTENE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
| | | Year Ended December 31, | |
| | | 2007 | | | 2006 | |
| | | (Unaudited) | |
| Cash flows from operating activities: | | | | | | | | |
| Net earnings (loss) | | $ | 73,402 | | | $ | (43,629 | ) |
| Adjustments to reconcile net earnings (loss) to net cash provided by operating activities— | | | | | | | | |
| Depreciation and amortization | | | 27,807 | | | | 20,600 | |
| Stock compensation expense | | | 15,781 | | | | 14,904 | |
| Gain on sale of FirstGuard Missouri | | | (7,472 | ) | | | — | |
| Impairment loss | | | 7,207 | | | | 88,268 | |
| Deferred income taxes | | | (10,223 | ) | | | (6,692 | ) |
| Changes in assets and liabilities— | | | | | | | | |
| Premium and related receivables | | | 1,663 | | | | (39,765 | ) |
| Other current assets | | | (6,253 | ) | | | 5,352 | |
| Other assets | | | (348 | ) | | | 91 | |
| Medical claims liabilities | | | 56,287 | | | | 108,003 | |
| Unearned revenue | | | 10,085 | | | | 20,035 | |
| Accounts payable and accrued expenses | | | 31,234 | | | | 28,136 | |
| Other operating activities | | | 3,070 | | | | (271 | ) |
| Net cash provided by operating activities | | | 202,240 | | | | 195,032 | |
| Cash flows from investing activities: | | | | | | | | |
| Purchase of property, software and equipment | | | (53,937 | ) | | | (50,318 | ) |
| Purchase of investments | | | (606,366 | ) | | | (319,322 | ) |
| Sales and maturities of investments | | | 456,738 | | | | 286,155 | |
| Proceeds from asset sales | | | 14,102 | | | | — | |
| Investments in acquisitions and equity method investee, net of cash acquired | | | (36,001 | ) | | | (66,772 | ) |
| Net cash used in investing activities | | | (225,464 | ) | | | (150,257 | ) |
| Cash flows from financing activities: | | | | | | | | |
| Proceeds from exercise of stock options | | | 5,464 | | | | 6,953 | |
| Proceeds from borrowings | | | 212,000 | | | | 94,359 | |
| Payment of long-term debt and notes payable | | | (181,981 | ) | | | (17,355 | ) |
| Excess tax benefits from stock compensation | | | — | | | | 3,043 | |
| Common stock repurchases | | | (9,541 | ) | | | (7,833 | ) |
| Debt issue costs | | | (5,181 | ) | | | (253 | ) |
| Net cash provided by financing activities | | | 20,761 | | | | 78,914 | |
| Net (decrease) increase in cash and cash equivalents | | | (2,463 | ) | | | 123,689 | |
Cash and cash equivalents, beginning of period | | | 271,047 | | | | 147,358 | |
Cash and cash equivalents, end of period | | $ | 268,584 | | | $ | 271,047 | |
| | | | | | | | | |
| Interest paid | | $ | 11,945 | | | $ | 10,680 | |
| Income taxes paid | | $ | 7,348 | | | $ | 16,418 | |
| | | | | | | | | |
| Supplemental schedule of non-cash investing and financing activities: | | | | | | | | |
| Property acquired under capital leases | | $ | 1,736 | | | $ | 366 | |
Centene Corporation Reports 2007 Fourth Quarter Results February 8, 2008 / Page 10
CENTENE CORPORATION
CONTINUING OPERATIONS SUPPLEMENTAL FINANCIAL DATA
| | Q4 | | Q3 | | Q2 | | Q1 |
| | 2007 | | 2007 | | 2007 | | 2007 |
| MEMBERSHIP | | | | | | | |
| Medicaid Managed Care: | | | | | | |
| Georgia | 287,900 | | 286,200 | | 281,400 | | 291,300 |
| Indiana | 154,600 | | 156,300 | | 161,700 | | 176,700 |
| New Jersey | 57,300 | | 58,300 | | 59,100 | | 59,100 |
| Ohio | 128,700 | | 127,500 | | 128,200 | | 118,300 |
| South Carolina | 31,800 | | 29,300 | | 31,100 | | — |
| Texas | 354,400 | | 347,000 | | 333,900 | | 318,500 |
| Wisconsin | 131,900 | | 132,700 | | 136,100 | | 139,400 |
| TOTAL | 1,146,600 | | 1,137,300 | | 1,131,500 | | 1,103,300 |
| | | | | | | | |
| Medicaid | 848,100 | | 841,600 | | 846,900 | | 839,600 |
| SCHIP | 224,400 | | 223,500 | | 216,500 | | 211,200 |
| SSI | 74,100 | | 72,200 | | 68,100 | | 52,500 |
| TOTAL | 1,146,600 | | 1,137,300 | | 1,131,500 | | 1,103,300 |
| | | | | | | | |
Specialty Services(a): |
| Arizona | 99,900 | | 99,000 | | 95,200 | | 93,600 |
| Kansas | 39,000 | | 35,600 | | 37,500 | | 36,600 |
| TOTAL | 138,900 | | 134,600 | | 132,700 | | 130,200 |
| | | | | | | | |
(a) Includes behavioral health contracts only. |
| | | | | | | | | | | | |
REVENUE PER MEMBER(b) | $ | 210.34 | | $ | 201.05 | | $ | 193.09 | | $ | 178.55 |
| | | | | | | | |
CLAIMS(b) | | | | | | | |
| Period-end inventory | 312,700 | | 265,400 | | 281,000 | | 317,600 |
| Average inventory | 288,700 | | 319,900 | | 248,200 | | 228,600 |
| Period-end inventory per member | 0.28 | | 0.24 | | 0.26 | | 0.29 |
| |
(b) Revenue per member and claims information are presented for the Medicaid Managed Care segment. |
Centene Corporation Reports 2007 Fourth Quarter Results February 8, 2008 / Page 11
| | Q4 | | Q3 | | Q2 | | Q1 |
| | 2007 | | 2007 | | 2007 | | 2007 |
| | | | | | | | |
DAYS IN CLAIMS PAYABLE (c) | 49.1 | | 49.1 | | 46.2 | | 45.6 |
(c) Days in Claims Payable is a calculation of Medical Claims Liabilities at the end of the period divided by average claims expense per calendar day for such period. |
| | | | | | | | |
| CASH AND INVESTMENTS (in millions) | | | | | | | |
| Regulated | $ | 626.2 | | $ | 593.6 | | $ | 527.9 | | $ | 491.0 |
| Unregulated | | 33.0 | | | 45.9 | | | 65.8 | | | 71.8 |
| TOTAL | $ | 659.2 | | $ | 639.5 | | $ | 593.7 | | $ | 562.8 |
| | | | | | | | |
DEBT TO CAPITALIZATION (d) | 33.3% | | 33.1% | | 34.0% | | 35.3% |
(d) Debt to Capitalization is calculated as follows: total debt divided by (total debt + equity). |
HEALTH BENEFITS RATIO BY CATEGORY:
| | | Three Months EndedDecember 31, | | | Year EndedDecember 31, | |
| | | 2007 | | | 2006 | | | 2007 | | | 2006 | |
| Medicaid and SCHIP | | | 84.0 | % | | | 85.4 | % | | | 83.2 | % | | | 84.3 | % |
| SSI | | | 94.5 | | | | 92.2 | | | | 92.0 | | | | 88.0 | |
| Specialty Services | | | 74.9 | | | | 80.5 | | | | 78.2 | | | | 82.6 | |
GENERAL AND ADMINISTRATIVE EXPENSE RATIO BY BUSINESS SEGMENT:
| | | Three Months EndedDecember 31, | | | Year EndedDecember 31, | |
| | 2007 | | | 2006 | | | 2007 | | | 2006 | |
| Medicaid Managed Care | | | 11.8 | % | | | 10.4 | % | | | 11.1 | % | | | 11.4 | % |
| Specialty Services | | | 15.4 | | | | 14.5 | | | | 15.4 | | | | 17.1 | |
MEDICAL CLAIMS LIABILITIES (In thousands)
Four rolling quarters of the changes in medical claims liabilities are summarized as follows:
| Balance, December 31, 2006 | | $ | 249,864 | |
| Incurred related to: | | | | |
| Current period | | | 2,340,716 | |
| Prior period | | | (16,230 | ) |
| Total incurred | | | 2,324,486 | |
| Paid related to: | | | | |
| Current period | | | 2,009,881 | |
| Prior period | | | 228,613 | |
| Total paid | | | 2,238,494 | |
| Balance, December 31, 2007 | | $ | 335,856 | |
Centene’s claims reserving process utilizes a consistent actuarial methodology to estimate Centene’s ultimate liability. Any reduction in the “Incurred related to: Prior period” claims may be offset as Centene actuarially determines “Incurred related to: Current period.” As such, only in the absence of a consistent reserving methodology would favorable development of prior period claims liability estimates reduce medical costs. Centene believes it has consistently applied its claims reserving methodology in each of the periods presented.
