8-K

SECURITIES AND EXCHANGE COMMISSION 

Washington, D.C. 20549 

FORM 8-K 

Current Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 

Date of report (Date of earliest event reported): October 23, 2007

CENTENE CORPORATION 

(Exact name of registrant as specified in its charter)

Delaware (State or other jurisdiction of incorporation)  000-33395 (Commission file number)  42-1406317 (IRS Employer Identification No.)

7711 Carondelet Avenue, Suite 800, St. Louis, Missouri 63105

(Address of principal executive office and zip code) 

Registrant’s telephone number, including area code: (314) 725-4477 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

ITEM 2.02 RESULTS OF OPERATIONS AND FINANCIAL CONDITION 

    (a)   On October 23, 2007, we issued a press release announcing our financial results for the third quarter ended September 30, 2007. The full text of the press release is included as Exhibit 99.1 to this report. The information contained in the website cited in the press release is not a part of this report.

    The information contained in this Form 8-K and exhibit 99.1 attached hereto shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that section. Nor shall such information or exhibit be deemed incorporated by reference in any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except as expressly set forth by specific reference in such a filing.

ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS 

(c) Exhibits

The following exhibit relating to Item 2.02 shall be deemed to be furnished and not filed:

99.1  Press release of Centene Corporation issued October 23, 2007, as to financial results for the third quarter ended September 30, 2007.

SIGNATURE 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Date: October 23, 2007	CENTENE CORPORATION
	By:	/s/ MICHAEL F. NEIDORFF
		Michael F. Neidorff
		Chairman, President and Chief Executive Officer

EXHIBIT INDEX 

Exhibit
Number	Description
99.1	Press release* of Centene Corporation issued October 23, 2007, as to financial results for the third quarter ended September 30, 2007.

* The press release is being furnished pursuant to Item 2.02, and shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange of 1934, as amended.

EX-99.1

Exhibit 99.1

N E W S  R E L E A S E

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

CENTENE CORPORATION REPORTS 2007 THIRD QUARTER RESULTS

ST. LOUIS, MISSOURI (October 23, 2007) -- Centene Corporation (NYSE: CNC) today announced its financial results for the quarter ended September 30, 2007.  The revenues, general and administrative expenses and related financial ratios included in this release present premium taxes on a gross basis, consistent with our past reporting practice.

2007 Highlights
	Q3			YTD
Total Revenues (in millions)	$	749.9		$	2,148.5
Medicaid/SCHIP HBR		79.0	%		80.5	%
Diluted EPS (as reported)	$	0.36		$	1.61
Diluted EPS excluding FirstGuard Activity	$	0.37		$	0.90

Third Quarter Summary

-   Quarter-end Medicaid Managed Care membership of 1.1 million

-   Revenues of $749.9 million, an 18.8% increase over the 2006 third quarter.

-   Earnings per diluted share of $0.37 (excluding FirstGuard Activity), compared to $0.31 in the 2006 third quarter (excluding FirstGuard impairment charges).

-   Health Benefits Ratio (HBR) for Centene’s Medicaid and SCHIP populations, which reflects medical costs as a percent of premium revenues, of 79.0% on a gross basis.

-   Medicaid Managed Care G&A expense ratio of 13.6% and Specialty Services G&A ratio of 15.1%, including premium taxes.

-   Operating cash flows of $104.9 million.

-   Days in claims payable of 49.2.

Other Events

-   In July 2007, we acquired a minority interest in Access Health Solutions, LLC, the third largest Medicaid managed care entity in Florida.

-   Appointed Mark Eggert to position of Executive Vice President, Health Plans.

-   Stock repurchase program extended through October 31, 2008.

Michael F. Neidorff, Centene’s Chairman and Chief Executive Officer, stated, “During the third quarter, overall results for revenue, membership growth and earnings were consistent with our expectations, and our Medicaid and SCHIP HBR improved by 160 basis points sequentially.

“In Texas, we experienced growing membership in both SCHIP and in the Texas STAR Plus (SSI) program.  Recently, we received notification from the state of Texas that it will launch its Foster Care program on April 1, 2008; we have worked diligently to prepare for this and look forward to serving the needs of these recipients.

“In Georgia, membership was 286,200, within our guided range.  Positive momentum in cost and utilization trends in the state continue, and we recently hired Michael Cadger as our plan President and CEO.  Michael Cadger brings over 30 years of relevant experience in the health and managed care industry.   We are currently waiting to receive our rate increase from the state.

“We are encouraged by the opportunity in South Carolina as the state converts to full-risk later this year, as well as our entry into Florida, where we are preparing for the state’s future conversion.  We remain optimistic about the prospects for growth in both new and existing markets in Medicaid managed care and in our specialty businesses.” concluded Neidorff.

Centene Corporation Reports 2007 Third Quarter Results October  23, 2007 / Page 2

The following table depicts membership in Centene’s managed care organizations by state at September 30, 2007 and 2006:

	2007		2006
Georgia		286,200		252,600
Indiana		156,300		198,100
New Jersey		58,300		59,100
Ohio		127,500		88,300
South Carolina		29,300		—
Texas		347,000		259,900
Wisconsin		132,700		167,100
Subtotal		1,137,300		1,025,100
Kansas and Missouri		—		144,600
Total		1,137,300		1,169,700

The following table depicts membership in Centene’s managed care organizations by member category at September 30, 2007 and 2006:

	2007			2006
Medicaid		841,600			818,000
SCHIP		223,500			189,100
SSI		72,200	(a)		18,000	(b)
Subtotal		1,137,300			1,025,100
Kansas and Missouri Medicaid/SCHIP members		—			144,600
Total		1,137,300			1,169,700
(a)65,700 at-risk; 6,500 ASO
(b) 10,000 at-risk; 8,000 ASO

Statement of Operations

-   For the 2007 third quarter, revenues increased 18.8% to $749.9 million from $631.2 million in the 2006 third quarter.

-   The HBR for Centene’s Medicaid and SCHIP populations, which reflects medical costs as a percent of premium revenues, was 79.0% on a gross basis, a decrease of 3.0% over 2006.  The decrease in the current year is primarily attributable to increased premium yield and the effect of higher premium taxes combined with a moderating medical cost trend.  Sequentially, our Medicaid and SCHIP HBR decreased from 80.6% in the 2007 second quarter to 79.0% because of higher premium yield combined with a continued moderate medical cost trend.  The 2007 third quarter reflects expected claims reserve development and is based on consistent reserving methodology.

-   G&A expense as a percent of revenues for the Medicaid Managed Care segment was 13.6% in the third quarter of 2007 compared to 13.1% in the third quarter of 2006.  The increase in the Medicaid Managed Care G&A expense ratio for the three months ended September 30, 2007 primarily reflects increased premium taxes and start-up costs for our South Carolina and Texas Foster Care operations.  Premium taxes were $20.7 million in the 2007 third quarter and $13.8 million in the 2006 third quarter.  This increase was offset by a FirstGuard intangible asset impairment charge of $6.0 million in the third quarter of 2006.

-   Operating earnings were $23.1 million, including $0.8 million of net expense for other FirstGuard Activity.  Excluding the FirstGuard Activity in 2007 and the FirstGuard non-cash impairment charges in 2006, operating earnings were $23.9 million in 2007 compared to $20.5 million in the 2006 third quarter.

-   Reported GAAP earnings per diluted share were $0.36, or $0.37 excluding FirstGuard Activity, compared to $0.31 in the 2006 third quarter (excluding the FirstGuard non-cash impairment charges).

-   For the nine months ended September 30, 2007, revenues increased 35.8% to $2.1 billion from $1.6 billion for the same period in the prior year.  Medicaid Managed Care G&A expenses as a percent of revenues increased to 13.5% in the first nine months of 2007 compared to 12.5% in the first nine months of 2006.  Earnings from operations, excluding the FirstGuard Activity in 2007 and the FirstGuard non-cash impairment charges in 2006, increased to $56.7 million in the first nine months of 2007 from $39.4 million in the first nine months of 2006.  Net earnings, excluding the FirstGuard Activity, were $40.1 million or $0.90 per diluted share in the first nine months of 2007.

Balance Sheet and Cash Flow

At September 30, 2007, the Company had cash and investments of $639.5 million, including $593.6 million held by its regulated entities and $45.9 million held by its unregulated entities.  Medical claims liabilities totaled $316.6 million, representing 49.2 days in claims payable.  Total debt was $202.1 million and debt to capitalization was 33.1%.

A reconciliation of the Company’s change in days in claims payable from the immediately preceding quarter-end is presented below:

Days in claims payable, June 30, 2007	46.8
Change in provider accruals	1.3
Increase in days receipt to paid	0.6
Specialty segment	0.5
Days in claims payable, September 30, 2007	49.2

Centene Corporation Reports 2007 Third Quarter Results October  23, 2007 / Page 3

Outlook

The table below depicts the Company’s guidance for the 2007 fourth quarter and full year.

	Q4 2007 (1)				2007 (1)
	Low		High		Low		High
Revenue (in millions)	$	770	$	780	$	2,915	$	2,930
Earnings per diluted share	$	0.46	$	0.51	$	1.36	$	1.41
(1) Excludes FirstGuard Activity

Eric R. Slusser, Centene’s Chief Financial Officer, stated, “The 2007 fourth quarter and full year guidance reflects our expectation for the Georgia rate increase.  The high end of our guidance range was reduced to reflect our current rate expectations.  As mentioned in our second quarter 2007 earnings call, the 2008 guidance will be announced in early December.”

Stock Repurchase Authorization

On October 22, 2007, the Company’s Board of Directors extended the expiration date of the Company’s stock repurchase program to October 31, 2008.  The program would have expired October 31, 2007.  The program authorizes the repurchase of up to 4,000,000 shares of the Company’s common stock from time to time on the open market or through privately negotiated transactions.

Conference Call

As previously announced, the Company will host a conference call Tuesday, October 23, 2007, at 8:30 A.M. (Eastern Time) to review the financial results for the third quarter ended September 30, 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 November 6, 2007 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 16108117.

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 "Third Quarter Summary" and fourth through sixth bullets under "Statement of Operations" excludes the activity for the Kansas and Missouri health plans, collectively, FirstGuard Activity.  This exclusion has been made in the non-GAAP financial measures as management believes the 2007 results of the Kansas and Missouri health plans are not indicative of future company operations.

The 2006 non-GAAP information presented above in the third bullet under "Third Quarter Summary" and fourth through sixth bullets under "Statement of Operations" excludes the FirstGuard non-cash goodwill and intangible asset impairment charges related to the loss of our Kansas contract. This exclusion has been made in the non-GAAP financial measures as management believes this charge is an unusual event.

The Company uses the presented non-GAAP financial measures internally to focus management on period-to-period changes in the Company's core business operations.  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 tables reconcile the Company’s Statement of Operations for the three and nine months ended September 30, 2007 and 2006 on a GAAP basis to a non-GAAP basis.  The 2007 non-GAAP basis excludes the FirstGuard Activity and the 2006 non-GAAP basis excludes the FirstGuard non-cash goodwill and intangible asset impairment charges related to the loss of our Kansas contract (in thousands, except share data).

	Three Months Ended September 30, 2007
	GAAP		FirstGuard  Activity			Non-GAAP
Total revenues	$	749,949	$	61		$	749,888
Expenses:
Medical costs		592,128		745			591,383
Cost of services		13,622		—			13,622
General and administrative expenses		121,139		167			120,972
Total operating expenses		726,889		912			725,977
Earnings (loss) from operations		23,060		(851	)		23,911
Investment and other income, net		2,181		—			2,181
Earnings (loss) before income taxes		25,241		(851	)		26,092
Income tax expense (benefit)		9,305		(323	)		9,628
Net earnings (loss)	$	15,936	$	(528	)	$	16,464
Diluted earnings per common share	$	0.36				$	0.37

Centene Corporation Reports 2007 Third Quarter Results October  23, 2007 / Page 4

	Nine Months Ended September 30, 2007
	GAAP			FirstGuard  Activity			Non-GAAP
Total revenues	$	2,148,522		$	6,669		$	2,141,853
Expenses:
Medical costs		1,702,396			7,347			1,695,049
Cost of services		45,922			—			45,922
General and administrative expenses		350,601			6,465			344,136
Gain on sale of FirstGuard Missouri		(7,472	)		(7,472	)		—
Total operating expenses		2,091,447			6,340			2,085,107
Earnings (loss) from operations		57,075			329			56,746
Investment and other income, net		5,285			(2,156	)		7,441
Earnings (loss) before income taxes		62,360			(1,827	)		64,187
Income tax expense (benefit)		(9,569	)		(33,660	)		24,091
Net earnings (loss)	$	71,929		$	31,833		$	40,096
Diluted earnings per common share	$	1.61					$	0.90

	Three Months Ended September 30, 2006
	GAAP			FirstGuard  Impairment Charges			Non-GAAP
Total revenues	$	631,249		$	—		$	631,249
Expenses:
Medical costs		501,350			—			501,350
Cost of services		15,373			—			15,373
General and administrative expenses		99,984			(5,993	)		93,991
Impairment loss		81,098			(81,098	)		—
Total operating expenses		697,805			(87,091	)		610,714
Earnings (loss) from operations		(66,556	)		87,091			20,535
Investment and other income, net		1,543			—			1,543
Earnings (loss) before income taxes		(65,013	)		87,091			22,078
Income tax expense		6,180			2,098			8,278
Net earnings (loss)	$	(71,193	)	$	84,993		$	13,800
Diluted earnings (loss) per common share	$	(1.65	)				$	0.31

	Nine Months Ended September 30, 2006
	GAAP			FirstGuard  Impairment Charges			Non-GAAP
Total revenues	$	1,581,620		$	—		$	1,581,620
Expenses:
Medical costs		1,263,251			—			1,263,251
Cost of services		45,278			—			45,278
General and administrative expenses		239,647			(5,993	)		233,654
Impairment loss		81,098			(81,098	)		—
Total operating expenses		1,629,274			(87,091	)		1,542,183
Earnings (loss) from operations		(47,654	)		87,091			39,437
Investment and other income, net		4,520			—			4,520
Earnings (loss) before income taxes		(43,134	)		87,091			43,957
Income tax expense		14,328			2,098			16,426
Net earnings (loss)	$	(57,462	)	$	84,993		$	27,531
Diluted earnings (loss) per common share	$	(1.33	)				$	0.62

Centene Corporation Reports 2007 Third Quarter Results October  23, 2007 / Page 5

Premium Tax Presentation

The Company reports premium taxes as a component of revenues and general and administrative expenses, or on a gross basis.  Effective with the reporting of our results for the fourth quarter of 2007, the Company intends to report premium taxes on the face of the statement of operations as a component of revenues and a component of operating expenses.  The following statement of operations, for the three months ended September 30, 2007 and 2006, displays the intended format.

	Three Months Ended September 30,
	2007			2006
	(Unaudited)
Revenues:
Premium	$	709,516		$	596,831
Premium tax		20,737			13,830
Service		19,696			20,588
Total revenues		749,949			631,249
Expenses:
Medical costs		592,128			501,350
Cost of services		13,622			15,373
General and administrative expenses		100,402			86,154
Premium tax expense		20,737			13,830
Impairment loss		—			81,098
Total operating expenses		726,889			697,805
Earnings (loss) from operations		23,060			(66,556	)
Other income (expense):
Investment and other income		6,352			4,625
Interest expense		(4,171	)		(3,082	)
Earnings (loss) before income taxes		25,241			(65,013	)
Income tax expense		9,305			6,180
Net earnings (loss)	$	15,936		$	(71,193	)

The Company also intends to alter the definition of its HBR and G&A ratios to a net basis.  On a net basis, the HBR is calculated as Medical costs divided by Premium revenues.  On a net basis, the G&A ratio is recorded as G&A expense divided by the sum of Premium revenue and Service revenue.  The following table shows the Company’s Medicaid/SCHIP HBR and the Medicaid Managed Care G&A ratio on a gross basis as reported as well as on a net basis for analytical purposes.

			Medicaid/SCHIP HBR						Medicaid Managed Care G&A Ratio
	Premium Taxes (in thousands)		Current (Gross)			Net			Current (Gross)			Net
2007
Q1	$	18,216		82.3	%		84.8	%		13.0	%		10.5	%
Q2		19,874		80.6			83.1			14.0			11.5
Q3		20,737		79.0			81.5			13.6			11.0
Year to Date	$	58,827		80.5			83.0			13.5			11.0
2006
Q1	$	4,305		82.8	%		83.7	%		11.9	%		11.0	%
Q2		6,876		84.0			85.3			12.3			11.0
Q3		13,830		82.0			84.0			13.1			11.0
Q4		17,442		82.1			84.4			12.7			10.4
Total Year	$	42,453		82.6			84.3			12.6			10.8

About Centene Corporation

Centene Corporation is a leading multi-line healthcare 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 Florida, Georgia, Indiana, New Jersey, Ohio, South Carolina, Texas and Wisconsin. In addition, the Company contracts with other healthcare and commercial organizations to provide specialty services including behavioral health, health management, 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 Third Quarter Results October  23, 2007 / Page 6

CENTENE CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

	September 30, 2007		December 31, 2006
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	275,048	$	271,047
Premium and related receivables		84,813		91,664
Short-term investments, at fair value (amortized cost $48,312 and $67,199, respectively)		48,095		66,921
Other current assets		42,496		22,189
Total current assets		450,452		451,821
Long-term investments, at fair value (amortized cost $288,732 and $146,980, respectively)		289,608		145,417
Restricted deposits, at fair value (amortized cost $26,667 and $25,422, respectively)		26,804		25,265
Property, software and equipment, net		139,671		110,688
Goodwill		133,151		135,877
Other intangible assets, net		13,829		16,202
Other assets		32,725		9,710
Total assets	$	1,086,240	$	894,980
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Medical claims liabilities	$	316,617	$	280,441
Accounts payable and accrued expenses		102,728		72,723
Unearned revenue		44,496		33,816
Current portion of long-term debt		998		971
Total current liabilities		464,839		387,951
Long-term debt		201,140		174,646
Other liabilities		11,712		5,960
Total liabilities		677,691		568,557
Stockholders’ equity:
Common stock, $.001 par value; authorized 100,000,000 shares; issued and outstanding 43,496,447 and 43,369,918 shares, respectively		44		44
Additional paid-in capital		217,746		209,340
Accumulated other comprehensive income:
Unrealized gain (loss) on investments, net of tax		493		(1,251	)
Retained earnings		190,266		118,290
Total stockholders’ equity		408,549		326,423
Total liabilities and stockholders’ equity	$	1,086,240	$	894,980

Centene Corporation Reports 2007 Third Quarter Results October  23, 2007 / Page 7

CENTENE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except share data)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2007			2006			2007			2006
	(Unaudited)						(Unaudited)
Revenues:
Premium	$	730,253		$	610,661		$	2,087,219		$	1,522,302
Service	19,696			20,588			61,303			59,318
Total revenues	749,949			631,249			2,148,522			1,581,620
Expenses:
Medical costs		592,128			501,350			1,702,396			1,263,251
Cost of services		13,622			15,373			45,922			45,278
General and administrative expenses		121,139			99,984			350,601			239,647
Impairment loss	—			81,098			—			81,098
Gain on sale of FirstGuard Missouri	—			—			(7,472		)	—
Total operating expenses	726,889			697,805			2,091,447			1,629,274
Earnings (loss)  from operations		23,060			(66,556	)		57,075			(47,654	)
Other income (expense):
Investment and other income		6,352			4,625			16,801			12,056
Interest expense	(4,171		)	(3,082		)	(11,516		)	(7,536		)
Earnings (loss) before income taxes		25,241			(65,013	)		62,360			(43,134	)
Income tax expense (benefit)	9,305			6,180			(9,569		)	14,328
Net earnings (loss)	$	15,936		$	(71,193	)	$	71,929		$	(57,462	)
Earnings per share:
Basic earnings (loss) per common share	$	0.37		$	(1.65	)	$	1.65		$	(1.33	)
Diluted earnings (loss) per common share	$	0.36		$	(1.65	)	$	1.61		$	(1.33	)
Weighted average number of shares outstanding:
Basic		43,532,832			43,219,053			43,528,201			43,126,062
Diluted		44,628,560			43,219,053			44,787,981			43,126,062

Centene Corporation Reports 2007 Third Quarter Results October  23, 2007 / Page 8

CENTENE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

	Nine Months Ended September 30,
	2007			2006
	(Unaudited)
Cash flows from operating activities:
Net earnings (loss)	$	71,929		$	(57,462	)
Adjustments to reconcile net earnings (loss) to net cash provided by operating activities —
Depreciation and amortization		20,381			15,286
Stock compensation expense		11,753			11,168
Impairment loss		—			87,091
Deferred income taxes		(859	)		(4,493	)
Gain on sale of FirstGuard Missouri		(7,472	)		—
Changes in assets and liabilities —
Premium and related receivables		6,855			(34,209	)
Other current assets		(15,540	)		2,705
Other assets		(934	)		(455	)
Medical claims liabilities		36,312			74,367
Unearned revenue		10,680			4,816
Accounts payable and accrued expenses		27,981			25,929
Other operating activities		3,666			(188	)
Net cash provided by operating activities		164,752			124,555
Cash flows from investing activities:
Purchases of property, software and equipment		(41,774	)		(39,494	)
Purchases of investments		(464,378	)		(235,501	)
Sales and maturities of investments		341,450			200,155
Proceeds from asset sales		14,102			—
Investments in acquisitions and equity method investee, net of cash acquired		(26,425	)		(66,921	)
Net cash used in investing activities		(177,025	)		(141,761	)
Cash flows from financing activities:
Proceeds from exercise of stock options		3,737			4,594
Proceeds from borrowings		202,000			83,359
Payment of long-term debt		(176,729	)		(12,505	)
Excess tax benefits from stock compensation		1,028			2,094
Common stock repurchases		(8,581	)		(7,214	)
Debt issue costs		(5,181	)		—
Net cash provided by financing activities		16,274			70,328
Net increase in cash and cash equivalents		4,001			53,122
Cash and cash equivalents, beginning of period		271,047			147,358
Cash and cash equivalents, end of period	$	275,048		$	200,480
Interest paid	$	4,480		$	7,582
Income taxes paid	$	6,965		$	5,223

Centene Corporation Reports 2007 Third Quarter Results October  23, 2007 / Page 9

CENTENE CORPORATION

SUPPLEMENTAL FINANCIAL DATA

	Q3		Q2		Q1		Q4
	2007		2007		2007		2006
MEMBERSHIP
Medicaid Managed Care:
Georgia	286,200		281,400		291,300		308,800
Indiana	156,300		161,700		176,700		183,100
New Jersey	58,300		59,100		59,100		58,900
Ohio	127,500		128,200		118,300		109,200
South Carolina	29,300		31,100		—		—
Texas	347,000		333,900		318,500		298,500
Wisconsin	132,700		136,100		139,400		164,800
Subtotal	1,137,300		1,131,500		1,103,300		1,123,300
Kansas and Missouri	—		—		—		138,900
TOTAL	1,137,300		1,131,500		1,103,300		1,262,200
Medicaid	841,600		846,900		839,600		887,300
SCHIP	223,500		216,500		211,200		216,200
SSI	72,200		68,100		52,500		19,800
Subtotal	1,137,300		1,131,500		1,103,300		1,123,300
Kansas and Missouri Medicaid and SCHIP members	—		—		—		138,900
TOTAL	1,137,300		1,131,500		1,103,300		1,262,200
Specialty Services(a):
Arizona	99,000		95,200		93,600		94,500
Kansas	35,600		37,500		36,600		36,600
TOTAL	134,600		132,700		130,200		131,100
(a) Includes behavioral health contracts only.
REVENUE PER MEMBER(b)	$	207.25	$	198.98	$	185.90	$	173.75
CLAIMS(b)
Period-end inventory	266,600		284,800		326,000		296,100
Average inventory	320,100		244,600		239,400		195,700
Period-end inventory per member..	0.24		0.26		0.30		0.23
(b) Revenue per member and claims information are presented for the Medicaid Managed Care segment.

Centene Corporation Reports 2007 Third Quarter Results October  23, 2007 / Page 10

	Q3		Q2		Q1		Q4
	2007		2007		2007		2006
DAYS IN CLAIMS PAYABLE (c)	49.2		46.8		46.4		46.4
(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	$	593.6	$	527.9	$	491.0	$	479.8
Unregulated		45.9		65.8		71.8		28.9
TOTAL	$	639.5	$	593.7	$	562.8	$	508.7
DEBT TO CAPITALIZATION(d)	33.1%		34.0%		35.3%		35.0%
(d) Debt to Capitalization is calculated as follows: total debt divided by (total debt + equity).

HEALTH BENEFITS RATIO BY CATEGORY:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2007			2006			2007			2006
Medicaid and SCHIP		79.0	%		82.0	%		80.5	%		82.8	%
SSI		89.6			84.1			88.2			86.2
Specialty Services		81.7			82.9			78.9			83.5

GENERAL AND ADMINISTRATIVE EXPENSE RATIO BY BUSINESS SEGMENT:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2007			2006			2007			2006
Medicaid Managed Care		13.6	%		13.1	%		13.5	%		12.5	%
Specialty Services		15.1			17.0			15.5			18.3

MEDICAL CLAIMS LIABILITIES (In thousands)

Four rolling quarters of the changes in medical claims liabilities are summarized as follows:

Balance, September 30, 2006	$	246,669
Incurred related to:
Current period		2,275,172
Prior period		(16,216	)
Total incurred		2,258,956
Paid related to:
Current period		1,961,044
Prior period		227,964
Total paid		2,189,008
Balance, September 30, 2007	$	316,617

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.