8-K

UNITED STATES 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 28, 2008

CENTENE CORPORATION 

(Exact name of registrant as specified in its charter)

Delaware (State or other jurisdiction of incorporation)  001-31826 (Commission file number)  42-1406317 (IRS Employer Identification No.)

7711 Carondelet Avenue, 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 28, 2008, we issued a press release announcing our financial results for the third quarter ended September 30, 2008. 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 28, 2008, as to financial results for the third quarter ended September 30, 2008.

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 28, 2008	CENTENE CORPORATION
	By:	/s/ ERIC R. SLUSSER
		Eric R. Slusser
		Executive Vice President and Chief Financial Officer

EXHIBIT INDEX 

Exhibit
Number	Description
99.1	Press release* of Centene Corporation issued October 28, 2008, as to financial results for the third quarter ended September 30, 2008.

* 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

NEWS RELEASE

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 2008 THIRD QUARTER EARNINGS

ST. LOUIS, MISSOURI (October 28, 2008) -- Centene Corporation (NYSE: CNC) today announced its net earnings from continuing operations for the quarter ended September 30, 2008 were $18.3 million, or $0.41 per diluted share, compared to $16.5 million, or $0.37 per diluted share in the 2007 third quarter.  The current quarter results include a loss on investments of $5.2 million pre-tax, or $0.07 per diluted share.  Excluding this loss, net earnings were $0.48 per diluted share.  Unless specifically noted, the discussions below are in the context of continuing operations and all financial ratios are calculated using revenues excluding premium taxes and investment income.

Third Quarter Highlights

·   Quarter-end Medicaid Managed Care membership of 1.2 million.

·   Revenues of $897.1 million, or $873.5 million net of premium taxes, an 19.8% increase over the 2007 third quarter.

·   Health Benefits Ratio (HBR), which reflects medical costs as a percent of premium revenues, of 82.4%, compared to 83.4% in the 2007 third quarter.

·   General and administrative (G&A) expense ratio of 14.0%, compared to 13.7% in the 2007 third quarter.

·   Cash flow from operations of $39.8 million.

·   Days in claims payable of 49.6.

Other Events

·   Received notification of a ruling by the Eighth Circuit of The United States Court of Appeals upholding the dismissal of a Consolidated Class Action Lawsuit.

·   Stock repurchase program extended through October 31, 2009.  Repurchased 245,740 shares of our common stock during the third quarter for approximately $5 million.

·   Completed the previously announced acquisition of Celtic Insurance Company, or Celtic, a health insurance carrier focused on the individual health insurance market, effective July 1, 2008.

·   Commenced a new acute care contract in the Yavapai Service Area of Arizona, effective October 1, 2008.

·   Appointed Donald G. Imholz as Senior Vice President and Chief Information Officer.

Michael F. Neidorff, Centene’s Chairman and Chief Executive Officer, stated, “We are pleased with the continued progress that our results show this quarter.  It is gratifying to see the operating traction that our team has gained over the past two quarters and we are working hard to ensure that this positive momentum will be maintained in 2009 and beyond,” concluded Neidorff.

Centene Corporation Reports 2008 Third Quarter Results October 28, 2008 / Page 2

The following table depicts membership in Centene’s managed care organizations, by state, at September 30, 2008 and 2007:

	2008		2007
Georgia		283,900		286,200
Indiana		172,400		156,300
New Jersey		54,900		58,300
Ohio		132,500		127,500
South Carolina(a)		26,600		29,300
Texas		436,900		347,000
Wisconsin		122,500		132,700
Total		1,229,700		1,137,300
(a) Reflects the conversion of South Carolina membership from non-risk in 2007 to full risk in 2008.

The following table depicts membership in Centene’s managed care organizations, by member category, at September 30, 2008 and 2007:

	2008			2007
Medicaid		887,700			841,600
SCHIP/Foster Care		271,700			223,500
SSI/Medicare		70,300			72,200
Total		1,229,700	(a)		1,137,300	(b)
(a) 1,226,000 at-risk; 3,700 ASO
(b) 1,104,700 at-risk; 32,600 ASO

Statement of Operations

·   For the 2008 third quarter, revenues, net of premium taxes, increased 19.8% to $873.5 million from $729.2 million in the 2007 third quarter.  The increase was primarily driven by membership growth, especially related to the new Foster Care contract in Texas, premium rate increases and the recent acquisition of Celtic which closed on July 1, 2008.

·   The consolidated HBR, which reflects medical costs as a percent of premium revenues, was 82.4%, a decrease from 83.4% in the 2007 third quarter.  The decrease is primarily due to overall increased premium yield, a moderating medical cost trend and the acquisition of Celtic.  Sequentially, our consolidated HBR decreased from 83.3% in the 2008 second quarter to 82.4% due to the medical management efforts in Ohio, moderating medical cost trends and the affect of the acquisition of Celtic, which operates at a lower HBR than our existing business.

·   Consolidated G&A expense as a percent of premium and service revenues was 14.0% in the third quarter of 2008, an increase from 13.7% in the third quarter of 2007.  The increase was due to the acquisition of Celtic which operates at a higher G&A ratio.

·   Other income in the third quarter included a loss on investments of $5.2 million, or $0.07 per diluted share.  As previously disclosed in an October 14, 2008 press release and 8-K filing, the loss was primarily due to investments in the Reserve Primary money market fund whose Net Asset Value fell below $1.00 per share due to its holdings of securities by Lehman Brothers Holdings, Inc.  The impairment losses represent less than 1% of Centene’s investment portfolio as of September 30, 2008.  While the ultimate amount of loss may change, we currently expect to recover 95% of our investment in the Reserve Primary fund and have more than sufficient liquidity to fund our operations in the near term.

·   Earnings per diluted share from continuing operations were $0.41, or $0.48 excluding the previously mentioned loss on investments, compared to $0.37 in the 2007 third quarter.

Centene Corporation Reports 2008 Third Quarter Results October 28, 2008 / Page 3

Balance Sheet and Cash Flow

At September 30, 2008, the Company had cash and investments of $754.8 million, including $728.0 million held by its regulated entities and $26.8 million held by its unregulated entities.  Medical claims liabilities totaled $379.8 million, representing 49.6 days in claims payable, an increase of 0.5 days from September 30, 2007 and an increase of 1.1 days from June 30, 2008.  Total debt was $250.0 million and debt to capitalization was 34.4%.  Year to date cash flow from operations was $126.5 million.

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, 2008	48.5
Celtic Acquisition	0.8
Other	0.3
Days in claims payable, September 30, 2008	49.6

Outlook

The table below depicts the Company’s annual guidance for 2008:

	Full Year 2008
	Low	High
Revenue (in millions)1	$    3,390	$  3,410
Earnings per diluted share	$      1.87	$    1.92
____________________________________
1 Revenue net of premium tax

Eric R. Slusser, Centene's Chief Financial Officer, stated, "Despite the effects of the $0.07 loss on investments in the third quarter, Centene will not revise the lower end of its previous 2008 earnings per diluted share guidance range.  We are tightening the previous range and currently expect 2008 EPS to range from $1.87 to $1.92 and revenue guidance of $3.39 to $3.41 billion, net of premium taxes.  We continue to expect the 2008 consolidated HBR to range from 82% to 84%.”

Stock Repurchase Authorization

On October 27, 2008, the Company’s Board of Directors extended the expiration date of the Company’s stock repurchase program to October 31, 2009.  The program would have expired October 31, 2008.  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 28, 2008, at 8:30 A.M. (Eastern Time) to review the financial results for the third quarter ended September 30, 2008, 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 11, 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 63471844.

Centene Corporation Reports 2008 Third Quarter Results October 28, 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.  Specifically, the Company has presented diluted earnings per share for the third quarter of 2008 excluding the effects of a $0.07 loss on investments recorded in the quarter.

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.

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), Foster Care, Supplemental Security Income (SSI) and Medicare (Special Needs Plans). The Company operates health plans in Arizona, 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, individual health insurance, life and 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 2008 Third Quarter Results October 28, 2008 / Page 5

CENTENE CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

	September 30,  2008			December 31, 2007
ASSETS	(Unaudited)
Current assets:
Cash and cash equivalents	$	275,284	$	268,584
Premium and related receivables		150,351		90,072
Short-term investments, at fair value (amortized cost $160,199 and $46,392, respectively)		160,376		46,269
Other current assets		48,109		41,414
Total current assets		634,120		446,339
Long-term investments, at fair value (amortized cost $288,140 and $314,681, respectively)		288,212		317,041
Restricted deposits, at fair value (amortized cost $30,630 and $27,056, respectively)		30,919		27,301
Property, software and equipment, net of accumulated depreciation of $68,834 and $54,584, respectively		170,038		138,139
Goodwill		167,008		141,030
Other intangible assets, net		19,886		13,205
Other assets		47,870		36,067
Total assets	$	1,358,053	$	1,119,122
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Medical claims liabilities	$	379,845	$	335,856
Accounts payable and accrued expenses		200,766		105,096
Unearned revenue		15,623		44,016
Current portion of long-term debt		276		971
Current liabilities of discontinued operations		255		861
Total current liabilities		596,765		486,800
Long-term debt		249,697		206,406
Other liabilities		34,017		10,869
Total liabilities		880,479		704,075
Stockholders’ equity:
Common stock, $.001 par value; authorized 100,000,000 shares; issued and outstanding 43,159,927 and 43,667,837 shares, respectively		43		44
Additional paid-in capital		223,369		221,693
Accumulated other comprehensive income:
Unrealized gain on investments, net of tax		349		1,571
Retained earnings		253,813		191,739
Total stockholders’ equity		477,574		415,047
Total liabilities and stockholders’ equity	$	1,358,053	$	1,119,122

Centene Corporation Reports 2008 Third Quarter Results October 28, 2008 / Page 6 

 CENTENE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except share data)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2008			2007			2008			2007
	(Unaudited)						(Unaudited)
Revenues:
Premium	$	855,505		$	709,455		$	2,448,392		$	2,022,123
Premium tax		23,670			20,737			68,493			58,427
Service		17,962			19,696			56,958			61,303
Total revenues		897,137			749,888			2,573,843			2,141,853
Operating expenses:
Medical costs		704,731			591,383			2,028,939			1,695,049
Cost of services		12,854			13,622			43,467			45,922
General and administrative expenses		122,627			100,235			335,109			288,709
Premium tax		24,057			20,737			68,880			58,427
Total operating expenses		864,269			725,977			2,476,395			2,088,107
Earnings from operations		32,868			23,911			97,448			53,746
Other income (expense):
Investment and other income		2,165			6,352			15,534			18,957
Interest expense		(4,377	)		(4,171	)		(12,436	)		(11,516	)
Earnings before income taxes		30,656			26,092			100,546			61,187
Income tax expense		12,395			9,628			38,709			22,951
Net earnings from continuing operations		18,261			16,464			61,837			38,236
Discontinued operations, net of income tax (benefit) expense of $(8), $(323), $145 and $(32,520), respectively		(13)			(528	)		237			33,693
Net earnings	$	18,248		$	15,936		$	62,074		$	71,929
Net earnings per share:
Basic:
Continuing operations	$	0.42		$	0.38		$	1.43		$	0.88
Discontinued operations		—			(0.01	)		—			0.77
Basic earnings per common share	$	0.42		$	0.37		$	1.43		$	1.65
Diluted:
Continuing operations	$	0.41		$	0.37		$	1.39		$	0.85
Discontinued operations		—			(0.01	)		—			0.75
Diluted earnings per common share	$	0.41		$	0.36		$	1.39		$	1.61
Weighted average number of shares outstanding:
Basic		43,232,941			43,532,832			43,381,819			43,528,201
Diluted		44,530,347			44,628,560			44,541,424			44,787,981

Centene Corporation Reports 2008 Third Quarter Results October 28, 2008 / Page 7  

 CENTENE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

	Nine Months Ended September 30,
	2008			2007
	(Unaudited)
Cash flows from operating activities:
Net earnings	$	62,074		$	71,929
Adjustments to reconcile net earnings to net cash provided by operating activities
Depreciation and amortization		26,018			20,381
Stock compensation expense		11,576			11,753
Deferred income taxes		13,987			(859	)
Loss on sale of investments, net		4,923			161
Gain on sale of FirstGuard Missouri		—			(7,472	)
Changes in assets and liabilities —
Premium and related receivables		(50,797	)		6,855
Other current assets		(6,422	)		(15,540	)
Other assets		(713	)		(934	)
Medical claims liabilities		28,109			36,312
Unearned revenue		(37,931	)		10,680
Accounts payable and accrued expenses		74,723			27,981
Other operating activities		967			3,505
Net cash provided by operating activities		126,514			164,752
Cash flows from investing activities:
Purchases of property, software and equipment		(52,588	)		(41,774	)
Purchases of investments		(372,221	)		(464,378	)
Sales and maturities of investments		356,367			341,450
Proceeds from asset sales		—			14,102
Investments in acquisitions and equity method investee, net of cash acquired		(83,509	)		(26,425	)
Net cash used in investing activities		(151,951	)		(177,025	)
Cash flows from financing activities:
Proceeds from exercise of stock options		4,770			3,737
Proceeds from borrowings		152,005			202,000
Payments of long-term debt		(109,410	)		(176,729	)
Excess tax benefits from stock compensation		3,016			1,028
Common stock repurchases		(18,244	)		(8,581	)
Debt issue costs		—			(5,181	)
Net cash provided by financing activities		32,137			16,274
Net increase (decrease) in cash and cash equivalents		6,700			4,001
Cash and cash equivalents, beginning of period		268,584			271,047
Cash and cash equivalents, end of period	$	275,284		$	275,048
Supplemental cash flow information:
Interest paid	$	8,467		$	4,480
Income taxes paid	$	28,370		$	6,965

Centene Corporation Reports 2008 Third Quarter Results October 28, 2008 / Page 8  

CENTENE CORPORATION

CONTINUING OPERATIONS SUPPLEMENTAL FINANCIAL DATA

	Q3		Q2		Q1		Q4		Q3
	2008		2008		2008		2007		2007
MEMBERSHIP
Managed Care:
Georgia	283,900		278,800		282,700		287,900		286,200
Indiana	172,400		161,700		161,300		154,600		156,300
New Jersey	54,900		55,100		56,500		57,300		58,300
Ohio	132,500		137,300		131,100		128,700		127,500
South Carolina	26,600		22,500		29,300		31,800		29,300
Texas	436,900		427,200		369,000		354,400		347,000
Wisconsin	122,500		124,800		126,900		131,900		132,700
TOTAL	1,229,700		1,207,400		1,156,800		1,146,600		1,137,300
Medicaid	887,700		866,700		862,900		848,100		841,600
SCHIP & Foster Care	271,700		267,000		216,000		224,400		223,500
SSI & Medicare	70,300		73,700		77,900		74,100		72,200
TOTAL	1,229,700		1,207,400		1,156,800		1,146,600		1,137,300
Specialty Services(a):
Arizona	102,400		99,400		97,900		99,900		99,000
Kansas	40,100		40,000		39,400		39,000		35,600
TOTAL	142,500		139,400		137,300		138,900		134,600
(a) Includes behavioral health contracts only.
REVENUE PER MEMBER(b)	$	213.95	$	214.63	$	215.35	$	210.34	$	201.05
CLAIMS(b)
Period-end inventory	321,200		336,900		393,700		312,700		265,400
Average inventory	317,100		244,800		281,600		288,700		319,900
Period-end inventory per member	0.26		0.28		0.34		0.28		0.24
(b) Revenue per member and claims information are presented for the Medicaid Managed Care segment.

Centene Corporation Reports 2008 Third Quarter Results October 28, 2008 / Page 9  

	Q3		Q2		Q1		Q4		Q3
	2008		2008		2008		2007		2007
DAYS IN CLAIMS PAYABLE (c)	49.6		48.5		49.3		49.1		49.1
(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	$	728.0	$	680.9	$	651.1	$	626.2	$	593.6
Unregulated		26.8		29.0		25.8		33.0		45.9
TOTAL	$	754.8	$	709.9	$	676.9	$	659.2	$	639.5
DEBT TO CAPITALIZATION(d)	34.4%		32.6%		32.8%		33.3%		33.1%
(d) Debt to Capitalization is calculated as follows: total debt divided by (total debt + equity).

OPERATING RATIOS:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2008			2007			2008			2007
Health Benefits Ratios
Medicaid and SCHIP		81.3	%		81.3	%		80.9	%		82.9	%
SSI and Medicare		89.7			92.4			92.3			90.8
Specialty Services		79.5			82.2			82.7			79.4
Total		82.4			83.4			82.9			83.8
General & Administrative Expense Ratio		14.0	%		13.7	%		13.4	%		13.9	%

MEDICAL CLAIMS LIABILITIES (In thousands)

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

Balance, September 30, 2007	$	315,3111
Acquisitions		15,398
Incurred related to:
Current period		2,665,373
Prior period		(6,997	)
Total incurred		2,658,376
Paid related to:
Current period		2,304,281
Prior period		304,959
Total paid		2,609,240
Balance, September 30, 2008	$	379,845

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.