Centene Corporation Reports Eighteenth Consecutive Quarter of Increased Profitability

February 9, 2004 at 5:13 PM EST

ST. LOUIS--(BUSINESS WIRE)--Feb. 9, 2004--Centene Corporation (NYSE: CNC) today announced the Company's financial results for the fourth quarter and year ended December 31, 2003.

    Fourth Quarter Highlights

    --  Revenues of $207.3 million, a 46% increase over the fourth
        quarter of 2002.

    --  Earnings from operations of $13.8 million, a 44% increase over
        the fourth quarter of 2002.

    --  Earnings per diluted share of $0.45.

    --  Organic membership growth of 15% over the fourth quarter of
        2002.

    --  Medicaid Managed Care segment G&A of 10.2% (GAAP) and 9.8%
        (non-GAAP), exclusive of newly enacted premium tax.

    --  Operating cash flows of $33.7 million.

    --  Days in claims payable of 59.0.

    --  Completed acquisition of Family Health Plan's Medicaid-related
        assets in Toledo, Ohio with membership effective on January 1,
        2004.

    --  Important new management appointments.

    --  Transferred listing of common stock to NYSE.

Michael F. Neidorff, Centene's president and chief executive officer, said, "Our ongoing predictable and strong financial performance enables us to continue implementing our strategy of becoming a multi-line Medicaid company. Towards this objective, we added five important management members to our team during the year. This positions Centene for continued expansion into new mandated Medicaid states and for new products to strengthen our ability to meet the needs of our patient population with a broad behavioral and specialty healthcare services offering. We look forward to the challenges and opportunities that lie ahead and are confident that we have the systems, people and financial resources to meet them."

Neidorff continued, "We closed on our Ohio acquisition within the timeframe anticipated and believe there is significant potential to grow organically in this market, where there are over one million eligible lives. Our strong relationship with Mercy Health Partners in Ohio further increases our confidence. Our other states are meeting our growth expectations, with particularly strong growth in Indiana, Texas and Wisconsin. The multiple opportunities for continued growth both organically and through acquisitions remain intact."

"The states' budget landscapes have improved since last year, and we continued to help them address their budget challenges through our margin protection programs that focus on a combination of rate increases and administrative policy changes that supplement the amount of rate increases. The year ahead offers significant opportunities for Centene, recognizing the government's growing concern for the 44 million uninsured Americans who would benefit from our programs," concluded Neidorff.

Membership totaled 489,600 at December 31, 2003, a 19.5% increase from 409,600 at December 31, 2002 and a 4.8% increase from 467,100 at September 30, 2003.

The following table depicts membership by state at December 31, 2003 and 2002:

                             2003              2002
                        ---------------   ---------------
Wisconsin                      157,800           133,000
Texas                          158,400           118,000
Indiana                        119,400           105,700
New Jersey                      54,000            52,900
                        ---------------   ---------------

TOTAL                          489,600           409,600
                        ===============   ===============

The following table depicts membership by line of business at December 31, 2003 and 2002:

                             2003              2002
                        ---------------   ---------------
Medicaid                       411,800           336,100
SCHIP                           68,400            65,900
SSI                              9,400(a)          7,600(b)
                        ---------------   ---------------

TOTAL                          489,600           409,600
                        ===============   ===============

(a) 4,400 at-risk; 5,000 ASO
(b) 3,900 at-risk; 3,700 ASO


    Statement of Earnings Highlights

        --  For the fourth quarter of 2003, revenues increased 46.3%
            to $207.3 million from $141.7 million in the fourth
            quarter of 2002. Net of acquisitions, revenues increased
            38.9% over the same prior year quarter. The health
            benefits ratio (HBR), which reflects medical services
            costs as a percent of premium revenues, was 81.2% and
            compares to 82.5% for the same period in 2002. General and
            administrative expenses as a percent of revenues increased
            to 12.2% from 10.8%. Earnings from operations increased
            43.8% to $13.8 million from $9.6 million in 2002. Net
            earnings improved to $9.7 million, or $0.45 per diluted
            share, compared to $6.8 million, or $0.38 per diluted
            share, for the fourth quarter of 2002.

            Both the HBR and the general and administrative expense
            ratio were affected by the newly enacted premium tax
            imposed by the state of Texas on September 1, 2003. The
            HBR was 81.2% (GAAP) and 81.6% excluding $1.1 million in
            premium revenue dollars attributable to the premium tax
            (non-GAAP). Similarly, excluding the effect of the tax on
            general and administrative expenses, the expense ratio was
            12.2% (GAAP) and 11.8% (non-GAAP) in total, and 10.2%
            (GAAP) and 9.8% (non-GAAP) for the Medicaid Managed Care
            segment.

        --  Investment and other income for the fourth quarter of 2003
            was $1.7 million, an increase from $0.9 million in the
            fourth quarter of 2002. This was largely due to interest
            income generated from the increased cash and investment
            balances on hand primarily resulting from the Company's
            follow-on financing in August 2003. The Company's
            effective tax rate for the quarter was 37.0%.

        --  For the year ended December 31, 2003, revenues increased
            66.8% to $769.7 million from $461.5 million in the year
            ended 2002. The health benefits ratio of 82.4% compares to
            82.3% for the year ended 2002. General and administrative
            expenses as a percent of revenues increased to 11.5% from
            10.9% reflecting the implementation of Centene's Specialty
            Services segment, as well as the aforementioned premium
            tax. Earnings from operations increased 48.5% to $46.9
            million from $31.6 million in 2002. Net earnings improved
            29.9% to $33.3 million, or $1.73 per diluted share.

        --  The following table sets forth fully diluted earnings per
            share for the first, second, third and fourth quarters of
            2003 as reported (GAAP) and on a pro forma basis
            (non-GAAP). Pro forma (non-GAAP) net earnings per diluted
            share assumes that as of January 1, 2003: 1) the Company's
            August 2003 follow-on common stock offering was completed,
            2) the net proceeds were invested in short-term
            instruments bearing interest of 2.0% and 3) the Company's
            tax rate was 38.0%.

                      Q4 2003      Q3 2003      Q2 2003       Q1 2003
                    ------------ ------------ ------------------------
Net earnings, as
 reported (GAAP)    $     9,697  $     8,704  $     7,708 $     7,161

Pro forma interest
 income, net of
 related tax effects         --          121          252         252
                     -----------  -----------  ----------- -----------
Pro forma (non-
 GAAP) net earnings  $     9,697  $     8,825  $     7,960 $     7,413
                     ===========  ===========  =========== ===========

Earnings per common
 share:
Diluted, as
 reported (GAAP)    $      0.45  $      0.44  $      0.43 $      0.40
Diluted, pro forma
 (non-GAAP)         $      0.45  $      0.41  $      0.37 $      0.35

Shares used in
 computing per
 share amounts:
As reported (GAAP)   21,541,918   19,842,145   17,803,016  17,757,266
Pro forma effect
 (non-GAAP)                  --    1,612,500    3,450,000   3,450,000
                     -----------  -----------  ----------- -----------
Pro forma (non-
 GAAP)               21,541,918   21,454,645   21,253,016  21,207,266
                     ===========  ===========  =========== ===========

Balance Sheet Highlights

At December 31, 2003, the Company had cash and investments of $284.7 million, a portion of which is restricted due to state regulatory requirements. Medical claims liabilities totaled $106.6 million, representing 59.0 days in claims payable, influenced by increased inventory levels.

Cash flows from operating activities of $56.0 million for the twelve months ended December 31, 2003, reflect a 41.2% increase year over year.

Outlook

Karey L. Witty, Centene's chief financial officer, commented, "We anticipate 2004 revenue in the range of $940 to $950 million and net earnings of $1.89 to $1.96 per share. This does not include the potential impact of any acquisitions we may undertake during 2004."

Conference Call

As previously announced, the Company will host a conference call on February 10, 2004 at 8:30 a.m. (Eastern Standard Time) to review the financial results for the fourth quarter and year ended December 31, 2003, and to discuss its business outlook. Michael F. Neidorff and Karey L. Witty will host the conference call. Investors are invited to participate in the conference call by dialing (800) 273-1254 in the United States and Canada, and (706) 679-8592 for international participants, or via a live Internet broadcast at the Company's website, www.centene.com. A replay of the call will be available from February 10, 2004 shortly after completion of the call and ending on February 17, 2004 at 11:59 p.m. Investors may dial (800) 642-1687 in the United States and (706) 645-9291 from abroad and enter access number 4814536. Additionally, the webcast will be archived for the same period at www.centene.com.

Financial Presentation

The Company is providing certain non-GAAP financial measures in this release as the Company believes that 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 pro forma (non-GAAP) information presented above in the fifth bullet under "Fourth Quarter Highlights," the second paragraph under "Statement of Earnings" and presented below in tables excludes the impact of a newly enacted premium tax. This assumption has been made in the non-GAAP financial measures as management believes that this assumption generally provides a more consistent measure of the Company's performance.

The pro forma (non-GAAP) information presented above in the fourth bullet under "Statement of Earnings Highlights" assumes that the Company's follow-on public offering was completed as of January 1, 2003. This assumption has been made in the non-GAAP financial measures as management believes that this assumption generally provides a more consistent measure of the Company's performance.

The Company uses the presented non-GAAP financial measures internally to focus management on period-to-period changes in the Company's core business. Therefore, the Company believes that this information is meaningful in addition to the information contained in the GAAP presentation of financial information. The presentation of this additional non-GAAP financial information is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with GAAP.

About Centene Corporation

Centene Corporation provides managed care programs and related services to individuals receiving benefits under Medicaid, including Supplemental Security Income (SSI), and the State Children's Health Insurance Program (SCHIP). The Company operates health plans in Wisconsin, Texas, Indiana, New Jersey and Ohio. In addition, the Company contracts with other healthcare organizations to provide specialty services including behavioral health, nurse triage and pharmacy compliance. Information regarding Centene is available via the Internet at www.centene.com.

The information provided above in the first, second and third paragraphs following the bullet listing under "Fourth Quarter Highlights" and in the paragraph under "Outlook" contain forward-looking statements that relate to future events and future financial performance of Centene. These forward-looking statements represent the Company's estimates as of February 9, 2004. 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.


                 CENTENE CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED BALANCE SHEETS
                   (In thousands, except share data)

                                                       December 31,
                                                    ------------------
                                                      2003      2002
                                                    --------  --------
                      ASSETS
Current assets:
 Cash and cash equivalents                         $ 64,346  $ 59,656
 Premium and related receivables, net of
  allowances of $607 and $219, respectively          20,308    16,773
 Short-term investments, at fair value (amortized
  cost $15,192 and $9,687, respectively)             15,160     9,571
 Deferred income taxes                                2,732     2,846
 Other current assets                                 7,755     4,243
                                                    --------  --------
  Total current assets                              110,301    93,089
Long-term investments, at fair value (amortized
 cost $183,749 and $78,025, respectively)           184,811    79,666
Restricted deposits, at fair value (amortized cost
 $20,201 and $15,561, respectively)                  20,364    15,762
Property, software and equipment                     23,106     6,295
Goodwill                                             13,066     5,022
Intangible assets                                     6,294     5,673
Other assets                                          4,750     4,820
                                                    --------  --------
  Total assets                                     $362,692  $210,327
                                                    ========  ========

      LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
 Medical claims liabilities                        $106,569  $ 91,181
 Accounts payable and accrued expenses               17,965    10,748
 Unearned revenue                                     3,673        --
 Current portion of long-term debt and notes
   payable                                              579        --
                                                    --------  --------
  Total current liabilities                         128,786   101,929
Long-term debt                                        7,616        --
Other liabilities                                     6,175     5,334
                                                    --------  --------
  Total liabilities                                 142,577   107,263
Minority interest                                        --       881
Stockholders' equity:
 Common stock, $.001 par value; authorized
  40,000,000 shares; shares issued and
  outstanding: 20,131,924 and 16,243,649,
  respectively                                           20        16
 Additional paid-in capital                         157,380    72,372
 Accumulated other comprehensive income:
 Unrealized gain on investments, net of tax             740     1,087
  Retained earnings                                  61,975    28,708
                                                    --------  --------
 Total stockholders' equity                         220,115   102,183
                                                    --------  --------
 Total liabilities and stockholders' equity        $362,692  $210,327
                                                    ========  ========


                 CENTENE CORPORATION AND SUBSIDIARIES
                  CONSOLIDATED STATEMENTS OF EARNINGS
                   (In thousands, except share data)

                       THREE MONTHS ENDED           YEAR ENDED
                          DECEMBER 31,              DECEMBER 31,
                   ------------------------- -------------------------
                       2003         2002         2003         2002
                    -----------  -----------  -----------  -----------
                          (Unaudited)

Revenues:
 Premiums          $   204,477  $   141,590  $   759,763  $   461,030
 Services                2,833          136        9,967          457
                    -----------  -----------  -----------  -----------
  Total revenues       207,310      141,726      769,730      461,487
                    -----------  -----------  -----------  -----------
Expenses:
 Medical costs         166,068      116,771      626,192      379,468
 Cost of services        2,054           89        8,323          341
 General and
  administrative
  expenses              25,384       15,268       88,288       50,072
                    -----------  -----------  -----------  -----------
  Total operating
   expenses            193,506      132,128      722,803      429,881
                    -----------  -----------  -----------  -----------
  Earnings from
   operations           13,804        9,598       46,927       31,606
Other income
 (expense):
 Investment and
  other income           1,684          916        5,160        9,575
 Interest expense          (92)         (18)        (194)         (45)
                    -----------  -----------  -----------  -----------
    Earnings before
     income taxes       15,396       10,496       51,893       41,136
Income tax expense       5,699        3,798       19,504       15,631
Minority interest           --          116          881          116
                    -----------  -----------  -----------  -----------
  Net earnings     $     9,697  $     6,814  $    33,270  $    25,621
                    ===========  ===========  ===========  ===========
Earnings per share:
  Basic earnings
   per common
   share           $      0.48  $      0.42  $      1.86  $      1.63
  Diluted earnings
   per common
   share           $      0.45  $      0.38  $      1.73  $      1.47
Weighted average
 number of shares
 outstanding:
  Basic             20,100,285   16,177,934   17,852,213   15,716,040
  Diluted           21,541,918   17,858,936   19,211,076   17,466,116


                 CENTENE CORPORATION AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF CASH FLOWS
                            (In thousands)

                                               Year Ended December 31,
                                               -----------------------
                                                    2003       2002
                                                  --------   --------
Cash flows from operating activities:
Net earnings                                     $  33,270  $  25,621
Adjustments to reconcile net earnings to net cash
 provided by operating activities --
  Depreciation and amortization                      6,448      2,565
  Stock compensation expense                           188        270
  Minority interest                                   (881)      (116)
  Gain on sale of investments                       (1,646)      (649)
Changes in assets and liabilities --
  Premium and related receivables                   (2,364)    (2,449)
  Other current assets                              (3,180)    (1,463)
  Deferred income taxes                                772       (574)
  Other assets                                         223        857
  Medical claims liabilities                        15,053     15,386
  Unearned revenue                                   3,673       (827)
  Accounts payable and accrued expenses              3,897      1,910
  Other operating activities                           546       (872)
                                                  ---------  ---------
    Net cash provided by operating activities       55,999     39,659
                                                  ---------  ---------
Cash flows from investing activities:
  Purchase of property and equipment               (19,162)    (3,918)
  Purchase of investments                         (435,282)  (192,371)
  Sales and maturities of investments              319,564    127,706
  Acquisitions, net of cash acquired                (5,861)   (11,096)
                                                  ---------  ---------
    Net cash used in investing activities         (140,741)   (79,679)
                                                  ---------  ---------
Cash flows from financing activities:
  Net proceeds from issuance of common stock        81,313     10,318
  Proceeds from exercise of stock options            1,145        491
  Extinguishment of acquired liabilities            (1,218)        --
  Cash paid for fractional share impact of stock
   split                                                (3)        --
  Proceeds from borrowings                           8,581         --
  Reduction of long-term debt and notes payable       (386)        --
                                                  ---------  ---------
    Net cash provided by financing activities       89,432     10,809
                                                  ---------  ---------
    Net increase (decrease) in cash and cash
     equivalents                                     4,690    (29,211)
                                                  ---------  ---------
Cash and cash equivalents, beginning of period      59,656     88,867
                                                  ---------  ---------
Cash and cash equivalents, end of period         $  64,346  $  59,656
                                                  =========  =========
  Interest paid                                  $     176  $      28
  Income taxes paid                              $  19,935  $  16,433


                          CENTENE CORPORATION
                      SUPPLEMENTAL FINANCIAL DATA

                                      Q4       Q3       Q2       Q1
                                     2003     2003     2003     2003
                                   -------- -------- -------- --------
MEMBERSHIP
   Wisconsin                       157,800  150,200  145,600  139,100
   Texas                           158,400  152,100  131,400  122,700
   Indiana                         119,400  112,100  109,000  104,800
   New Jersey                       54,000   52,700   52,700   52,700
                                   -------- -------- -------- --------
TOTAL                              489,600  467,100  438,700  419,300
                                   ======== ======== ======== ========

   Medicaid                        411,800  389,200  361,700  344,700
   SCHIP                            68,400   68,600   68,800   66,600
   SSI                               9,400    9,300    8,200    8,000
                                   -------- -------- -------- --------
TOTAL                              489,600  467,100  438,700  419,300
                                   ======== ======== ======== ========

REVENUE PER MEMBER                 $142.38  $143.98  $142.26  $142.06

CLAIMS
   Period-end inventory            131,000   59,400  109,900  144,500
   Average inventory               102,500   75,600   85,400  131,400
   Period-end inventory per member    0.27     0.13     0.25     0.34

DAYS IN CLAIMS PAYABLE (a)            59.0     52.5     52.0     58.1

(a) 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.

ANNUALIZED RETURN
ON EQUITY (b)                         18.1%(c) 21.3%(c) 27.1%    27.0%

(b) Annualized Return on Equity is calculated as follows:
    (net income for quarter x 4) divided by ((beginning of period
    equity + end of period equity) divided by 2).

(c) Reflects a 3,450,000 share follow-on offering completed
    August 13, 2003.


HEALTH BENEFITS RATIO BY CATEGORY:

                                     THREE MONTHS ENDED   YEAR ENDED
                                        DECEMBER 31,      DECEMBER 31,
                                     ------------------  -------------
                                        2003   2002       2003   2002
                                        ----- ------     ------ ------
Medicaid (excluding SSI) and SCHIP      80.7%  82.2%      81.7%  82.2%
SSI                                     98.9  100.7      102.5  100.7
Total (GAAP)                            81.2   82.5       82.4   82.3
Total (non-GAAP), excluding effect of
 premium tax                            81.6   82.5       82.6   82.3


     GENERAL AND ADMINISTRATIVE EXPENSE RATIO BY BUSINESS SEGMENT:

                        THREE MONTHS ENDED            YEAR ENDED
                            DECEMBER 31,             DECEMBER 31,
                      -----------------------  -----------------------
                            2003        2002         2003         2002
                      ----------------- -----  ----------------- -----
                      GAAP  non-GAAP(d)        GAAP  non-GAAP(d)
                      ----- -----------        ----- -----------
Medicaid Managed Care 10.2%     9.8%    10.8%  10.3%    10.1%    10.9%
Specialty Services    53.5     53.5       --   38.2     38.2       --
  Total               12.2     11.8     10.8   11.5     11.3     10.9

(d)Excluding effect of premium tax.


                       MEDICAL CLAIMS LIABILITES
                            (In thousands)

The change in medical claims liabilities is summarized as follows:

                                        December 31,
                                 ---------------------------
                                     2003            2002
                                   --------       ---------
Balance, January 1                $ 91,181       $  59,565
Acquisitions                           335(e)       16,230(e)
Incurred related to:
   Current year                    645,482         396,715
   Prior years                     (19,290)        (17,247)
                                   --------       ---------
      Total incurred               626,192         379,468
                                   --------       ---------
Paid related to:
   Current year                    544,309         324,210
   Prior years                      66,830          39,872
                                   --------       ---------
      Total paid                   611,139         364,082
                                   --------       ---------
Balance, December 31              $106,569       $  91,181
                                   ========       =========

(e) Includes reserves acquired in connection with the acquisition of
the outstanding capital stock of University Health Plans, Inc.

Centene's claims reserving process utilizes a consistent actuarial
methodology to estimate Centene's ultimate liability.  Any reduction
in the "Incurred related to: Prior years" claims may be offset as
Centene actuarially determines "Incurred related to: Current year."
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.

    CONTACT: Centene Corporation
             Karey L. Witty, 314-725-4477
             or
             Investor Relations Department
             Lisa M. Wilson, 212-759-3929

    SOURCE: Centene Corporation