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CENTENE CORP Annual Report, Year Ended Dec 31, 2004

Filing Date
Filed February 24, 2005
Period End
December 31, 2004
Security
CNC
In the record · 2016–202610-K1110-Q328-K217

CNC filed 11 annual reports (10-K), 32 quarterly reports (10-Q) and 217 current reports (8-K) between 2016 and 2026.

  1. Deal closed8-K · Jul ’18Jul ’18
  2. Leadership change8-K · Jan ’20Jan ’20
  3. Deal closed8-K · Jan ’22Jan ’22
  4. Leadership change8-K · Aug ’25Aug ’25

01—Abstract

Summary

Summary of the 10-K filed February 24, 2005. Cited figures are marked; the original filing is the authoritative source.

Centene Corporation (NYSE: CNC) reported a strong 2004 with total revenues up 30.0% to $1.0 billiona and net earnings up 33.2% to $44.3 million, or $1.02 per diluted share.

Growth was driven by membership gains (total members up 58% to 772,700 at year-end, including the FirstGuard acquisition in Kansas and Missouri, the Ohio market entry, and the 87,500-member Texas SCHIP EPO contract) and a 4.4% composite premium rate increase. The health benefits ratio improved to 80.7% from 82.4%, which management attributes to emergency room utilization programs and preferred drug lists, while general and administrative expenses rose 44.8% as the company invested in Specialty Services and new markets. The balance sheet expanded substantially, with total assets rising to $527.9 millionb from $362.7 million, largely due to goodwill from FirstGuard (goodwill now $101.6 million).

Debt increased to $47.5 millionc from $8.2 million after drawing on a new $100 million revolving credit facility to fund the acquisition. Operating cash flow was $99.4 million. Management expects existing resources to fund operations and the pending SummaCare Ohio acquisition (approximately $31 million, expected to close in Q2 2005).

Key investor considerations include the company's concentration in a few state Medicaid contracts (Indiana, New Jersey, Texas and Wisconsin each exceeded 10% of revenue), contract terms that run through 2005 to 2007, and exposure to state budget pressures and federal Medicaid policy changes. The Aurora Health Care lawsuit (claimed to exceed $8 milliond) is disclosed but not expected to be material. Note that the filing's preliminary FirstGuard purchase accounting and the upcoming SFAS 123R stock option expensing (effective July 2005) are items to monitor.

02—Key points

Key Highlights

  1. Total revenues grew 30.0% to $1,000.9 million in 2004, with premium revenue of $991.7 million, up 30.5%.
  2. Net earnings rose 33.2% to $44.3 million; diluted EPS increased 17.2% to $1.02 (from $0.87).
  3. Health benefits ratio improved to 80.7% from 82.4%, driven by ER utilization reduction and preferred drug list initiatives.
  4. Membership reached 772,700 at December 31, 2004, up 57.8% from 489,600, reflecting the FirstGuard acquisition, Ohio entry and Texas SCHIP EPO contract.
  5. Acquired FirstGuard (Kansas and Missouri) for approximately $96.1 million, creating $86.8 million of goodwill; pending $31 million SummaCare (Ohio) acquisition expected to close in Q2 2005.
  6. Total debt increased to $47.5 million from $8.2 million, mainly from a $34 million draw on a new $100 million five-year revolving credit facility.
  7. Concentration risk remains high: Indiana, New Jersey, Texas and Wisconsin each contributed more than 10% of 2004 revenues, and contracts expire between June 2005 and August 2007.

03—Questions

Frequently Asked Questions

  1. What drove Centene's revenue and earnings growth in 2004?

    Revenue growth came from organic membership gains in existing markets, the Texas SCHIP EPO contract (effective September 2004), the Ohio market entry (January 2004) and the FirstGuard acquisition (December 2004), plus a composite premium rate increase of 4.4%. Earnings growth was supported by a lower health benefits ratio, which offset a 44.8% increase in general and administrative expenses.

  2. How healthy is Centene's balance sheet and liquidity position?

    Total stockholders' equity increased to $271.3 million from $220.1 million, and cash, cash equivalents and short-term investments totaled $178.4 million. Debt rose to $47.5 million, including the revolver and non-recourse mortgages. Management states that cash, investments, operating cash flow and credit availability should cover operations, the SummaCare acquisition and capital expenditures for at least 12 months. Statutory capital of $123.6 million exceeded the $65.1 million required minimum.

  3. What are the main risks to Centene's business?

    The main risks are reductions in Medicaid, SCHIP and SSI funding; the possibility that contracts are terminated or not renewed (most expire between 2005 and 2007); regulatory changes; the risk that medical costs exceed premiums and IBNR estimates; and dependence on a few states. Federal proposals to change Medicaid financing and cut drug payments are also flagged as potential headwinds.

  4. Are there any material legal or accounting issues investors should know about?

    The Aurora Health Care lawsuit in Wisconsin, which claims reimbursement shortfalls exceeding $8 million, is ongoing, and the company is defending it. Management does not expect a material effect. Medical claims liabilities rose to $166.0 million, with favorable prior-year reserve development of $15.9 million, and management describes the reserve estimates as adequate. Internal controls were assessed as effective, excluding FirstGuard, which represents 29% of assets and 2% of revenues.

04—Continue

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