e424b5
The
information in this prospectus supplement and the accompanying
prospectus is not complete and may be changed. This prospectus
supplement and the accompanying prospectus are not an offer to
sell these securities, and we are not soliciting an offer to buy
these securities in any jurisdiction where the offer or sale is
not permitted.
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Filed
pursuant to Rule 424(b)(5)
Registration No. 333-164390
Subject
to Completion
Preliminary
Prospectus Supplement dated January 19, 2010
PROSPECTUS SUPPLEMENT
(To prospectus dated January 19, 2010)
5,000,000 Shares
Centene Corporation
Common Stock
Centene Corporation is offering 5,000,000 shares of common stock
to be sold pursuant to this prospectus supplement and the
accompanying prospectus. We intend to use the proceeds of this
offering to repay indebtedness and for general corporate
purposes. See Use of Proceeds. Our common stock is
listed on the New York Stock Exchange under the symbol
CNC. On January 15, 2010, the last sale price
of our common stock as reported on the New York Stock Exchange
was $22.04 per share.
Investing in our common stock involves risks that are
described in the Risk Factors section beginning on
page S-11
of this prospectus supplement.
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Per Share
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Total
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Public offering price
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$
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$
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Underwriting discount
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$
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$
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Proceeds, before expenses, to us
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$
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$
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The underwriters may also purchase up to an additional
750,000 shares of common stock from us at the public
offering price, less the underwriting discount, within
30 days from the date of this prospectus supplement to
cover overallotments.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or passed upon the accuracy or adequacy of this
prospectus supplement or the accompanying prospectus. Any
representation to the contrary is a criminal offense.
The shares will be ready for delivery on or about
January , 2010.
Joint Book-Running Managers
Co-Managers
The date of this prospectus supplement is
January , 2010.
TABLE OF
CONTENTS
Prospectus
Supplement
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S-ii
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S-ii
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S-1
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S-8
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S-9
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S-11
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S-25
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S-26
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S-27
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S-28
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S-29
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S-33
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S-38
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S-38
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S-38
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Prospectus
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Page
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About this Prospectus
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1
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Risk Factors
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2
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Centene Corporation
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2
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Where You Can Find More Information
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2
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Use of Proceeds
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3
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Cautionary Statement on Forward-Looking Statements
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3
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Description of Capital Stock
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4
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Plan of Distribution
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10
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Legal Matters
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11
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Experts
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11
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You should read this document together with additional
information described under the heading Where You Can Find
More Information. You should rely only on the information
contained or incorporated by reference in this prospectus
supplement and the accompanying prospectus. We have not, and the
underwriters have not, authorized any other person to provide
you with different information. If anyone provides you with
different or inconsistent information, you should not rely on
it. We are not, and the underwriters are not, making an offer to
sell these securities in any jurisdiction where the offer or
sale is not permitted. You should assume that the information
appearing in this prospectus supplement, the accompanying
prospectus and the documents incorporated by reference is
accurate only as of their respective dates. Our business,
financial condition, results of operations and prospects may
have changed since those dates.
S-i
ABOUT
THIS PROSPECTUS SUPPLEMENT
This document is comprised of two parts. The first part is the
prospectus supplement, which describes the specific terms of
this offering and also adds to and updates information contained
in the accompanying prospectus and the documents incorporated by
reference. The second part is the accompanying prospectus, which
gives more general information, some of which may not apply to
this offering. Generally, when we refer to the prospectus, we
are referring to both parts of this document combined. To the
extent there is a conflict between the information contained in
this prospectus supplement, on the one hand, and the information
contained in the accompanying prospectus, on the other hand, the
information in this prospectus supplement shall control.
Unless the context otherwise requires, the terms the
Company, we, us,
our or similar terms and Centene refer
to Centene Corporation, together with its consolidated
subsidiaries.
This document may only be used where it is legal to sell the
shares of common stock. Certain jurisdictions may restrict the
distribution of these documents and the offering of the shares
of common stock. We require persons receiving these documents to
inform themselves about and to observe any such restrictions. We
have not taken any action that would permit an offering of the
shares of common stock or the distribution of these documents in
any jurisdiction that requires such action.
MARKET
AND INDUSTRY DATA
Throughout this prospectus, we rely on and refer to information
and statistics regarding the healthcare industry. We obtained
this information and these statistics from various third-party
sources, discussions with state regulators and our own internal
estimates. We believe that these sources and estimates are
reliable, but we have not independently verified them and cannot
guarantee their accuracy or completeness.
S-ii
PROSPECTUS
SUPPLEMENT SUMMARY
This summary contains basic information about us, our common
stock and this offering. Because this is a summary, it does not
contain all of the information you should consider before
investing in our common stock. You should carefully read this
summary together with the more detailed information and
financial statements and notes thereto contained elsewhere or
incorporated by reference in this prospectus supplement and the
accompanying prospectus. To fully understand this offering, you
should read all of these documents.
OVERVIEW
We are a multi-line healthcare enterprise operating in two
segments: Medicaid Managed Care and Specialty Services. Our
Medicaid Managed Care segment provides Medicaid and
Medicaid-related health plan coverage to individuals through
government subsidized programs, including Medicaid, the State
Childrens Health Insurance Program, or CHIP, Foster Care,
Medicare Special Needs Plans and the Supplemental Security
Income Program, also known as the Aged, Blind or Disabled
Program, or collectively ABD. As of September 30, 2009,
Medicaid accounted for approximately 75% of our at-risk
membership, while CHIP (also including Foster Care) and ABD
(also including Medicare) accounted for approximately 19% and
6%, respectively. Our Specialty Services segment provides
specialty services, including behavioral health, individual
health insurance, life and health management, long-term care
programs, managed vision, telehealth services, and pharmacy
benefits management to state programs, healthcare organizations,
employer groups and other commercial organizations, as well as
to our own subsidiaries. Our Specialty Services segment also
provides a full range of healthcare solutions for the rising
number of uninsured Americans. For the year ended
December 31, 2008, our revenues and net earnings from
continuing operations were $3.4 billion and
$84.2 million, respectively, and our total cash flow from
operations was $222.0 million.
During 2008, we announced our intention to sell certain assets
of our New Jersey Health Plan, University Health Plans, Inc.
This pending sale is discussed in detail in our Annual Report on
Form 10-K
for the year ended December 31, 2008, filed with the SEC on
February 23, 2009, under the caption Discontinued
Operations under Item 7. Managements
Discussion and Analysis of Financial Condition and Results of
Operations and our Quarterly Report on
Form 10-Q
for the quarterly period ended September 30, 2009, filed
with the SEC on October 27, 2009, under the caption
Discontinued Operations under Item 2.
Managements Discussion and Analysis of Financial Condition
and Results of Operations.
Our at-risk managed care membership totaled approximately
1.4 million as of September 30, 2009. We provide
member-focused services through locally based staff by assisting
in accessing care, coordinating referrals to related health and
social services and addressing member concerns and questions. We
also provide education and outreach programs to inform and
assist members in accessing quality, appropriate healthcare
services. We generally receive a fixed premium per member per
month pursuant to our state contracts. The table below provides
summary data for the state markets we served as of
September 30, 2009:
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First Year of
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Counties
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At-Risk Managed
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Operations
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Served at
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Care Membership
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Under the
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September
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Market
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at September 30,
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State
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Local Health Plan Name
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Company
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30, 2009
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Share (1)
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2009
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Arizona
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Bridgeway Health Solutions (2)
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2008
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1
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1.5
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%
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17,400
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Florida (3)
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Sunshine State Health Plan
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2009
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9
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8.4
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%
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84,400
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Georgia
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Peach State Health Plan
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2006
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90
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28.3
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%
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303,400
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Indiana
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Managed Health Services
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1995
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92
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31.7
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%
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200,700
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Massachusetts (4)
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CeltiCare Health Plan of Massachusetts
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2009
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6
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<0.1
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%
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500
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Ohio
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Buckeye Community Health Plan
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2004
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43
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10.5
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%
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151,200
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South Carolina
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Absolute Total Care
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2007
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42
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10.5
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%
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46,100
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Texas
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Superior HealthPlan
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1999
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239
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22.2
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%
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450,200
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Wisconsin
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Managed Health Services
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1984
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33
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21.5
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%
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132,500
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Total
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555
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1,386,400
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S-1
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(1) |
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Represents at-risk Medicaid and CHIP membership as of
September 30, 2009 as a percentage of total eligible
at-risk Medicaid and CHIP members in each state. ABD programs
are excluded. |
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(2) |
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Represents the acute care business under Bridgeway Health
Solutions. |
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We began membership operations in Florida in February 2009. |
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We began membership operations in Massachusetts in July 2009. |
In addition, in November 2009, the Mississippi Division of
Medicaid selected Centene as one of two Coordinated Care
Organizations to participate in the Mississippi Coordinated
Access Network, a coordinated care program for Mississippi
Medicaid beneficiaries. We are continuing to work with the
Division to execute a contract in which we will serve eligible
members throughout the state, as Magnolia Health Plan, and
expect to execute the contract and begin managing care for
Supplemental Security Income (SSI) members in Mississippi in
2010.
We believe our local approach to managing our health plans,
including provider and member services, enables us to provide
accessible, quality, culturally-sensitive healthcare coverage to
our communities. Our health management, educational and other
initiatives are designed to help members best utilize the
healthcare system to ensure they receive appropriate, medically
necessary services and effective management of routine, severe
and chronic health problems, resulting in better health
outcomes. We combine our decentralized local approach for care
with a centralized infrastructure of support functions such as
finance, information systems and claims processing.
Our health plans facilitate access to healthcare services for
our members primarily through contracts with our providers. For
each of our service areas, we establish a provider network
consisting of primary and specialty care physicians, hospitals
and ancillary providers. Our contracts with primary and
specialty care physicians and hospitals usually are for one to
two-year periods and renew automatically for successive one-year
terms, but generally are subject to termination by either party
upon 90 to 120 days prior written notice. As of
September 30, 2009, the health plans we operated contracted
with the following number of physicians and hospitals:
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Primary
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Specialty
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Care
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Care
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Physicians
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Physicians
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Hospitals
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Arizona
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235
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1,748
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5
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Florida
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764
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1,832
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56
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Georgia
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2,935
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9,333
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120
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Indiana
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1,018
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3,683
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87
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Massachusetts
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550
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2,973
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17
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Ohio
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2,326
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9,105
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139
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South Carolina
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1,030
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2,374
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35
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Texas
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8,091
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20,080
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379
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Wisconsin
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2,098
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5,730
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66
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Total
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19,047
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56,858
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904
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Where appropriate, our health plans contract with our specialty
services organizations to provide services and programs such as
behavioral health, health management, managed vision, nurse
triage, pharmacy benefit management, and treatment compliance.
Our Specialty Services segment is a key component of our
healthcare enterprise and complements our core Medicaid Managed
Care business. Specialty services diversifies our revenue
stream, provides higher quality health outcomes to our
membership and others, and assists in controlling costs. Our
specialty services are provided primarily through the following
businesses:
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Behavioral Health. Cenpatico Behavioral
Health, or Cenpatico, manages behavioral healthcare for members
via a contracted network of providers. We acquired Cenpatico in
2003.
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S-2
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Individual Health Insurance. Our individual
health insurance company, Celtic, is a national healthcare
provider licensed in 49 states offering high-quality,
affordable health insurance to individual customers and their
families. We acquired Celtic in 2008.
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Life and Health Management. Nurtur Health
specializes in implementing life and health management programs
that encourage healthy behaviors, promote healthier workplaces,
improve productivity and reduce healthcare costs. Nurtur Health
was formed in December 2007 through the combination of three
entities we acquired from July 2005 through November 2007.
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Long-term Care and Acute Care. Bridgeway
Health Solutions, or Bridgeway, provides long-term care services
to the elderly and people with disabilities on ABD that meet
income and resources requirements and who are at risk of being
or are institutionalized. Bridgeway commenced long-term care
operations in October 2006. Bridgeway also provides acute care
services, which commenced in October 2008.
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Managed Vision. OptiCare manages vision
benefits for members through a contracted network of providers.
We acquired the managed vision business of OptiCare Health
Systems, Inc. in July 2006.
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Telehealth Services. NurseWise and Nurse
Response provide a toll-free nurse triage line 24 hours per
day, 7 days per week, 52 weeks per year. NurseWise
commenced operations in 1998.
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Pharmacy Benefits Management. US Script is a
pharmacy benefits manager that administers pharmacy benefits and
processes pharmacy claims via its proprietary claims processing
software. We acquired US Script in January 2006.
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When necessary, we also contract with third-party providers on a
negotiated fee arrangement for physical therapy, home
healthcare, diagnostic laboratory tests, x-ray examinations,
ambulance services and durable medical equipment. Additionally,
we contract with dental vendors in markets where routine dental
care is a covered benefit.
INDUSTRY
We provide our services to organizations and individuals
primarily through Medicaid, CHIP, Foster Care and ABD programs.
The federal Centers for Medicare and Medicaid Services, or CMS,
estimated the total Medicaid market was approximately
$329 billion in 2007, and estimate the market will grow to
$800 billion by 2018. According to the most recent
information provided by the Kaiser Commission on Medicaid and
the Uninsured, Medicaid spending increased by 5.3% in fiscal
2008 and states appropriated an increase of 5.8% for Medicaid in
fiscal 2009 budgets.
Established in 1965, Medicaid is the largest publicly funded
program in the United States, and provides health insurance to
low-income families and individuals with disabilities.
Authorized by Title XIX of the Social Security Act,
Medicaid is an entitlement program funded jointly by the federal
and state governments and administered by the states. The
majority of funding is provided at the federal level. Each state
establishes its own eligibility standards, benefit packages,
payment rates and program administration within federal
standards. As a result, there are 56 Medicaid
programs one for each U.S. state, each
U.S. territory and the District of Columbia. Many states
have selected Medicaid managed care as a means of delivering
quality healthcare and controlling costs, including states that
automatically enroll Medicaid recipients who do not select a
health plan. We refer to these states as mandated managed care
states. Eligibility is based on a combination of household
income and assets, often determined by an income level relative
to the federal poverty level. Historically, children have
represented the largest eligibility group.
Established in 1972, and authorized by Title XVI of the
Social Security Act, ABD covers low-income persons with chronic
physical disabilities or behavioral health impairments. ABD
beneficiaries represent a growing portion of all Medicaid
recipients. In addition, ABD recipients typically utilize more
services because of their critical health issues.
S-3
The Balanced Budget Act of 1997 created CHIP to help states
expand coverage primarily to children whose families earned too
much to qualify for Medicaid, yet not enough to afford private
health insurance. Some states include the parents of these
children in their CHIP programs. CHIP is the single largest
expansion of health insurance coverage for children since the
enactment of Medicaid. Costs related to the largest eligibility
group, children, are primarily composed of pediatrics and family
care. These costs tend to be more predictable than other
healthcare issues which predominantly affect the adult
population.
A portion of Medicaid beneficiaries are dual eligibles,
low-income seniors and people with disabilities who are enrolled
in both Medicaid and Medicare. According to CMS, there were
approximately eight million dual eligible enrollees in 2008.
These dual eligibles may receive assistance from Medicaid for
Medicaid benefits, such as nursing home care
and/or
assistance with Medicare premiums and cost sharing. Dual
eligibles also use more services due to their tendency to have
more chronic health issues. We serve dual eligibles through our
ABD, long-term care programs, and Special Needs Plans.
While Medicaid programs have directed funds to many individuals
who cannot afford or otherwise maintain health insurance
coverage, they did not initially address the inefficient and
costly manner in which the Medicaid population tends to access
healthcare. Medicaid recipients in non-managed care programs
typically have not sought preventive care or routine treatment
for chronic conditions, such as asthma and diabetes. Rather,
they have sought healthcare in hospital emergency rooms, which
tends to be more expensive. As a result, many states have found
that the costs of providing Medicaid benefits have increased
while the medical outcomes for the recipients remained
unsatisfactory.
Since the early 1980s, increasing healthcare costs, combined
with significant growth in the number of Medicaid recipients,
have led many states to establish Medicaid managed care
initiatives. Additionally, a number of states are designing
programs to cover the rising number of uninsured Americans. The
US Census Bureau estimated there were 46.3 million
Americans in 2008 that lacked health insurance. Continued
pressure on states Medicaid budgets should cause public
policy to recognize the value of managed care as a means of
delivering quality healthcare and effectively controlling costs.
A growing number of states have mandated that their Medicaid
recipients enroll in managed care plans. Other states are
considering moving to a mandated managed care approach. As a
result, a significant market opportunity exists for managed care
organizations with operations and programs focused on the
distinct socio-economic, cultural and healthcare needs of the
uninsured population and the Medicaid, CHIP, Foster Care and ABD
populations. We believe our approach and strategy enable us to
be a growing participant in this market.
OUR
COMPETITIVE STRENGTHS
Our multi-line managed care approach is based on the following
key attributes:
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Strong Historic Operating Performance. We have
increased revenues as we have grown in existing markets,
expanded into new markets and broadened our product offerings.
We entered the Wisconsin market in 1984, the Indiana market in
1995, the Texas market in 1999, the Arizona market in 2003, the
Ohio market in 2004, the Georgia market in 2006, the South
Carolina market in 2007 and the Florida and Massachusetts
markets in 2009. We have increased our membership through
participation in new programs in existing states. For example,
in 2008, we began operations in the Texas Foster Care program
and began serving Acute Care members in the Yavapai county of
Arizona. We have also increased membership by acquiring Medicaid
businesses, contracts and other related assets from competitors
in existing markets, most recently in Florida and South Carolina
in 2009. Our at-risk managed care membership totaled
approximately 1.4 million as of September 30, 2009.
For the year ended December 31, 2008, we had revenues of
$3.4 billion, representing a 40% Compound Annual Growth
Rate, or CAGR, since the year ended December 31, 2004. We
generated total cash flow from operations of $222.0 million
and net earnings from continuing operations of
$84.2 million for the year ended December 31, 2008.
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S-4
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Medicaid Expertise. Over the last
25 years, we have strived to develop a specialized Medicaid
expertise that has helped us establish and maintain
relationships with members, providers and state governments. We
have implemented programs developed to achieve savings for state
governments and improve medical outcomes for members by reducing
inappropriate emergency room use, inpatient days and high cost
interventions, as well as by managing care of chronic illnesses.
Our experience in working with state regulators helps us
implement and deliver programs and services efficiently and
affords us opportunities to provide input regarding Medicaid
industry practices and policies in the states in which we
operate. We work with state agencies on redefining benefits,
eligibility requirements and provider fee schedules in order to
maximize the number of uninsured individuals covered through
Medicaid, CHIP, Foster Care and ABD and expand these types of
benefits offered. Our approach is to accomplish this while
maintaining adequate levels of provider compensation and
protecting our profitability.
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Diversified Business Lines. We continue to
broaden our service offerings to address areas that we believe
have been traditionally underserved by Medicaid managed care
organizations and to address chronic illnesses commonly
affecting Medicaid eligible individuals. In addition to our
Medicaid and Medicaid-related managed care services, our service
offerings include behavioral health, individual health
insurance, life and health management, long-term care programs,
managed vision, telehealth and pharmacy benefits management.
Through the utilization of a multi-business line approach, we
are able to improve quality of care, improve outcomes and
diversify our revenues and help control our medical costs.
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Localized Approach with Centralized Support
Infrastructure. We take a localized approach to
managing our subsidiaries, including provider and member
services. This approach enables us to facilitate access by our
members to high quality, culturally sensitive healthcare
services. Our systems and procedures have been designed to
address these community-specific challenges through outreach,
education, transportation and other member support activities.
For example, our community outreach programs work with our
members and their communities to promote health and
self-improvement through employment and education on how best to
access care. We complement this localized approach with a
centralized infrastructure of support functions such as finance,
information systems and claims processing, which allows us to
minimize general and administrative expenses and to integrate
and realize synergies from acquisitions. We believe this
combined approach allows us to efficiently integrate new
business opportunities in both Medicaid and specialty services
while maintaining our local accountability and improved access.
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Specialized and Scalable Systems and
Technology. Through our specialized information
systems, we work to strengthen relationships with providers and
states which help us grow our membership base. We continue to
develop our specialized information systems which allow us to
support our core processing functions under a set of integrated
databases, designed to be both replicable and scalable.
Physicians can use claims, utilization and membership data to
manage their practices more efficiently, and they also benefit
from our timely payments. State agencies can use data from our
information systems to demonstrate that their Medicaid
populations receive quality healthcare in an efficient manner.
These systems also help identify needs for new healthcare and
specialty programs. We have the ability to leverage our platform
for one state configuration into new states or for health plan
acquisitions. Our ability to access data and translate it into
meaningful information is essential to operating across a
multi-state service area in a cost-effective manner.
|
S-5
OUR
BUSINESS STRATEGY
Our objective is to become the leading multi-line healthcare
enterprise focusing on the uninsured population and state funded
healthcare initiatives. We intend to achieve this objective by
implementing the following key components of our strategy:
|
|
|
|
|
Increase Penetration of Existing State
Markets. We seek to continue to increase our
Medicaid membership in states in which we currently operate
through alliances with key providers, outreach efforts,
development and implementation of community-specific products
and acquisitions. In 2006, we were awarded two regions in
connection with Ohios statewide restructuring of its
Medicaid managed care program, expanding the number of counties
we serve from three to 27. We also were awarded a Medicaid ABD
contract in Ohio. In Texas, we expanded our operations to the
Corpus Christi market in 2006, began managing care for ABD
recipients in February 2007 and began operations in the Foster
Care program in April 2008. In Arizona, we began serving members
within a long-term care plan in 2006 and within an acute care
plan in 2008. In 2008, we began serving Medicare members within
Special Needs Plans in Arizona, Ohio, Texas and Wisconsin. We
may also increase membership by acquiring Medicaid businesses,
contracts and other related assets from our competitors in our
existing markets or by enlisting additional providers. For
example, in 2009, we acquired certain Medicaid-related assets in
Florida and South Carolina.
|
|
|
|
Diversify Business Lines. We seek to broaden
our business lines into areas that complement our existing
business to enable us to grow and diversify our revenue. We are
constantly evaluating new opportunities for expansion both
domestically and abroad. For instance, in July 2008, we
completed the acquisition of Celtic Insurance Company, or
Celtic, a national individual health insurance provider, in
October 2006, we commenced operations under our managed care
program contracts to provide long-term care services in Arizona,
and in January 2006, we completed the acquisition of US Script,
a pharmacy benefits manager. We are also considering other
premium based or
fee-for-service
lines of business that would provide additional diversity. We
employ a disciplined acquisition strategy that is based on
defined criteria including internal rate of return, accretion to
earnings per share, market leadership and compatibility with our
information systems. We engage our executives in the relevant
operational units or functional areas to ensure consistency
between the diligence and integration process.
|
|
|
|
Address Emerging State Needs. We work to
assist the states in which we operate in addressing the
operating challenges they face. We seek to assist the states in
balancing premium rates, benefit levels, member eligibility,
policies and practices, and provider compensation. For example,
in 2008, we began operating under a contract with the Texas
Health and Human Services Commission for Comprehensive Health
Care for Children in Foster Care, a new statewide program
providing managed care services to participants in the Texas
Foster Care program. By helping states structure an appropriate
level and range of Medicaid, CHIP and specialty services, we
seek to ensure that we are able to continue to provide those
services on terms that achieve targeted gross margins, provide
an acceptable return and grow our business.
|
|
|
|
Develop and Acquire Additional State
Markets. We continue to leverage our experience
to identify and develop new markets by seeking both to acquire
existing business and to build our own operations. We expect to
focus expansion in states where Medicaid recipients are mandated
to enroll in managed care organizations, because we believe
member enrollment levels are more predictable in these states.
For example, effective June 1, 2006, we began managing care
for Medicaid and CHIP members in Georgia. In 2010, we expect to
begin managing care for SSI members in Mississippi. In addition,
we focus our attention on states converting to a full-risk,
managed care model. For example, in 2007, we entered the South
Carolina market and we participated in the states
conversion to at-risk managed care. In February 2009, we began
managed care operations in Florida through conversion of members
in certain counties from Access Health Solutions to at-risk
managed care in Sunshine State Health Plan, through our new
state contract. In July 2009, we began operating under our
contract in Massachusetts to
|
S-6
|
|
|
|
|
manage health care services for the Central, Northern, Boston
and Southern regions operating as CeltiCare Health Plan of
Massachusetts.
|
|
|
|
|
|
Leverage Established Infrastructure to Enhance Operating
Efficiencies. We intend to continue to invest in
infrastructure to further drive efficiencies in operations and
to add functionality to improve the service provided to members
and other organizations at a low cost. Our centralized functions
enable us to add members and markets quickly and economically.
|
|
|
|
Maintain Operational Discipline. We monitor
our cost trends, operating performance, regulatory relationships
and the Medicaid political environment in our existing markets.
We seek to operate in markets that allow us to meet our internal
metrics including membership growth, plan size, market
leadership and operating efficiency. We may divest contracts or
health plans in markets where the states Medicaid
environment, over a long-term basis, does not allow us to meet
our targeted performance levels. We use multiple techniques to
monitor and reduce our medical costs, including
on-site
hospital review by staff nurses and involvement of medical
management and finance personnel in significant cases. Our
financial management teams evaluate the financial impact of
proposed changes in provider relationships. We also conduct
monthly reviews of member demographics for each health plan.
|
RECENT
DEVELOPMENTS
In November 2009, the Mississippi Division of Medicaid selected
Centene as one of two Coordinated Care Organizations to
participate in the Mississippi Coordinated Access Network, a
coordinated care program for Mississippi Medicaid beneficiaries.
We are continuing to work with the Division to execute a
contract in which we will serve eligible members throughout the
state, as Magnolia Health Plan, and expect to execute the
contract and begin managing care for SSI members in Mississippi
in 2010.
We expect the following factors will increase our health
benefits ratio, or HBR, in 2010:
|
|
|
|
|
Premium rate changes lower than historical experience, as a
result of the pressure of current economic conditions on state
budgets
|
|
|
|
The removal of pharmacy coverage from the services covered by
medicaid managed care entities in Indiana and Ohio.
|
|
|
|
Membership mix changes, particularly a greater proportion of ABD
members which historically have a higher HBR.
|
We expect the impact of these factors on HBR will be partially
offset by a decrease in the ratio of general and administrative
expenses to premium and service revenues.
In addition, our business is subject to a number of risks which
you should be aware of before making an investment decision. See
Risk Factors in this prospectus supplement. For
example:
|
|
|
|
|
if any of our state contracts are terminated or not renewed, our
business will suffer;
|
|
|
|
the pending health care reform legislation could harm our
business;
|
|
|
|
changes in healthcare law and benefits may reduce our
profitability; and
|
|
|
|
failure to effectively manage our medical costs or related
administrative costs or uncontrollable epidemic or pandemic
would reduce our profitability.
|
ADDITIONAL
INFORMATION
We are incorporated in Delaware and headquartered in
St. Louis, Missouri. Our executive offices are located at
7711 Carondelet Avenue, St. Louis, Missouri 63105, and our
telephone number is
(314) 725-4477.
Our website is www.centene.com. Information contained on our
website does not constitute a part of this prospectus.
S-7
THE
OFFERING
For a description of our common stock, see Description of
Capital Stock in the accompanying prospectus.
|
|
|
Common stock offered by us |
|
5,000,000 shares. |
|
Shares outstanding after this offering |
|
48,221,757 shares.1 |
|
Overallotment option |
|
We have granted the underwriters an option to purchase from us
within 30 days of the date of this prospectus supplement up
to an additional 750,000 shares of common stock solely to
cover overallotments, if any. |
|
Use of proceeds |
|
The net proceeds of this offering are estimated to be
approximately $ million
(approximately $ million if
the underwriters overallotment option is exercised in
full) after deducting the underwriting discount and estimated
expenses of this offering. We intend to use the net proceeds: |
|
|
|
to repay the outstanding
indebtedness under our $300,000,000 revolving credit loan
facility ($86.0 million as of September 30, 2009),
which we use for working capital and other general corporate
purposes, and which terminates on September 21, 2011.
Interest accrues on outstanding amounts under the facility at a
rate between 0.75% and 1.75% plus LIBOR, at a rate between 0.5%
and 0.75% plus the Federal Funds Rate, or at a rate between 0%
and 0.25% plus the Prime Rate. Our weighted average interest
rate under the facility at September 30, 2009 was 1.62%; and
|
|
|
|
for general corporate
purposes, which may include the repayment of indebtedness,
funding for acquisitions, capital expenditures, additions to
working capital and to meet statutory capital requirements in
new or existing states.
|
|
Risk factors |
|
See Risk Factors and other information included or
incorporated by reference in this prospectus supplement and the
accompanying prospectus for a discussion of factors you should
carefully consider before deciding to invest in our common stock. |
|
Conflicts of interest |
|
Affiliates of certain of the underwriters are lenders and/or
agents under the revolving credit facility. As described above,
we intend to use proceeds from this offering for repayment of
the revolving credit facility. Because at least 5% of the
proceeds of this offering, not including underwriting
compensation, may be received by one or more of the underwriters
in this offering or by one of their affiliates, this offering is
being conducted in compliance with NASD Rule 2720(a)(1), as
administered by the Financial Industry Regulatory Authority
(FINRA). Pursuant to that rule, the appointment of a
qualified independent underwriter is not necessary in connection
with this offering, as the offering is of a class of equity
securities for which a bona fide public market, as
defined by FINRA, exists. See Underwriting
Conflicts of Interest in this prospectus supplement. |
|
New York Stock Exchange symbol |
|
CNC |
1 The
number of shares of common stock to be outstanding after this
offering as shown above is based on 43,221,757 shares of our
common stock outstanding, net of 2,414,010 shares held in
treasury, as of January 15, 2010. Unless expressly stated
otherwise, the information set forth above and throughout this
prospectus supplement assumes no exercise of the
underwriters overallotment option. See
Underwriting.
S-8
SUMMARY
CONSOLIDATED FINANCIAL INFORMATION
The following selected consolidated financial data should be
read in conjunction with the consolidated financial statements
and related notes, Item 2. Managements
Discussion and Analysis of Financial Condition and Results of
Operations included in our Quarterly Report on
Form 10-Q
for the period ended September 30, 2009 and
Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations included in
our Annual Report on
Form 10-K
for the year ended December 31, 2008. The assets,
liabilities and results of operations of FirstGuard and
University Health Plans have been classified as discontinued
operations for all periods presented.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
September 30,
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
($ in thousands, except member data)
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premium
|
|
$
|
2,754,713
|
|
|
$
|
2,338,550
|
|
|
$
|
3,199,360
|
|
|
$
|
2,611,953
|
|
|
$
|
1,707,439
|
|
Service
|
|
|
72,740
|
|
|
|
56,958
|
|
|
|
74,953
|
|
|
|
80,508
|
|
|
|
79,159
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premium and service revenues
|
|
|
2,827,453
|
|
|
|
2,395,508
|
|
|
|
3,274,313
|
|
|
|
2,692,461
|
|
|
|
1,786,598
|
|
Premium tax
|
|
|
182,685
|
|
|
|
66,249
|
|
|
|
90,202
|
|
|
|
76,567
|
|
|
|
35,848
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
3,010,138
|
|
|
|
2,461,757
|
|
|
|
3,364,515
|
|
|
|
2,769,028
|
|
|
|
1,822,446
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medical costs
|
|
|
2,298,108
|
|
|
|
1,932,172
|
|
|
|
2,640,335
|
|
|
|
2,190,898
|
|
|
|
1,436,371
|
|
Cost of services
|
|
|
46,364
|
|
|
|
43,467
|
|
|
|
56,920
|
|
|
|
61,348
|
|
|
|
60,287
|
|
General and administrative expenses
|
|
|
381,524
|
|
|
|
323,391
|
|
|
|
444,733
|
|
|
|
384,970
|
|
|
|
267,712
|
|
Premium Tax
|
|
|
183,785
|
|
|
|
66,636
|
|
|
|
90,966
|
|
|
|
76,567
|
|
|
|
35,848
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
2,909,781
|
|
|
|
2,365,666
|
|
|
|
3,232,954
|
|
|
|
2,713,783
|
|
|
|
1,800,218
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from operations
|
|
|
100,357
|
|
|
|
96,091
|
|
|
|
131,561
|
|
|
|
55,245
|
|
|
|
22,228
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment and other income
|
|
|
11,781
|
|
|
|
15,724
|
|
|
|
21,728
|
|
|
|
24,452
|
|
|
|
15,511
|
|
Interest expense
|
|
|
(12,210
|
)
|
|
|
(12,436
|
)
|
|
|
(16,673
|
)
|
|
|
(15,626
|
)
|
|
|
(10,574
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from continuing operations, before income tax expense
|
|
|
99,928
|
|
|
|
99,379
|
|
|
|
136,616
|
|
|
|
64,071
|
|
|
|
27,165
|
|
Income tax expense
|
|
|
35,060
|
|
|
|
38,464
|
|
|
|
52,435
|
|
|
|
23,031
|
|
|
|
9,565
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from continuing operations, net of income tax expense
|
|
|
64,868
|
|
|
|
60,915
|
|
|
|
84,181
|
|
|
|
41,040
|
|
|
|
17,600
|
|
Discontinued operations, net of income tax (benefit) expense
of $(1,148), $390, $(281), $(31,563), and $12,412,
respectively
|
|
|
(2,394
|
)
|
|
|
1,159
|
|
|
|
(684
|
)
|
|
|
32,362
|
|
|
|
(61,229
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
|
62,474
|
|
|
|
62,074
|
|
|
|
83,497
|
|
|
|
73,402
|
|
|
|
(43,629
|
)
|
Noncontrolling interest
|
|
|
2,518
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings attributable to Centene Corporation
|
|
$
|
59,956
|
|
|
$
|
62,074
|
|
|
$
|
83,497
|
|
|
$
|
73,402
|
|
|
$
|
(43,629
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet Data (end of period):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents of continuing operations
|
|
$
|
389,135
|
|
|
$
|
261,773
|
|
|
$
|
370,999
|
|
|
$
|
267,305
|
|
|
$
|
237,514
|
|
Investments and restricted deposits
|
|
|
549,867
|
|
|
|
457,572
|
|
|
|
451,058
|
|
|
|
369,545
|
|
|
|
174,431
|
|
Total assets
|
|
|
1,635,014
|
|
|
|
1,358,053
|
|
|
|
1,451,152
|
|
|
|
1,121,824
|
|
|
|
894,980
|
|
Medical claims liability (1)
|
|
|
410,997
|
|
|
|
349,502
|
|
|
|
373,037
|
|
|
|
313,364
|
|
|
|
232,496
|
|
Long-term debt
|
|
|
276,687
|
|
|
|
249,697
|
|
|
|
264,637
|
|
|
|
206,406
|
|
|
|
174,646
|
|
Stockholders equity (2)
|
|
|
574,261
|
|
|
|
477,574
|
|
|
|
501,272
|
|
|
|
415,047
|
|
|
|
326,423
|
|
S-9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
September 30,
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
($ in thousands, except member data)
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Other Operating Data (end of period):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Membership:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medicaid
|
|
|
1,040,500
|
|
|
|
850,500
|
|
|
|
877,400
|
|
|
|
779,300
|
|
|
|
843,700
|
|
CHIP and Foster Care
|
|
|
263,400
|
|
|
|
261,800
|
|
|
|
257,300
|
|
|
|
214,600
|
|
|
|
205,800
|
|
ABD and Medicare
|
|
|
82,500
|
|
|
|
58,800
|
|
|
|
61,300
|
|
|
|
60,300
|
|
|
|
5,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total (3)
|
|
|
1,386,400
|
|
|
|
1,171,100
|
|
|
|
1,196,000
|
|
|
|
1,054,200
|
|
|
|
1,054,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Health Benefits Ratio (4):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medicaid and CHIP
|
|
|
84.4
|
%
|
|
|
80.7
|
%
|
|
|
80.6
|
%
|
|
|
82.8
|
%
|
|
|
84.0
|
%
|
ABD and Medicare
|
|
|
81.7
|
%
|
|
|
91.4
|
%
|
|
|
91.1
|
%
|
|
|
91.4
|
%
|
|
|
88.8
|
%
|
Specialty Services
|
|
|
79.6
|
%
|
|
|
82.9
|
%
|
|
|
83.8
|
%
|
|
|
78.4
|
%
|
|
|
83.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Health Benefits Ratio
|
|
|
83.4
|
%
|
|
|
82.6
|
%
|
|
|
82.5
|
%
|
|
|
83.9
|
%
|
|
|
84.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
G&A Expense Ratio (5)
|
|
|
13.5
|
%
|
|
|
13.5
|
%
|
|
|
13.6
|
%
|
|
|
14.3
|
%
|
|
|
15.0
|
%
|
|
|
|
(1) |
|
Medical claims liability includes claims reported but not yet
paid, or inventory, estimates for claims incurred but not
reported, or IBNR, and estimates for the costs necessary to
process unpaid claims at the end of each period. The Company
estimates its medical claims liability using actuarial methods
that are commonly used by health insurance actuaries and meet
Actuarial Standards of Practice. |
|
(2) |
|
Stockholders equity in Centene Corporation. |
|
(3) |
|
The total number does not include non-risk members. As of
September 30, 2009 and September 30, 2008, there were
63,200 and 3,700 non-risk members, respectively. As of
December 31, 2008, 2007, and 2006, there were 3,700, 35,100
and 9,600 non-risk members, respectively. |
|
(4) |
|
The health benefits ratio represents medical costs as a
percentage of premium revenues. Our medical costs include
payments to physicians, hospitals and other providers for
healthcare and specialty services claims. Medical costs also
include estimates of medical expenses incurred but not yet
reported and estimates of the cost to process unpaid claims. |
|
(5) |
|
G&A Expense Ratio represents general and administrative
expenses as a percentage of premium and service revenues. |
S-10
RISK
FACTORS
Investing in our common stock will provide you with an equity
ownership in Centene. As one of our stockholders, you will be
subject to risks inherent in our business. The trading price of
your shares will be affected by the performance of our business
relative to, among other things, competition, market conditions
and general economic and industry conditions. The value of your
investment may decrease, resulting in a loss. You should
carefully consider the following factors as well as other
information contained in this prospectus supplement, the
accompanying prospectus and the documents incorporated by
reference herein before deciding to invest in shares of our
common stock.
Risks
Related to Being a Regulated Entity
Reduction
in Medicaid, CHIP and ABD funding could substantially reduce our
profitability.
Most of our revenues come from Medicaid, CHIP and ABD premiums.
The base premium rate paid by each state differs, depending on a
combination of factors such as defined upper payment limits, a
members health status, age, gender, county or region,
benefit mix and member eligibility categories. Future levels of
Medicaid, CHIP and ABD funding and premium rates may be affected
by continuing government efforts to contain healthcare costs and
may further be affected by state and federal budgetary
constraints. Additionally, state and federal entities may make
changes to the design of their Medicaid programs resulting in
the cancellation or modification of these programs.
For example, in August 2007, the Centers for
Medicare & Medicaid Services, or CMS, published a
final rule regarding the estimation and recovery of improper
payments made under Medicaid and CHIP. This rule requires a CMS
contractor to sample selected states each year to estimate
improper payments in Medicaid and CHIP and create national and
state specific error rates. States must provide information to
measure improper payments in Medicaid and CHIP for managed care
and
fee-for-service.
Each state will be selected for review once every three years
for each program. States are required to repay CMS the federal
share of any overpayments identified. CMS published a proposed
rule on July 15, 2009 that would make certain changes to
the previously published rule. Among other things, the proposed
changes establish a process for appealing error determinations.
The changes will not become effective until the final rule is
published. We cannot predict whether a final rule will become
effective and if it does, what impact it will have on the states
with which we have contracts.
The American Reinvestment and Recovery Act of 2009, which was
signed into law on February 17, 2009, provides
$87 billion in additional federal Medicaid funding for
states Medicaid expenditures between October 1, 2008
and December 31, 2010. Under this Act, states meeting
certain eligibility requirements will temporarily receive
additional money in the form of an increase in the federal
medical assistance percentage (FMAP). Thus, for a limited period
of time, the share of Medicaid costs that are paid for by the
federal government will go up, and each states share will
go down. We cannot predict whether states are, or will remain,
eligible to receive the additional federal Medicaid funding, or
whether the states will have sufficient funds for their Medicaid
programs.
States also periodically consider reducing or reallocating the
amount of money they spend for Medicaid, CHIP, Foster Care and
ABD. The current adverse economic conditions have, and are
expected to continue to, put pressures on state budgets as tax
and other state revenues decrease while the Medicaid eligible
population increases, creating more need for funding. We
anticipate this will require government agencies with whom we
contract to find funding alternatives, which may result in
reductions in funding for current programs and program
expansions, contraction of covered benefits, limited or no
premium rate increases or premium decreases. In recent years,
the majority of states have implemented measures to restrict
Medicaid, CHIP, Foster Care and ABD costs and eligibility. If
any state in which we operate were to decrease premiums paid to
us, or pay us less than the amount necessary to keep pace with
our cost trends, it could have a material adverse effect on our
revenues and operating results.
Changes to Medicaid, CHIP, Foster Care and ABD programs could
reduce the number of persons enrolled in or eligible for these
programs, reduce the amount of reimbursement or payment levels,
or increase
S-11
our administrative or healthcare costs under these programs, all
of which could have a negative impact on our business. We
believe that reductions in Medicaid, CHIP, Foster Care and ABD
payments could substantially reduce our profitability. Further,
our contracts with the states are subject to cancellation by the
state after a short notice period in the event of unavailability
of state funds.
If
CHIP is not reauthorized or states face shortfalls, our business
could suffer.
Federal support for CHIP has been authorized through 2013. We
cannot be certain that CHIP will be reauthorized when current
funding expires in 2013, and if it is, what changes might be
made to the program following reauthorization. Thus, we cannot
predict the impact that reauthorization will have on our
business.
States receive matching funds from the federal government to pay
for their CHIP programs, which matching funds have a per state
annual cap. Because of funding caps, there is a risk that states
could experience shortfalls in future years, which could have an
impact on our ability to receive amounts owed to us from states
in which we have CHIP contracts.
If any
of our state contracts are terminated or are not renewed, our
business will suffer.
We provide managed care programs and selected services to
individuals receiving benefits under federal assistance
programs, including Medicaid, CHIP and ABD. We provide those
healthcare services under contracts with regulatory entities in
the areas in which we operate. Our contracts with various states
are generally intended to run for one or two years and may be
extended for one or two additional years if the state or its
agent elects to do so. Our current contracts are set to expire
or renew between March 31, 2010 and September 30,
2011. When our contracts expire, they may be opened for bidding
by competing healthcare providers. There is no guarantee that
our contracts will be renewed or extended. For example, on
August 25, 2006, we received notification from the Kansas
Health Policy Authority that FirstGuard Health Plan Kansas,
Inc.s contract with the State would not be renewed or
extended, and as a result, our contract ended on
December 31, 2006. Further, our contracts with the states
are subject to cancellation by the state after a short notice
period in the event of unavailability of state funds. For
example, the Indiana contract under which we operate can be
terminated by the State without cause. Our contracts could also
be terminated if we fail to perform in accordance with the
standards set by state regulatory agencies. If any of our
contracts are terminated, not renewed, renewed on less favorable
terms, or not renewed on a timely basis, our business will
suffer, and our financial position, results of operations or
cash flows may be materially affected.
If we
are unable to participate in CHIP programs, our growth rate may
be limited.
CHIP is a federal initiative designed to provide coverage for
low-income children not otherwise covered by Medicaid or other
insurance programs. The programs vary significantly from state
to state. Participation in CHIP programs is an important part of
our growth strategy. If states do not allow us to participate or
if we fail to win bids to participate, our growth strategy may
be materially and adversely affected.
Changes
in government regulations designed to protect the financial
interests of providers and members rather than our investors
could force us to change how we operate and could harm our
business.
Our business is extensively regulated by the states in which we
operate and by the federal government. The applicable laws and
regulations are subject to frequent change and generally are
intended to benefit and protect the financial interests of
health plan providers and members rather than investors. The
enactment of new laws and rules or changes to existing laws and
rules or the interpretation of such laws and rules could, among
other things:
|
|
|
|
|
force us to restructure our relationships with providers within
our network;
|
|
|
|
require us to implement additional or different programs and
systems;
|
|
|
|
mandate minimum medical expense levels as a percentage of
premium revenues;
|
|
|
|
restrict revenue and enrollment growth;
|
S-12
|
|
|
|
|
require us to develop plans to guard against the financial
insolvency of our providers;
|
|
|
|
increase our healthcare and administrative costs;
|
|
|
|
impose additional capital and reserve requirements; and
|
|
|
|
increase or change our liability to members in the event of
malpractice by our providers.
|
For example, Congress is currently considering health care
reform legislation. We cannot predict the impact of any such
legislation, if adopted, on our business.
The
pending health care reform legislation could harm our
business.
The Congress is currently considering legislation that could
significantly reform the U.S. health care system. We cannot
predict whether any legislation will be passed and if it is,
what impact it will have on our business. If any reforms are
implemented that reduce Medicaid or CHIP spending or the
payments we receive from states or increase taxes on HMOs or
MCOs, our business could suffer.
Regulations
may decrease the profitability of our health
plans.
Certain states have enacted regulations which require us to
maintain a minimum health benefits ratio, or establish limits on
our profitability. Other states require us to meet certain
performance and quality metrics in order to receive our full
contractual revenue. In certain circumstances, our plans may be
required to pay a rebate to the state in the event profits
exceed established levels. These regulatory requirements,
changes in these requirements or the adoption of similar
requirements by other regulators may limit our ability to
increase our overall profits as a percentage of revenues.
Certain states, including but not limited to Georgia, Indiana,
New Jersey, Texas and Wisconsin have implemented prompt-payment
laws and are enforcing penalty provisions for failure to pay
claims in a timely manner. Failure to meet these requirements
can result in financial fines and penalties. In addition, states
may attempt to reduce their contract premium rates if regulators
perceive our health benefits ratio as too low. Any of these
regulatory actions could harm our financial position, results of
operations or cash flows. Certain states also impose marketing
restrictions on us which may constrain our membership growth and
our ability to increase our revenues.
We
face periodic reviews, audits and investigations under our
contracts with state government agencies, and these audits could
have adverse findings, which may negatively impact our
business.
We contract with various state governmental agencies to provide
managed healthcare services. Pursuant to these contracts, we are
subject to various reviews, audits and investigations to verify
our compliance with the contracts and applicable laws and
regulations. Any adverse review, audit or investigation could
result in:
|
|
|
|
|
cancellation of our contracts;
|
|
|
|
refunding of amounts we have been paid pursuant to our contracts;
|
|
|
|
imposition of fines, penalties and other sanctions on us;
|
|
|
|
loss of our right to participate in various markets;
|
|
|
|
increased difficulty in selling our products and
services; and
|
|
|
|
loss of one or more of our licenses.
|
Failure
to comply with government regulations could subject us to civil
and criminal penalties.
Federal and state governments have enacted fraud and abuse laws
and other laws to protect patients privacy and access to
healthcare. In some states, we may be subject to regulation by
more than one governmental authority, which may impose
overlapping or inconsistent regulations. Violation of these and
other laws or regulations governing our operations or the
operations of our providers could result in the imposition of
civil or criminal penalties, the cancellation of our contracts
to provide services, the suspension
S-13
or revocation of our licenses or our exclusion from
participating in the Medicaid, CHIP, Foster Care and ABD
programs. If we were to become subject to these penalties or
exclusions as the result of our actions or omissions or our
inability to monitor the compliance of our providers, it would
negatively affect our ability to operate our business.
HIPAA broadened the scope of fraud and abuse laws applicable to
healthcare companies. HIPAA created civil penalties for, among
other things, billing for medically unnecessary goods or
services. HIPAA established new enforcement mechanisms to combat
fraud and abuse, including civil and, in some instances,
criminal penalties for failure to comply with specific standards
relating to the privacy, security and electronic transmission of
most individually identifiable health information. The HITECH
Act expanded the scope of these provisions by mandating
individual notification in instances of data breach, providing
enhanced penalties for HIPAA violations, and granting
enforcement authority to states Attorneys General in
addition to the HHS Office of Civil Rights. It is possible that
Congress may enact additional legislation in the future to
increase penalties and to create a private right of action under
HIPAA, which could entitle patients to seek monetary damages for
violations of the privacy rules.
We may
incur significant costs as a result of compliance with
government regulations, and our management will be required to
devote time to compliance.
Many aspects of our business are affected by government laws and
regulations. The issuance of new regulations, or judicial or
regulatory guidance regarding existing regulations, could
require changes to many of the procedures we currently use to
conduct our business, which may lead to additional costs that we
have not yet identified. We do not know whether, or the extent
to which, we will be able to recover from the states our costs
of complying with these new regulations. The costs of any such
future compliance efforts could have a material adverse effect
on our business. We have already expended significant time,
effort and financial resources to comply with the privacy and
security requirements of HIPAA and will have to expend
additional time and financial resources to comply with the HIPAA
provisions contained in the American Recovery and Reinvestment
Act of 2009. We cannot predict whether states will enact
stricter laws governing the privacy and security of electronic
health information. If any new requirements are enacted at the
state or federal level, compliance would likely require
additional expenditures and management time.
In addition, the Sarbanes-Oxley Act of 2002, as well as rules
subsequently implemented by the SEC and the New York Stock
Exchange, or the NYSE, have imposed various requirements on
public companies, including requiring changes in corporate
governance practices. Our management and other personnel will
continue to devote time to these compliance initiatives.
The Sarbanes-Oxley Act requires, among other things, that we
maintain effective internal control over financial reporting. In
particular, we must perform system and process evaluation and
testing of our internal control over financial reporting to
allow management to report on the effectiveness of our internal
control over our financial reporting as required by
Section 404 of the Sarbanes-Oxley Act. Our testing, or the
subsequent testing by our independent registered public
accounting firm, may reveal deficiencies in our internal control
over financial reporting that are deemed to be material
weaknesses. Our compliance with Section 404 causes us to
incur substantial expense and management effort. Moreover, if we
are not able to comply with the requirements of
Section 404, or if we or our independent registered public
accounting firm identifies deficiencies in our internal control
over financial reporting that are deemed to be material
weaknesses, the market price of our stock could decline and we
could be subject to sanctions or investigations by the NYSE, SEC
or other regulatory authorities, which would require additional
financial and management resources.
Changes
in healthcare law and benefits may reduce our
profitability.
Numerous proposals relating to changes in healthcare law have
been introduced, some of which have been passed by Congress and
the states in which we operate or may operate in the future.
Changes in applicable laws and regulations are continually being
considered, and interpretations of existing laws and rules may
also change from time to time. We are unable to predict what
regulatory changes may occur or what effect any particular
change may have on our business. For example, these changes
could reduce the number
S-14
of persons enrolled or eligible to enroll in Medicaid, reduce
the reimbursement or payment levels for medical services or
reduce benefits included in Medicaid coverage. For example, some
states, including Indiana and Ohio have removed, and others
could consider removing, pharmacy coverage from the services
covered by managed care entities. We are also unable to predict
whether new laws or proposals will favor or hinder the growth of
managed healthcare in general. Legislation or regulations that
require us to change our current manner of operation, benefits
provided or our contract arrangements may seriously harm our
operations and financial results.
If a
state fails to renew a required federal waiver for mandated
Medicaid enrollment into managed care or such application is
denied, our membership in that state will likely
decrease.
States may administer Medicaid managed care programs pursuant to
demonstration programs or required waivers of federal Medicaid
standards. Waivers and demonstration programs are generally
approved for two year periods and can be renewed on an ongoing
basis if the state applies. We have no control over this renewal
process. If a state does not renew such a waiver or
demonstration program or the Federal government denies a
states application for renewal, membership in our health
plan in the state could decrease and our business could suffer.
Changes
in federal funding mechanisms may reduce our
profitability.
Changes in funding for Medicaid may affect our business. For
example, on May 29, 2007, CMS issued a final rule that
would reduce states use of intergovernmental transfers for
the states share of Medicaid program funding. By
restricting the use of intergovernmental transfers, this rule
may restrict some states funding for Medicaid, which could
adversely affect our growth, operations and financial
performance. On May 23, 2008, the United States District
Court for the District of Columbia vacated the final rule as
improperly promulgated. The American Recovery and Reinvestment
Tax Act of 2009 indicates Congressional intent is that final
regulations should not be promulgated. We cannot predict whether
the rule will ever be finalized or otherwise implemented and if
it is, what impact it will have on our business.
Legislative changes in the Medicare program may also affect our
business. For example, the Medicare Prescription Drug,
Improvement and Modernization Act of 2003 revised cost-sharing
requirements for some beneficiaries and requires states to
reimburse the federal Medicare program for costs of prescription
drug coverage provided to beneficiaries who are enrolled
simultaneously in both the Medicaid and Medicare programs. In
addition, the Medicare prescription drug benefit interrupted the
distribution of prescription drugs to many beneficiaries
simultaneously enrolled in both Medicaid and Medicare, prompting
several states to pay for prescription drugs on an unbudgeted,
emergency basis without any assurance of receiving reimbursement
from the federal Medicaid program. These expenses may cause some
states to divert funds originally intended for other Medicaid
services which could adversely affect our growth, operations and
financial performance.
If
state regulatory agencies require a statutory capital level
higher than the state regulations, we may be required to make
additional capital contributions.
Our operations are conducted through our wholly owned
subsidiaries, which include health maintenance organizations, or
HMOs, and managed care organizations, or MCOs. HMOs and MCOs are
subject to state regulations that, among other things, require
the maintenance of minimum levels of statutory capital, as
defined by each state. Additionally, state regulatory agencies
may require, at their discretion, individual HMOs to maintain
statutory capital levels higher than the state regulations. If
this were to occur to one of our subsidiaries, we may be
required to make additional capital contributions to the
affected subsidiary. Any additional capital contribution made to
one of the affected subsidiaries could have a material adverse
effect on our liquidity and our ability to grow.
S-15
If
state regulators do not approve payments of dividends and
distributions by our subsidiaries to us, we may not have
sufficient funds to implement our business
strategy.
We principally operate through our health plan subsidiaries. If
funds normally available to us become limited in the future, we
may need to rely on dividends and distributions from our
subsidiaries to fund our operations. These subsidiaries are
subject to regulations that limit the amount of dividends and
distributions that can be paid to us without prior approval of,
or notification to, state regulators. If these regulators were
to deny our subsidiaries request to pay dividends to us,
the funds available to us would be limited, which could harm our
ability to implement our business strategy.
Risks
Related to Our Business
Ineffectiveness
of state-operated systems and subcontractors could adversely
affect our business.
Our health plans rely on other state-operated systems or
sub-contractors
to qualify, solicit, educate and assign eligible members into
the health plans. The effectiveness of these state operations
and
sub-contractors
can have a material effect on a health plans enrollment in
a particular month or over an extended period. When a state
implements new programs to determine eligibility, new processes
to assign or enroll eligible members into health plans, or
chooses new contractors, there is an increased potential for an
unanticipated impact on the overall number of members assigned
into the health plans.
Failure
to accurately predict our medical expenses could negatively
affect our financial position, results of operations or cash
flows.
Our medical expense includes claims reported but not yet paid,
or inventory, estimates for claims incurred but not reported, or
IBNR, and estimates for the costs necessary to process unpaid
claims at the end of each period. Our development of the medical
claims liability estimate is a continuous process which we
monitor and refine on a monthly basis as claims receipts and
payment information becomes available. As more complete
information becomes available, we adjust the amount of the
estimate, and include the changes in estimates in medical
expense in the period in which the changes are identified.
We can not be sure that our medical claims liability estimates
are adequate or that adjustments to those estimates will not
unfavorably impact our results of operations. For example, in
the three months ended June 30, 2006 we adjusted IBNR by
$9.7 million for adverse medical costs development from the
first quarter of 2006.
Additionally, when we commence operations in a new state or
region, we have limited information with which to estimate our
medical claims liability. For example, we commenced operations
in South Carolina in December 2007, began our Foster Care
program in Texas in April 2008, commenced operations in Florida
in February 2009 and in Massachusetts in July 2009, and expect
to commence operations in Mississippi in 2010. For a period of
time after the inception of business in these states, we base
our estimates on state-provided historical actuarial data and
limited actual incurred and received claims.
From time to time in the past, our actual results have varied
from our estimates, particularly in times of significant changes
in the number of our members. The accuracy of our medical claims
liability estimate may also affect our ability to take timely
corrective actions, further harming our results.
Receipt
of inadequate or significantly delayed premiums would negatively
affect our revenues and profitability.
Our premium revenues consist of fixed monthly payments per
member and supplemental payments for other services such as
maternity deliveries. These premiums are fixed by contract, and
we are obligated during the contract periods to provide
healthcare services as established by the state governments. We
use a large portion of our revenues to pay the costs of
healthcare services delivered to our members. If premiums do not
increase when expenses related to medical services rise, our
earnings will be affected negatively. In addition, our actual
medical services costs may exceed our estimates, which would
cause our health benefits ratio, or our expenses related to
medical services as a percentage of premium revenue, to increase
and our
S-16
profits to decline. In addition, it is possible for a state to
increase the rates payable to the hospitals without granting a
corresponding increase in premiums to us. If this were to occur
in one or more of the states in which we operate, our
profitability would be harmed. In addition, if there is a
significant delay in our receipt of premiums to offset
previously incurred health benefits costs, our earnings could be
negatively impacted.
In some instances, our base premiums are subject to an
adjustment, or risk score, based on the acuity of our
membership. Generally, the risk score is determined by the State
analyzing encounter submissions of processed claims data to
determine the acuity of our membership relative to the entire
states Medicaid membership. The risk score is dependent on
several factors including our providers completeness and
quality of claims submission, our processing of the claim,
submission of the processed claims in the form of encounters to
the states encounter systems and the states
acceptance and analysis of the encounter data. If the risk
scores assigned to our premiums that are risk adjusted are not
adequate or do not appropriately reflect the acuity of our
membership, our earnings will be affected negatively.
Failure
to effectively manage our medical costs or related
administrative costs or uncontrollable epidemic or pandemic
costs would reduce our profitability.
Our profitability depends, to a significant degree, on our
ability to predict and effectively manage expenses related to
health benefits. We have less control over the costs related to
medical services than we do over our general and administrative
expenses. Because of the narrow margins of our health plan
business, relatively small changes in our health benefits ratio
can create significant changes in our financial results. Changes
in healthcare regulations and practices, the level of use of
healthcare services, hospital costs, pharmaceutical costs, major
epidemics or pandemics, new medical technologies and other
external factors, including general economic conditions such as
inflation levels, are beyond our control and could reduce our
ability to predict and effectively control the costs of
providing health benefits. In 2009, the H1N1 influenza pandemic
resulted in heightened costs due to increased physician visits
and increased utilization of hospital emergency rooms and
pharmaceutical costs. We cannot predict what impact the H1N1
influenza virus or any other epidemic or pandemic will have on
our costs in the future. Additionally, we may not be able to
manage costs effectively in the future. If our costs related to
health benefits increase, our profits could be reduced or we may
not remain profitable.
Our
investment portfolio may suffer losses from reductions in market
interest rates and changes in market conditions which could
materially and adversely affect our results of operations or
liquidity.
As of September 30, 2009, we had $434.8 million in
cash, cash equivalents and short-term investments and
$504.2 million of long-term investments and restricted
deposits. We maintain an investment portfolio of cash
equivalents and short-term and long-term investments in a
variety of securities which may include asset backed securities,
bank deposits, commercial paper, certificates of deposit, money
market funds, municipal bonds, corporate bonds, instruments of
the U.S. Treasury, insurance contracts and equity
securities. These investments are subject to general credit,
liquidity, market and interest rate risks. Substantially all of
these securities are subject to interest rate and credit risk
and will decline in value if interest rates increase or one of
the issuers credit ratings is reduced. As a result, we may
experience a reduction in value or loss of liquidity of our
investments, which may have a negative adverse effect on our
results of operations, liquidity and financial condition. For
example, in the third quarter of 2008, we recorded a loss on
investments of approximately $4.5 million due to a loss in
a money market fund.
Our
investments in state and municipal securities are not guaranteed
by the United States government which could materially and
adversely affect our results of operations or
liquidity.
As of September 30, 2009, we had $392.1 million of
investments in state and municipal securities. These securities
are not guaranteed by the United States government. State and
municipal securities are subject to additional credit risk based
upon each local municipalitys tax revenues and financial
stability. As a result, we may experience a reduction in value
or loss of liquidity of our investments, which may have a
negative adverse effect on our results of operations, liquidity
and financial condition.
S-17
Difficulties
in executing our acquisition strategy could adversely affect our
business.
Historically, the acquisition of Medicaid and specialty services
businesses, contract rights and related assets of other health
plans both in our existing service areas and in new markets has
accounted for a significant amount of our growth. Many of the
other potential purchasers have greater financial resources than
we have. In addition, many of the sellers are interested either
in (a) selling, along with their Medicaid assets, other
assets in which we do not have an interest or (b) selling
their companies, including their liabilities, as opposed to the
assets of their ongoing businesses.
We generally are required to obtain regulatory approval from one
or more state agencies when making acquisitions. In the case of
an acquisition of a business located in a state in which we do
not currently operate, we would be required to obtain the
necessary licenses to operate in that state. In addition, even
if we already operate in a state in which we acquire a new
business, we would be required to obtain additional regulatory
approval if the acquisition would result in our operating in an
area of the state in which we did not operate previously, and we
could be required to renegotiate provider contracts of the
acquired business. We cannot provide any assurance that we would
be able to comply with these regulatory requirements for an
acquisition in a timely manner, or at all. In deciding whether
to approve a proposed acquisition, state regulators may consider
a number of factors outside our control, including giving
preference to competing offers made by locally owned entities or
by
not-for-profit
entities.
We also may be unable to obtain sufficient additional capital
resources for future acquisitions. If we are unable to
effectively execute our acquisition strategy, our future growth
will suffer and our results of operations could be harmed.
Execution
of our growth strategy may increase costs or liabilities, or
create disruptions in our business.
We pursue acquisitions of other companies or businesses from
time to time. Although we review the records of companies or
businesses we plan to acquire, even an in-depth review of
records may not reveal existing or potential problems or permit
us to become familiar enough with a business to assess fully its
capabilities and deficiencies. As a result, we may assume
unanticipated liabilities or adverse operating conditions, or an
acquisition may not perform as well as expected. We face the
risk that the returns on acquisitions will not support the
expenditures or indebtedness incurred to acquire such
businesses, or the capital expenditures needed to develop such
businesses. We also face the risk that we will not be able to
integrate acquisitions into our existing operations effectively
without substantial expense, delay or other operational or
financial problems. Integration may be hindered by, among other
things, differing procedures, including internal controls,
business practices and technology systems. We may need to divert
more management resources to integration than we planned, which
may adversely affect our ability to pursue other profitable
activities.
In addition to the difficulties we may face in identifying and
consummating acquisitions, we will also be required to integrate
and consolidate any acquired business or assets with our
existing operations. This may include the integration of:
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additional personnel who are not familiar with our operations
and corporate culture;
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provider networks that may operate on different terms than our
existing networks;
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existing members, who may decide to switch to another healthcare
plan; and
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disparate administrative, accounting and finance, and
information systems.
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Additionally, our growth strategy includes
start-up
operations in new markets or new products in existing markets.
We may incur significant expenses prior to commencement of
operations and the receipt of revenue. As a result, these
start-up
operations may decrease our profitability. In the event we
pursue any opportunity to diversify our business
internationally, we would become subject to additional risks,
including, but not limited to, political risk, an unfamiliar
regulatory regime, currency exchange risk and exchange controls,
cultural and language differences, foreign tax issues, and
different labor laws and practices.
S-18
Accordingly, we may be unable to identify, consummate and
integrate future acquisitions or
start-up
operations successfully or operate acquired or new businesses
profitably.
Acquisitions
of unfamiliar new businesses could negatively impact our
business.
We are subject to the expenditures and risks associated with
entering into any new line of business. Our failure to properly
manage these expenditures and risks could have a negative impact
on our overall business. For example, effective July 2008, we
completed the previously announced acquisition of Celtic Group,
Inc., the parent company of Celtic Insurance Company, or Celtic.
Celtic is a national individual health insurance provider that
provides health insurance to individual customers and their
families. While we believe that the addition of Celtic will be
complementary to our business, we have not previously operated
in the individual health care industry.
If
competing managed care programs are unwilling to purchase
specialty services from us, we may not be able to successfully
implement our strategy of diversifying our business
lines.
We are seeking to diversify our business lines into areas that
complement our Medicaid business in order to grow our revenue
stream and balance our dependence on Medicaid risk
reimbursement. In order to diversify our business, we must
succeed in selling the services of our specialty subsidiaries
not only to our managed care plans, but to programs operated by
third-parties. Some of these third-party programs may compete
with us in some markets, and they therefore may be unwilling to
purchase specialty services from us. In any event, the offering
of these services will require marketing activities that differ
significantly from the manner in which we seek to increase
revenues from our Medicaid programs. Our inability to market
specialty services to other programs may impair our ability to
execute our business strategy.
Failure
to achieve timely profitability in any business would negatively
affect our results of operations.
Start-up
costs associated with a new business can be substantial. For
example, in order to obtain a certificate of authority in most
jurisdictions, we must first establish a provider network, have
systems in place and demonstrate our ability to obtain a state
contract and process claims. If we were unsuccessful in
obtaining the necessary license, winning the bid to provide
service or attracting members in numbers sufficient to cover our
costs, any new business of ours would fail. We also could be
obligated by the state to continue to provide services for some
period of time without sufficient revenue to cover our ongoing
costs or recover
start-up
costs. The expenses associated with starting up a new business
could have a significant impact on our results of operations if
we are unable to achieve profitable operations in a timely
fashion.
Adverse
credit market conditions may have a material adverse affect on
our liquidity or our ability to obtain credit on acceptable
terms.
The securities and credit markets have been experiencing extreme
volatility and disruption over the past several years. The
availability of credit, from virtually all types of lenders, has
been restricted. Such conditions may persist throughout 2010 and
beyond. In the event we need access to additional capital to pay
our operating expenses, make payments on our indebtedness, pay
capital expenditures, including costs related to our corporate
headquarters project, or fund acquisitions, our ability to
obtain such capital may be limited and the cost of any such
capital may be significant, particularly if we are unable to
access our existing credit facility.
Our access to additional financing will depend on a variety of
factors such as prevailing economic and credit market
conditions, the general availability of credit, the overall
availability of credit to our industry, our credit ratings and
credit capacity, and perceptions of our financial prospects.
Similarly, our access to funds may be impaired if regulatory
authorities or rating agencies take negative actions against us.
If a combination of these factors were to occur, our internal
sources of liquidity may prove to be insufficient, and in such
case, we may not be able to successfully obtain additional
financing on favorable terms or at all. We believe that if
credit could be obtained, the terms and costs of such credit
could be significantly less favorable to us than what was
obtained in our most recent financings.
S-19
We
derive a majority of our premium revenues from operations in a
small number of states, and our financial position, results of
operations or cash flows would be materially affected by a
decrease in premium revenues or profitability in any one of
those states.
Operations in a few states have accounted for most of our
premium revenues to date. If we were unable to continue to
operate in any of our current states or if our current
operations in any portion of one of those states were
significantly curtailed, our revenues could decrease materially.
Our Medicaid contract with Kansas, which terminated
December 31, 2006, together with our Medicaid contract with
Missouri, accounted for $317.0 million in revenue for the
year ended December 31, 2006. Our reliance on operations in
a limited number of states could cause our revenue and
profitability to change suddenly and unexpectedly depending on
legislative or other governmental or regulatory actions and
decisions, economic conditions and similar factors in those
states. For example, states we currently serve may bid out their
Medicaid program through a Request for Proposal, or RFP,
process. Our inability to continue to operate in any of the
states in which we operate would harm our business.
Competition
may limit our ability to increase penetration of the markets
that we serve.
We compete for members principally on the basis of size and
quality of provider network, benefits provided and quality of
service. We compete with numerous types of competitors,
including other health plans and traditional state Medicaid
programs that reimburse providers as care is provided. In
addition, current focus on health care reform and potential
growth in our segment may attract new competitors. Subject to
limited exceptions by federally approved state applications, the
federal government requires that there be choices for Medicaid
recipients among managed care programs. Voluntary programs,
increases in the number of competitors and mandated competition
may limit our ability to increase our market share.
Some of the health plans with which we compete have greater
financial and other resources and offer a broader scope of
products than we do. In addition, significant merger and
acquisition activity has occurred in the managed care industry,
as well as in industries that act as suppliers to us, such as
the hospital, physician, pharmaceutical, medical device and
health information systems businesses. To the extent that
competition intensifies in any market that we serve, our ability
to retain or increase members and providers, or maintain or
increase our revenue growth, pricing flexibility and control
over medical cost trends may be adversely affected.
In addition, in order to increase our membership in the markets
we currently serve, we believe that we must continue to develop
and implement community-specific products, alliances with key
providers and localized outreach and educational programs. If we
are unable to develop and implement these initiatives, or if our
competitors are more successful than we are in doing so, we may
not be able to further penetrate our existing markets.
If we
are unable to maintain relationships with our provider networks,
our profitability may be harmed.
Our profitability depends, in large part, upon our ability to
contract favorably with hospitals, physicians and other
healthcare providers. Our provider arrangements with our primary
care physicians, specialists and hospitals generally may be
cancelled by either party without cause upon 90 to 120 days
prior written notice. We cannot provide any assurance that we
will be able to continue to renew our existing contracts or
enter into new contracts enabling us to service our members
profitably.
From time to time providers assert or threaten to assert claims
seeking to terminate non-cancelable agreements due to alleged
actions or inactions by us. Even if these allegations represent
attempts to avoid or renegotiate contractual terms that have
become economically disadvantageous to the providers, it is
possible that in the future a provider may pursue such a claim
successfully. In addition, we are aware that other managed care
organizations have been subject to class action suits by
physicians with respect to claim payment procedures, and we may
be subject to similar claims. Regardless of whether any claims
brought against us are successful or have merit, they will still
be time-consuming and costly and could distract our
managements attention. As a result, we may incur
significant expenses and may be unable to operate our business
effectively.
S-20
We will be required to establish acceptable provider networks
prior to entering new markets. We may be unable to enter into
agreements with providers in new markets on a timely basis or
under favorable terms. If we are unable to retain our current
provider contracts or enter into new provider contracts timely
or on favorable terms, our profitability will be harmed.
We may
be unable to attract and retain key personnel.
We are highly dependent on our ability to attract and retain
qualified personnel to operate and expand our business. If we
lose one or more members of our senior management team,
including our chief executive officer, Michael F. Neidorff, who
has been instrumental in developing our business strategy and
forging our business relationships, our business and financial
position, results of operations or cash flows could be harmed.
Our ability to replace any departed members of our senior
management or other key employees may be difficult and may take
an extended period of time because of the limited number of
individuals in the Medicaid managed care and specialty services
industry with the breadth of skills and experience required to
operate and successfully expand a business such as ours.
Competition to hire from this limited pool is intense, and we
may be unable to hire, train, retain or motivate these personnel.
Negative
publicity regarding the managed care industry may harm our
business and financial position, results of operations or cash
flows.
The managed care industry has received negative publicity. This
publicity has led to increased legislation, regulation, review
of industry practices and private litigation in the commercial
sector. These factors may adversely affect our ability to market
our services, require us to change our services, and increase
the regulatory burdens under which we operate. Any of these
factors may increase the costs of doing business and adversely
affect our financial position, results of operations or cash
flows.
Claims
relating to medical malpractice could cause us to incur
significant expenses.
Our providers and employees involved in medical care decisions
may be subject to medical malpractice claims. In addition, some
states, including Texas, have adopted legislation that permits
managed care organizations to be held liable for negligent
treatment decisions or benefits coverage determinations. Claims
of this nature, if successful, could result in substantial
damage awards against us and our providers that could exceed the
limits of any applicable insurance coverage. Therefore,
successful malpractice or tort claims asserted against us, our
providers or our employees could adversely affect our financial
condition and profitability. Even if any claims brought against
us are unsuccessful or without merit, they would still be time
consuming and costly and could distract our managements
attention. As a result, we may incur significant expenses and
may be unable to operate our business effectively.
Loss
of providers due to increased insurance costs could adversely
affect our business.
Our providers routinely purchase insurance to help protect
themselves against medical malpractice claims. In recent years,
the costs of maintaining commercially reasonable levels of such
insurance have increased dramatically, and these costs are
expected to increase to even greater levels in the future. As a
result of the level of these costs, providers may decide to
leave the practice of medicine or to limit their practice to
certain areas, which may not address the needs of Medicaid
participants. We rely on retaining a sufficient number of
providers in order to maintain a certain level of service. If a
significant number of our providers exit our provider networks
or the practice of medicine generally, we may be unable to
replace them in a timely manner, if at all, and our business
could be adversely affected.
Growth
in the number of Medicaid-eligible persons during economic
downturns could cause our financial position, results of
operations or cash flows to suffer if state and federal budgets
decrease or do not increase.
Less favorable economic conditions may cause our membership to
increase as more people become eligible to receive Medicaid
benefits. During such economic downturns, however, state and
federal budgets could decrease, causing states to attempt to cut
healthcare programs, benefits and rates. We cannot predict the
S-21
impact of changes in the United States economic environment or
other economic or political events, including acts of terrorism
or related military action, on federal or state funding of
healthcare programs or on the size of the population eligible
for the programs we operate. If federal funding decreases or
remains unchanged while our membership increases, our results of
operations will suffer.
Growth
in the number of Medicaid-eligible persons may be
countercyclical, which could cause our financial position,
results of operations or cash flows to suffer when general
economic conditions are improving.
Historically, the number of persons eligible to receive Medicaid
benefits has increased more rapidly during periods of rising
unemployment, corresponding to less favorable general economic
conditions. Conversely, this number may grow more slowly or even
decline if economic conditions improve. Therefore, improvements
in general economic conditions may cause our membership levels
to decrease, thereby causing our financial position, results of
operations or cash flows to suffer, which could lead to
decreases in our stock price during periods in which stock
prices in general are increasing.
If we
are unable to integrate and manage our information systems
effectively, our operations could be disrupted.
Our operations depend significantly on effective information
systems. The information gathered and processed by our
information systems assists us in, among other things,
monitoring utilization and other cost factors, processing
provider claims, and providing data to our regulators. Our
providers also depend upon our information systems for
membership verifications, claims status and other information.
Our information systems and applications require continual
maintenance, upgrading and enhancement to meet our operational
needs and regulatory requirements. Moreover, our acquisition
activity requires frequent transitions to or from, and the
integration of, various information systems. We regularly
upgrade and expand our information systems capabilities.
If we experience difficulties with the transition to or from
information systems or are unable to properly maintain or expand
our information systems, we could suffer, among other things,
from operational disruptions, loss of existing members and
difficulty in attracting new members, regulatory problems and
increases in administrative expenses. In addition, our ability
to integrate and manage our information systems may be impaired
as the result of events outside our control, including acts of
nature, such as earthquakes or fires, or acts of terrorists.
We
rely on the accuracy of eligibility lists provided by state
governments. Inaccuracies in those lists would negatively affect
our results of operations.
Premium payments to us are based upon eligibility lists produced
by state governments. From time to time, states require us to
reimburse them for premiums paid to us based on an eligibility
list that a state later discovers contains individuals who are
not in fact eligible for a government sponsored program or are
eligible for a different premium category or a different
program. Alternatively, a state could fail to pay us for members
for whom we are entitled to payment. Our results of operations
would be adversely affected as a result of such reimbursement to
the state if we had made related payments to providers and were
unable to recoup such payments from the providers.
We may
not be able to obtain or maintain adequate
insurance.
We maintain liability insurance, subject to limits and
deductibles, for claims that could result from providing or
failing to provide managed care and related services. These
claims could be substantial. We believe that our present
insurance coverage and reserves are adequate to cover currently
estimated exposures. We cannot provide any assurance that we
will be able to obtain adequate insurance coverage in the future
at acceptable costs or that we will not incur significant
liabilities in excess of policy limits.
From
time to time, we may become involved in costly and
time-consuming litigation and other regulatory proceedings,
which require significant attention from our
management.
We are a defendant from time to time in lawsuits and regulatory
actions relating to our business. Due to the inherent
uncertainties of litigation and regulatory proceedings, we
cannot accurately predict the ultimate
S-22
outcome of any such proceedings. An unfavorable outcome could
have a material adverse impact on our business and financial
position, results of operations or cash flows. In addition,
regardless of the outcome of any litigation or regulatory
proceedings, such proceedings are costly and time consuming and
require significant attention from our management. For example,
we have in the past, or may be subject to in the future,
securities class action lawsuits, IRS examinations or similar
regulatory actions. Any such matters could harm our business and
financial position, results of operations or cash flows.
An
unauthorized disclosure of sensitive or confidential member
information could have an adverse effect on our
business.
As part of our normal operations, we collect, process and retain
confidential member information. We are subject to various
federal and state laws and rules regarding the use and
disclosure of confidential member information, including HIPAA
and the Gramm-Leach-Bliley Act. The American Recovery and
Reinvestment Act of 2009 further expands the coverage of HIPAA
by, among other things, extending the privacy and security
provisions, requiring new disclosures if a data breach occurs,
mandating new regulations around electronic medical records,
expanding enforcement mechanisms, allowing the state Attorneys
General to bring enforcement actions and increasing penalties
for violations. Despite the security measures we have in place
to ensure compliance with applicable laws and rules, our
facilities and systems, and those of our third party service
providers, may be vulnerable to security breaches, acts of
vandalism, computer viruses, misplaced or lost data, programming
and/or human
errors or other similar events. Any security breach involving
the misappropriation, loss or other unauthorized disclosure or
use of confidential member information, whether by us or a third
party, could have a material adverse effect on our business,
financial condition, cash flows, or results of operations.
If we
are unable to complete the previously announced sale of certain
assets of our New Jersey health plan in a timely manner, our
business could suffer.
On November 20, 2008, we announced that we had entered into
an agreement with Amerigroup Corporation, or Amerigroup, to sell
certain assets of our subsidiary University Health Plans, Inc.
in the State of New Jersey to Amerigroup. The agreement contains
a number of conditions to closing, including (i) the
approval of regulators in New Jersey, (ii) the lack of a
material adverse effect, and (iii) other customary
conditions. On December 31, 2008, we announced that we had
received a termination notice from Amerigroup relating to the
New Jersey transaction. On October 23, 2009, we entered
into a settlement agreement with Amerigroup resolving all
claims, and expect to complete the sale in the first quarter of
2010. However, if we are unable to complete the sale of our New
Jersey business, our results of operations could be negatively
impacted.
Risks
related to our corporate headquarters project could harm
our financial position, results of operations or cash
flows.
In 2008 and 2009, our capital expenditures included costs
associated with the construction of a real estate development on
the property adjoining our corporate office, which we believe is
necessary to accommodate our growing business. We are currently
a joint venture partner in an entity that is developing the
properties. If the entity is unable to complete the development
or if the entity delays or abandons the real estate project, it
may have an adverse impact on our financial position, results of
operations or cash flows. For example, in 2007 we abandoned a
previously planned redevelopment project and recorded a pre-tax
impairment charge of $7.2 million. Our operations and
efficiency could also be impacted if the development is not
completed as there is limited office space for us to expand in
the market near our existing headquarters as our business
continues to grow.
Risks
Related to Our Common Stock
The
price of our common stock may be volatile.
During the twelve months ended December 31, 2009, the high
sales price per share of our common stock on the NYSE was $22.50
and the low sales price per share was $15.00. The price of our
common stock
S-23
could be subject to wide fluctuations in the future in response
to many events or factors, including those discussed in the risk
factors incorporated by reference herein, as well as:
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State and federal budget decreases;
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actual or anticipated fluctuations in operating results;
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changes in expectations as to future financial performance or
buy/sell recommendations of securities analysts;
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acquisitions, strategic alliances or joint ventures involving us
or our competitors;
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actions of our current stockholders, including sales of common
stock by our directors and executive officers;
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the arrival or departure of key personnel;
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our, or a competitors, announcement of new products,
services or innovations; and
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the operating and stock price performance of other comparable
companies.
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General market conditions and domestic or international
macroeconomic factors unrelated to our performance may also
affect the price of our common stock. For these reasons,
investors should not rely on recent trends to predict future
prices of our common stock or financial results.
Future issuances of equity or equity-linked securities by us may
cause the market price of shares of our common stock to fall.
As of January 15, 2010, we had 43,221,757 shares of
our common stock outstanding. The issuance of these new shares,
the common stock offered hereby and the sale of additional
shares that may become eligible for sale in the public market
from time to time upon the exercise of stock options or vesting
of equity awards could have the effect of depressing the market
price for shares of our common stock.
Our
issuance of preferred stock could adversely affect holders of
common stock.
Our board of directors is authorized to issue series of
preferred stock without any action on the part of our holders of
common stock. Our board of directors also has the power, without
stockholder approval, to set the terms of any such series of
preferred stock that may be issued, including voting rights,
dividend rights, preferences over our common stock with respect
to dividends or if we liquidate, dissolve or wind up our
business and other terms. If we issue preferred stock in the
future that has preference over our common stock with respect to
the payment of dividends or upon our liquidation, dissolution or
winding up, or if we issue preferred stock with voting rights
that dilute the voting power of our common stock, the rights of
holders of our common stock or the price of our common stock
could be adversely affected.
Our
corporate documents and provisions of Delaware law may prevent a
change in control or management that stockholders may consider
desirable.
Section 203 of the Delaware General Corporation Law, laws
of states in which we operate, and our charter and by-laws
contain provisions that might enable our management to resist a
takeover of our company. These provisions could have the effect
of delaying, deferring, or preventing a change in control of
Centene or a change in our management that stockholders may
consider favorable or beneficial. These provisions could also
discourage proxy contests and make it more difficult for you and
other stockholders to elect directors and take other corporate
actions. These provisions could also limit the price that
investors might be willing to pay in the future for shares of
our common stock.
We may
not pay cash dividends on our common stock.
We have never declared any cash dividends on our capital stock
and currently anticipate that we will retain any future earnings
for the development, operation and expansion of our business.
The declaration and payment of dividends is at the discretion of
our board of directors.
S-24
CAUTIONARY
STATEMENT ON FORWARD-LOOKING STATEMENTS
All statements, other than statements of current or historical
fact, contained in this prospectus are forward-looking
statements. We have attempted to identify these statements by
terminology including believe,
anticipate, plan, expect,
estimate, intend, seek,
target, goal, may,
will, should, can,
continue and other similar words or expressions in
connection with, among other things, any discussion of future
operating or financial performance. In particular, these
statements include statements about our market opportunity, our
growth strategy, competition, expected activities and future
acquisitions, investments and the adequacy of our available cash
resources. 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 our or our industrys 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. These statements are not
guarantees of future performance and are subject to risks,
uncertainties and assumptions.
All forward-looking statements included in this prospectus are
based on information available to us on the date of this
prospectus. Actual results may differ from projections or
estimates due to a variety of important factors, including:
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our ability to accurately predict and effectively manage health
benefits and other operating expenses;
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competition;
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changes in healthcare practices;
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changes in federal or state laws or regulations;
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inflation;
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provider contract changes;
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new technologies;
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reduction in provider payments by governmental payors;
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major epidemics or pandemics;
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disasters and numerous other factors affecting the delivery and
cost of healthcare;
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the expiration, cancellation or suspension of our Medicaid
managed care contracts by state governments;
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availability of debt and equity financing, on terms that are
favorable to us; and
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general economic and market conditions.
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The risk factors set forth or incorporated by reference above in
the section entitled Risk Factors contains a further
discussion of these and other important factors that could cause
actual results to differ from expectations. We disclaim any
current intention or obligation to update or revise any
forward-looking statements, whether as a result of new
information, future events or otherwise. Due to these important
factors and risks, we cannot give assurances with respect to our
future premium levels or our ability to control our future
medical costs.
S-25
USE OF
PROCEEDS
We expect the net proceeds from this offering to be
approximately $109,600,000 (approximately $126,130,000 if the
underwriters overallotment option is exercised in full),
before deducting the underwriting discount but inclusive of
estimated expenses of this offering, based on an assumed public
offering price of $22.04 (the last reported sale price of our
common stock on January 15, 2010).
We intend to use the net proceeds from this offering:
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to repay the outstanding indebtedness under our $300,000,000
revolving credit loan facility ($86.0 million as of
September 30, 2009), which we use for working capital and
other general corporate purposes, and which terminates on
September 21, 2011. Interest accrues on outstanding amounts
under the facility at a rate between 0.5% and 0.75% plus the
Federal Funds Rate, or at a rate between 0% and 0.25% plus the
Prime Rate. Our weighted average interest rate under the
facility at September 30, 2009 was 1.62%; and
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for general corporate purposes, which may include the repayment
of indebtedness, funding for acquisitions, capital expenditures,
additions to working capital and to meet statutory capital
requirements in new or existing states. We evaluate possible
acquisitions from time to time, although we currently have no
commitments or binding agreements to make any acquisitions, and
we cannot assure you that we will make any acquisitions in the
future. We are currently in negotiations on non-binding letters
of intent that would expand our programs in our existing and new
states; however, the proposed purchase prices for these
acquisitions would not be material individually or in the
aggregate.
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Pending such use, the proceeds may be invested temporarily in
short-term, interest-bearing, investment-grade securities or
similar assets.
S-26
PRICE
RANGE OF OUR COMMON STOCK AND DIVIDENDS
Our common stock is listed and traded on the New York Stock
Exchange under the symbol CNC. The following table
sets forth, for the periods indicated, the high and low sale
prices of our common stock as reported on the New York Stock
Exchange.
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Price per Share
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High
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Low
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Year Ended December 31, 2008
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First Quarter
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$
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28.49
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$
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13.58
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Second Quarter
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$
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21.70
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$
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13.10
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Third Quarter
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$
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24.67
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$
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16.40
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Fourth Quarter
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$
|
21.61
|
|
|
$
|
15.23
|
|
Year Ending December 31, 2009
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
22.50
|
|
|
$
|
15.00
|
|
Second Quarter
|
|
$
|
21.00
|
|
|
$
|
17.29
|
|
Third Quarter
|
|
$
|
20.48
|
|
|
$
|
16.89
|
|
Fourth Quarter
|
|
$
|
22.02
|
|
|
$
|
17.25
|
|
Year Ending December 31, 2010
|
|
|
|
|
|
|
|
|
First Quarter (through January 15, 2010)
|
|
$
|
22.22
|
|
|
$
|
20.92
|
|
The closing sale price of our common stock as reported on the
New York Stock Exchange on January 15, 2010 was $22.04 per
share.
For a description of our common stock, see Description of
Capital Stock in the accompanying prospectus and our
restated certificate of incorporation, which is incorporated by
reference herein.
Dividend
Policy
We have never declared any cash dividends on our capital stock
and currently anticipate that we will retain any future earnings
for the development, operation and expansion of our business.
Our board of directors has the authority to make decisions
regarding the nature, frequency and amount of our dividends
based on a number of factors, including our current and future
liquidity needs and position and current and projected results
from operations and performance.
S-27
CAPITALIZATION
The following table sets forth our consolidated cash and cash
equivalents and capitalization as of September 30, 2009
(1) on an actual basis and (2) on an as adjusted basis
after giving effect to the sale of 5,000,000 shares of common
stock offered on a firm commitment basis by this prospectus
supplement and the application of the estimated net proceeds
therefrom.
|
|
|
|
|
|
|
|
|
|
|
September 30, 2009
|
|
|
|
Actual
|
|
|
As Adjusted (1)
|
|
|
|
(In millions)
|
|
|
Unregulated cash and investments
|
|
$
|
27.6
|
|
|
$
|
51.2
|
|
Regulated cash, investments and restricted deposits
|
|
|
911.4
|
|
|
|
911.4
|
|
|
|
|
|
|
|
|
|
|
Total cash, investments and restricted deposits (2)
|
|
$
|
939.0
|
|
|
$
|
962.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$300,000,000 Revolving credit facility
|
|
$
|
86.0
|
|
|
$
|
|
|
71/4% Senior
Notes due April 1, 2014
|
|
|
175.0
|
|
|
|
175.0
|
|
Debt secured by real estate
|
|
|
10.0
|
|
|
|
10.0
|
|
Capital leases
|
|
|
6.3
|
|
|
|
6.3
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
$
|
277.3
|
|
|
$
|
191.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Common stock, $.001 par value per share,
100,000,000 shares authorized, 45,402,369 shares
issued, including shares held in treasury, and 50,402,369
shares, including shares held in treasury, as adjusted to give
effect to this offering
|
|
$
|
0.1
|
|
|
$
|
0.1
|
|
Additional paid-in capital, net of estimated issuance costs
|
|
|
277.7
|
|
|
|
387.3
|
|
Accumulated other comprehensive income (3)
|
|
|
7.8
|
|
|
|
7.8
|
|
Retained earnings
|
|
|
335.2
|
|
|
|
335.2
|
|
Treasury stock
|
|
|
(46.5
|
)
|
|
|
(46.5
|
)
|
|
|
|
|
|
|
|
|
|
Total Centene stockholders equity
|
|
|
574.3
|
|
|
|
683.9
|
|
Noncontrolling interest
|
|
|
19.0
|
|
|
|
19.0
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity:
|
|
$
|
593.3
|
|
|
$
|
702.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
As adjusted to give effect to the sale of 5,000,000 shares of
common stock and the use of proceeds to repay the outstanding
indebtedness under our $300,000,000 revolving credit loan
facility ($86.0 million as of September 30, 2009).
Calculated based on an assumed public offering price of $22.04
(the last reported sale price of our common stock on
January 15, 2010), before deducting the underwriting
discount but inclusive of $600,000 of estimated expenses of this
offering. |
|
(2) |
|
Additionally, the Company held regulated cash and investments of
$26.8 million from discontinued operations. |
|
(3) |
|
Attributable to unrealized gain on investments, net of tax. |
S-28
UNITED
STATES FEDERAL TAX CONSIDERATIONS
The following summary is a general discussion of the material
United States federal income and estate tax consequences of
purchasing, owning and disposing of our common stock by a
non-U.S. holder
that acquires our common stock pursuant to this offering. This
discussion is limited to
non-U.S. holders
who hold our common stock as a capital asset within
the meaning of Section 1221 of the Internal Revenue Code of
1986, as amended (the Code). As used in this
discussion, the term
non-U.S. holder
means a beneficial owner of our common stock that is not, for
U.S. federal income tax purposes:
|
|
|
|
|
an individual who is a citizen or resident of the United States;
|
|
|
|
a corporation (or any other entity treated as a corporation for
U.S. federal tax purposes) created or organized in the
United States or under the laws of the United States or of any
state thereof or the District of Columbia;
|
|
|
|
a partnership (including any entity or arrangement treated as a
partnership for U.S. federal income tax purposes);
|
|
|
|
an estate the income of which is subject to U.S. federal
income tax regardless of its source; or
|
|
|
|
a trust (1) if a U.S. court is able to exercise
primary supervision over the administration of the trust and one
or more U.S. persons have authority to control all
substantial decisions of the trust, or (2) that has a valid
election in effect under applicable U.S. Treasury
regulations to be treated as a U.S. person.
|
This discussion does not consider:
|
|
|
|
|
U.S. federal gift tax consequences, or U.S. state or
local or
non-U.S. tax
consequences;
|
|
|
|
specific facts and circumstances that may be relevant to a
particular
non-U.S. holders
tax position;
|
|
|
|
the tax consequences for the shareholders, partners, or
beneficiaries of a
non-U.S. holder;
|
|
|
|
special tax rules that may apply to particular
non-U.S. holders,
such as financial institutions, insurance companies, tax-exempt
organizations, hybrid entities, certain former citizens or
former long-term residents of the United States, broker-dealers,
and traders in securities; or
|
|
|
|
special tax rules that may apply to a
non-U.S. holder
that holds our common stock as part of a straddle,
hedge, conversion transaction,
synthetic security, or other integrated investment.
|
If a partnership (including for this purpose any entity treated
as a partnership for United States federal income tax purposes)
is a beneficial owner of the shares of our common stock
purchased in the offering, the United States federal income tax
treatment of a partner in the partnership generally will depend
on the status of the partner and the activities of the
partnership. Partnerships and partners should consult their tax
advisors about the United States federal income and estate tax
consequences of purchasing, owning, and disposing of our common
stock.
The following discussion is based on provisions of the Code,
applicable U.S. Treasury regulations promulgated thereunder
and administrative and judicial interpretations, all as in
effect on the date of this prospectus supplement, and all of
which are subject to change, possibly on a retroactive basis.
Prospective investors are urged to consult their own tax
advisors regarding the U.S. federal, state, local, and
non-U.S. income
and other tax considerations with respect to acquiring, owning
and disposing of shares of our common stock.
S-29
Dividends
As discussed under Price Range of our Common Stock and
Dividends above, we do not currently expect to make
distributions with respect to our common stock. In the event
that we do make distributions on our common stock, those
distributions will constitute dividends for U.S. federal
income tax purposes to the extent paid from our current or
accumulated earnings and profits, as determined under
U.S. federal income tax principles. To the extent those
distributions exceed our current and accumulated earnings and
profits, they will constitute a return of capital and first
reduce the
non-U.S. holders
basis in our common stock (but not below zero) and then will be
treated as gain from the sale of our common stock.
We will have to withhold U.S. federal income tax at a rate
of 30%, or a lower rate under an applicable income tax treaty,
from the gross amount of the dividends paid to a
non-U.S. holder
that are not effectively connected with the
non-U.S. holders
conduct of a trade or business in the United States.
Non-U.S. holders
should consult their tax advisors regarding their entitlement to
benefits under a relevant income tax treaty.
In order to claim the benefit of an applicable income tax
treaty, a
non-U.S. holder
will be required to provide a properly executed
U.S. Internal Revenue Service
Form W-8BEN
(or other applicable form) in accordance with the applicable
certification and disclosure requirements. Special rules apply
to partnerships and other pass-through entities and these
certification and disclosure requirements also may apply to
beneficial owners of partnerships and other pass-through
entities that hold our common stock. A
non-U.S. holder
that satisfies the requirements for a reduced rate of
U.S. federal withholding tax under an income tax treaty may
obtain a refund or credit of any excess amounts withheld by
filing an appropriate claim for a refund with the
U.S. Internal Revenue Service.
Non-U.S. holders
should consult their own tax advisors regarding their
entitlement to benefits under a relevant income tax treaty and
the manner of claiming the benefits.
Dividends that are effectively connected with a
non-U.S. holders
conduct of a trade or business in the United States (and, if
required by an applicable income tax treaty are attributable to
a permanent establishment in the United States) are taxed on a
net income basis at the regular graduated U.S. federal
income tax rates in the same manner as if the
non-U.S. holder
was a resident of the United States. In such cases, we will not
have to withhold U.S. federal income tax if the
non-U.S. holder
provides a properly executed U.S. Internal Revenue Service
Form W-8ECI
(or other applicable form) in accordance with the applicable
certification and disclosure requirements. In addition, a
branch profits tax may be imposed at a 30% rate, or
a lower rate under an applicable income tax treaty, on a foreign
corporation that has earnings and profits (attributable to
dividends or otherwise) that are effectively connected with the
conduct of a trade or business in the United States.
Gain
on Disposition of Common Stock
A
non-U.S. holder
generally will not be subject to U.S. federal income tax or
any withholding thereof with respect to gain realized on a sale
or other disposition of our common stock unless one of the
following applies:
|
|
|
|
|
the gain is effectively connected with the
non-U.S. holders
conduct of a trade or business in the United States (and if
required by an applicable income tax treaty, is attributable to
a permanent establishment maintained by the
non-U.S. holder
in the United States); in these cases, the
non-U.S. holder
will generally be taxed on its net gain derived from the
disposition at the regular graduated rates in the same manner as
if the
non-U.S. holder
were a resident of the United States and, if the
non-U.S. holder
is a foreign corporation, the branch profits tax
described above may also apply;
|
|
|
|
the
non-U.S. holder
is an individual who is present in the United States for
183 days or more in the taxable year of the disposition and
meets certain other requirements; in this case, except as
otherwise provided by an applicable income tax treaty, the gain,
which may be offset by U.S. source capital losses,
generally will be subject to a flat 30% U.S. federal income
tax (even though the
non-U.S. holder
is not considered a resident alien under the Code); or
|
|
|
|
our common stock constitutes a United States real property
interest by reason of our status as a United States real
property holding corporation, or a USRPHC, for
U.S. federal income tax
|
S-30
|
|
|
|
|
purposes at any time during the shorter of the
5-year
period ending on the date you dispose of our common stock or the
period you held our common stock. Generally, a corporation is a
USRPHC if the fair market value of its United States real
property interests equals or exceeds 50% of the sum of the
fair market value of its worldwide real property interests plus
its other assets used or held for use in a trade or business. We
believe that we are not currently, and we do not anticipate
becoming in the future, a USRPHC. However, because the
determination of whether we are a USRPHC depends on the fair
market value of our United States real property interests
relative to the fair market value of our other business assets,
there can be no assurance that we will not become a USRPHC in
the future. As long as our common stock is regularly
traded on an established securities market within the
meaning of Section 897(c)(3) of the Code, however, our
common stock will be treated as United States real property
interests only if you owned directly or indirectly more than
5 percent of such regularly traded common stock during the
shorter of the
5-year
period ending on the date you dispose of our common stock or the
period you held our common stock and we were a USRPHC during
such period. If we are or were to become a USRPHC and a
non-U.S. holder
owned directly or indirectly more than 5 percent of our
common stock during the period described above or our common
stock is not regularly traded on an established securities
market, then a
non-U.S. holder
would generally be subject to U.S. federal income tax on
its net gain derived from the disposition of our common stock at
regular graduated rates.
|
Federal
Estate Tax
Common stock owned or treated as owned by an individual who is
not a U.S. citizen or resident of the United States (as
specifically defined for U.S. federal estate tax purposes)
at the time of death will be included in the individuals
gross estate for U.S. federal estate tax purposes, and,
therefore, U.S. federal estate tax may be imposed with
respect to the value of such stock, unless an applicable estate
tax or other treaty provides otherwise.
Information
Reporting and Backup Withholding Tax
We must report annually to the IRS and to each
non-U.S. holder
the amount of dividends paid to that holder and the tax withheld
from those dividends. These reporting requirements apply
regardless of whether withholding was reduced or eliminated by
an applicable income tax treaty. Copies of the information
returns reporting those dividends and withholding may also be
made available under the provisions of an applicable income tax
treaty or agreement to the tax authorities in the country in
which the
non-U.S. holder
is a resident.
Under some circumstances, U.S. Treasury regulations require
backup withholding and additional information reporting on
reportable payments on common stock. The gross amount of
dividends paid to a
non-U.S. holder
that fails to certify its
non-U.S. holder
status in accordance with applicable U.S. Treasury
regulations generally will be reduced by backup withholding at
the applicable rate (currently 28%), unless the 30% rate (or
such lower rate as may be specified by an applicable income tax
treaty) of withholding described above applies.
The payment of the proceeds of the sale or other disposition of
common stock by a
non-U.S. holder
to or through the U.S. office of any broker, U.S. or
non-U.S.,
generally will be reported to the IRS and reduced by backup
withholding, unless the
non-U.S. holder
either certifies its status as a
non-U.S. holder
under penalties of perjury or otherwise establishes an
exemption. The payment of the proceeds from the disposition of
common stock by a
non-U.S. holder
to or through a
non-U.S. office
of a
non-U.S. broker
will not be reduced by backup withholding or reported to the
IRS, unless the
non-U.S. broker
has certain enumerated connections with the United States. In
general, the payment of proceeds from the disposition of common
stock by or through a
non-U.S. office
of a broker that is a U.S. person or has certain enumerated
connections with the United States will be reported to the IRS
and may be reduced by backup withholding unless the broker
receives a statement from the
non-U.S. holder
that certifies its status as a
non-U.S. holder
under penalties of perjury or the broker has documentary
evidence in its files that the holder is a
non-U.S. holder.
S-31
Backup withholding is not an additional tax. Any amounts
withheld under the backup withholding rules from a payment to a
non-U.S. holder
can be refunded or credited against the
non-U.S. holders
U.S. federal income tax liability, if any, provided that
the required information is furnished to the IRS in a timely
manner. These backup withholding and information reporting rules
are complex and
non-U.S. holders
are urged to consult their own tax advisors regarding the
application of these rules to them.
The foregoing discussion of U.S. federal income and
estate tax considerations is general information only and is not
tax advice. Accordingly, you should consult your own tax advisor
as to the particular tax consequences to you of purchasing,
holding or disposing of our common stock, including the
applicability and effect of any federal, state, local or
non-U.S. tax
laws, and of any changes or proposed changes in applicable
law.
S-32
UNDERWRITING
The shares of our common stock offered by this prospectus
supplement include 5,000,000 shares, to be offered to the public
by the underwriters at the public offering price of
$ per share. We have granted the
underwriters an option to purchase up to an additional 750,000
shares to cover overallotments.
Merrill Lynch, Pierce, Fenner & Smith Incorporated,
Goldman, Sachs & Co., J.P. Morgan Securities Inc.
and Credit Suisse Securities (USA) LLC are acting as
representatives of each of the underwriters named below. Subject
to the terms and conditions set forth in an underwriting
agreement among us and the underwriters, we have agreed to sell
to the underwriters, and each of the underwriters has agreed,
severally and not jointly, to purchase from us, the number of
shares of common stock set forth opposite its name below.
|
|
|
|
|
Underwriter
|
|
Number of Shares
|
|
|
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
|
|
|
|
|
Goldman, Sachs & Co.
|
|
|
|
|
J.P. Morgan Securities Inc.
|
|
|
|
|
Credit Suisse Securities (USA) LLC
|
|
|
|
|
Barclays Capital Inc.
|
|
|
|
|
Allen & Company LLC
|
|
|
|
|
Stifel, Nicolaus & Company, Incorporated
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
Subject to the terms and conditions set forth in the
underwriting agreement, the underwriters have agreed, severally
and not jointly, to purchase all of the shares sold under the
underwriting agreement. If an underwriter defaults with respect
to shares, the underwriting agreement provides that the purchase
commitments of the nondefaulting underwriters may be increased
or the underwriting agreement may be terminated.
We have agreed to indemnify the underwriters against certain
liabilities, including liabilities under the Securities Act, or
to contribute to payments the underwriters may be required to
make in respect of those liabilities.
The underwriters are offering the shares, subject to prior sale,
when, as and if issued to and accepted by them, subject to
approval of legal matters by their counsel, including the
validity of the shares, and other conditions contained in the
underwriting agreement, such as the receipt by the underwriters
of officers certificates and legal opinions. The
underwriters reserve the right to withdraw, cancel or modify
offers to the public and to reject orders in whole or in part.
Commissions
and Discounts
The representatives have advised us that the underwriters
propose initially to offer the shares to the public at the
public offering price set forth on the cover page of this
prospectus supplement, and to dealers at that price less a
concession not in excess of $ per
share. The underwriters may allow, and the dealers may reallow,
a discount not in excess of $ per
share to other dealers. After the offering, the public offering
price, concession and discount may be changed.
The following table shows the public offering price,
underwriting discount and proceeds before expenses to us. The
information assumes either no exercise or full exercise by the
underwriters of their overallotment option.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per Share
|
|
|
Without Option
|
|
|
With Option
|
|
|
Public offering price
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Underwriting discount
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Proceeds, before expenses, to us
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
S-33
The expenses of the offering, not including the underwriting
discount, are estimated at approximately $600,000 and are
payable by us.
Overallotment
Option
We have granted an option to the underwriters to purchase up to
750,000 additional shares at the public offering price listed on
the cover page of this prospectus supplement, less the
underwriting discount. The underwriters may exercise this option
for 30 days from the date of this prospectus supplement
solely to cover any overallotments. If the underwriters exercise
this option, each will be obligated, subject to conditions
contained in the underwriting agreement, to purchase a number of
additional shares proportionate to that underwriters
initial amount reflected in the above table.
No Sales
of Similar Securities
We and each of our executive officers and directors have agreed,
with limited exceptions, not to sell or transfer any common
stock or securities convertible into, exchangeable for,
exercisable for, or repayable with common stock, for
90 days after the date of this prospectus supplement
without first obtaining the written consent of Merrill Lynch,
Pierce, Fenner & Smith Incorporated. However, Michael
F. Neidorff, our Chairman and Chief Executive Officer, will be
permitted to continue to sell certain shares of common stock
pursuant to a previously adopted, non-discretionary, written
trading plan that complies with SEC
Rule 10b5-1.
In addition, in connection with the vesting of restricted stock
units granted pursuant to equity incentive plans existing and as
in effect on the date of this prospectus supplement, the
executive officers will be permitted to sell up to that number
of shares of common stock that is sufficient to generate net
proceeds to satisfy the minimum tax withholding obligations in
connection with such vesting. Specifically, we and these other
persons have agreed, with certain limited exceptions, not to
directly or indirectly:
|
|
|
|
|
offer, pledge, sell or contract to sell any common stock;
|
|
|
|
sell any option or contract to purchase any common stock;
|
|
|
|
purchase any option or contract to sell any common stock;
|
|
|
|
grant any option, right or warrant for the sale of any common
stock;
|
|
|
|
establish an open put equivalent position or
liquidate or decrease a call equivalent position
within the meaning of SEC
Rule 16a-1(h);
|
|
|
|
otherwise dispose of or transfer any common stock;
|
|
|
|
request or demand that we file a registration statement related
to the common stock; or
|
|
|
|
enter into any swap or other agreement that transfers, in whole
or in part, the economic consequence of ownership of any common
stock whether any such swap or transaction is to be settled by
delivery of shares or other securities, in cash or otherwise.
|
This lock-up
provision applies to common stock and to securities convertible
into or exchangeable or exercisable for common stock. It also
applies to common stock owned now or acquired later by the
person executing the agreement or for which the person executing
the agreement later acquires the power of disposition. In the
event that either (x) during the last 17 days of
lock-up
period referred to above, we issue an earnings release or
material news or a material event relating to the Company occurs
or (y) prior to the expiration of the
lock-up
period, we announce that we will release earnings results or
become aware that material news or a material event will occur
during the
16-day
period beginning on the last day of the
lock-up
period, the restrictions described above shall continue to apply
until the expiration of the
18-day
period beginning on the issuance of the earnings release or the
occurrence of the material news or material event.
New York
Stock Exchange Listing
Our common stock is listed on the New York Stock Exchange under
the symbol CNC.
S-34
Conflicts
of Interest
As described in Use of Proceeds, the net proceeds of
this offering will be used to repay borrowings under our
revolving credit facility. Affiliates of certain of the
underwriters are lenders
and/or
agents under our revolving credit facility. As a result, certain
of the net proceeds from this offering, not including
underwriting compensation, will be paid to one or more
affiliates of certain underwriters in connection with repayment
of those borrowings. Because of the manner in which the proceeds
will be used, the offering will be conducted in accordance with
NASD Rule 2720(a)(1), as administered by FINRA. Pursuant to
that rule, the appointment of a qualified independent
underwriter is not necessary in connection with this offering,
as the offering is of a class of equity securities for which a
bona fide public market, as defined by FINRA, exists.
Price
Stabilization, Short Positions
Until the distribution of the shares is completed, SEC rules may
limit underwriters and selling group members from bidding for
and purchasing our common stock. However, the representatives
may engage in transactions that stabilize the price of the
common stock, such as bids or purchases to peg, fix or maintain
that price.
In connection with the offering, the underwriters may purchase
and sell our common stock in the open market. These transactions
may include short sales, purchases on the open market to cover
positions created by short sales and stabilizing transactions.
Short sales involve the sale by the underwriters of a greater
number of shares than they are required to purchase in the
offering. Covered short sales are sales made in an
amount not greater than the underwriters option to
purchase additional shares in the offering. The underwriters may
close out any covered short position by either exercising their
overallotment option or purchasing shares in the open market. In
determining the source of shares to close out the covered short
position, the underwriters will consider, among other things,
the price of shares available for purchase in the open market as
compared to the price at which they may purchase shares through
the overallotment option. Naked short sales are
sales in excess of the overallotment option. The underwriters
must close out any naked short position by purchasing shares in
the open market. A naked short position is more likely to be
created if the underwriters are concerned that there may be
downward pressure on the price of our common stock in the open
market after pricing that could adversely affect investors who
purchase in the offering. Stabilizing transactions consist of
various bids for or purchases of shares of common stock made by
the underwriters in the open market prior to the completion of
the offering.
Similar to other purchase transactions, the underwriters
purchases to cover the syndicate short sales may have the effect
of raising or maintaining the market price of our common stock
or preventing or retarding a decline in the market price of our
common stock. As a result, the price of our common stock may be
higher than the price that might otherwise exist in the open
market.
Neither we nor any of the underwriters make any representation
or prediction as to the direction or magnitude of any effect
that the transactions described above may have on the price of
our common stock. In addition, neither we nor any of the
underwriters make any representation that the representatives
will engage in these transactions or that these transactions,
once commenced, will not be discontinued without notice.
Electronic
Offer, Sale and Distribution of Shares
In connection with the offering, certain of the underwriters or
securities dealers may distribute this prospectus supplement by
electronic means, such as
e-mail. In
addition, the underwriters may facilitate Internet distribution
for this offering to certain of their Internet subscription
customers. The underwriters may allocate a limited number of
shares for sale to their online brokerage customers. An
electronic prospectus supplement is available on the Internet
web site maintained by the underwriters for their subscription
customers. Other than the prospectus supplement and the
accompanying prospectus in electronic format, the information on
the web sites is not part of this prospectus supplement or
accompanying prospectus.
S-35
Other
Relationships
Some of the underwriters and their affiliates have engaged in,
and may in the future engage in, investment banking and other
commercial dealings in the ordinary course of business with us.
They have received customary fees and commissions for these
transactions. Affiliates of certain of the underwriters act as
lenders
and/or
agents under the revolving credit facility and therefore may
receive a portion of the proceeds from the offering.
Notice to
Prospective Investors in the EEA
In relation to each Member State of the European Economic Area
which has implemented the Prospectus Directive (each, a
Relevant Member State) an offer to the public of any
shares which are the subject of the offering contemplated by
this prospectus supplement may not be made in that Relevant
Member State except that an offer to the public in that Relevant
Member State of any shares may be made at any time under the
following exemptions under the Prospectus Directive, if they
have been implemented in that Relevant Member State:
(a) to legal entities which are authorized or regulated to
operate in the financial markets or, if not so authorized or
regulated, whose corporate purpose is solely to invest in
securities;
(b) to any legal entity which has two or more of
(1) an average of at least 250 employees during the
last financial year; (2) a total balance sheet of more than
43,000,000 and (3) an annual net turnover of more
than 50,000,000, as shown in its last annual or
consolidated accounts;
(c) by the underwriters to fewer than 100 natural or legal
persons (other than qualified investors as defined
in the Prospectus Directive) subject to obtaining the prior
consent of Merrill Lynch, Pierce, Fenner & Smith
Incorporated for any such offer; or
(d) in any other circumstances falling within
Article 3(2) of the Prospectus Directive; provided that no
such offer of shares shall result in a requirement for the
publication by us or any representative of a prospectus pursuant
to Article 3 of the Prospectus Directive.
Any person making or intending to make any offer of shares
within the EEA should only do so in circumstances in which no
obligation arises for us or any of the underwriters to produce a
prospectus for such offer. Neither we nor the underwriters have
authorized, nor do they authorize, the making of any offer of
shares through any financial intermediary, other than offers
made by the underwriters which constitute the final offering of
shares contemplated in this prospectus supplement.
For the purposes of this provision, and your representation
below, the expression an offer to the public in
relation to any shares in any Relevant Member State means the
communication in any form and by any means of sufficient
information on the terms of the offer and any shares to be
offered so as to enable an investor to decide to purchase any
shares, as the same may be varied in that Relevant Member State
by any measure implementing the Prospectus Directive in that
Relevant Member State and the expression Prospectus
Directive means Directive 2003/71/EC and includes any
relevant implementing measure in each Relevant Member State.
Each person in a Relevant Member State who receives any
communication in respect of, or who acquires any shares under,
the offer of shares contemplated by this prospectus supplement
will be deemed to have represented, warranted and agreed to and
with us and each underwriter that:
(A) it is a qualified investor within the meaning of the
law in that Relevant Member State implementing
Article 2(1)(e) of the Prospectus Directive; and
(B) in the case of any shares acquired by it as a financial
intermediary, as that term is used in Article 3(2) of the
Prospectus Directive, (i) the shares acquired by it in the
offering have not been acquired on behalf of, nor have they been
acquired with a view to their offer or resale to, persons in any
Relevant Member State other than qualified investors
(as defined in the Prospectus Directive), or in circumstances in
which the prior consent of Merrill Lynch, Pierce,
Fenner & Smith Incorporated
S-36
has been given to the offer or resale; or (ii) where shares
have been acquired by it on behalf of persons in any Relevant
Member State other than qualified investors, the offer of those
shares to it is not treated under the Prospectus Directive as
having been made to such persons.
In addition, in the United Kingdom, this document is being
distributed only to, and is directed only at, and any offer
subsequently made may only be directed at persons who are
qualified investors (as defined in the Prospectus
Directive) (i) who have professional experience in matters
relating to investments falling within Article 19
(5) of the Financial Services and Markets Act 2000
(Financial Promotion) Order 2005, as amended (the
Order)
and/or
(ii) who are high net worth companies (or persons to whom
it may otherwise be lawfully communicated) falling within
Article 49(2)(a) to (d) of the Order (all such persons
together being referred to as relevant persons).
This document must not be acted on or relied on in the United
Kingdom by persons who are not relevant persons. In the United
Kingdom, any investment or investment activity to which this
document relates is only available to, and will be engaged in
with, relevant persons.
Notice to
Prospective Investors in Switzerland
This document, as well as any other material relating to the
shares which are the subject of the offering contemplated by
this prospectus supplement, do not constitute an issue
prospectus pursuant to Article 652a
and/or 1156
of the Swiss Code of Obligations. The shares will not be listed
on the SIX Swiss Exchange and, therefore, the documents relating
to the shares, including, but not limited to, this document, do
not claim to comply with the disclosure standards of the listing
rules of SIX Swiss Exchange and corresponding prospectus schemes
annexed to the listing rules of the SIX Swiss Exchange. The
shares are being offered in Switzerland by way of a private
placement, i.e., to a small number of selected investors
only, without any public offer and only to investors who do not
purchase the shares with the intention to distribute them to the
public. The investors will be individually approached by the
issuer from time to time. This document, as well as any other
material relating to the shares, is personal and confidential
and do not constitute an offer to any other person. This
document may only be used by those investors to whom it has been
handed out in connection with the offering described herein and
may neither directly nor indirectly be distributed or made
available to other persons without express consent of the
issuer. It may not be used in connection with any other offer
and shall in particular not be copied
and/or
distributed to the public in (or from) Switzerland.
Notice to
Prospective Investors in the Dubai International Financial
Centre
This document relates to an exempt offer in accordance with the
Offered Securities Rules of the Dubai Financial Services
Authority. This document is intended for distribution only to
persons of a type specified in those rules. It must not be
delivered to, or relied on by, any other person. The Dubai
Financial Services Authority has no responsibility for reviewing
or verifying any documents in connection with exempt offers. The
Dubai Financial Services Authority has not approved this
document nor taken steps to verify the information set out in
it, and has no responsibility for it. The shares which are the
subject of the offering contemplated by this prospectus
supplement may be illiquid
and/or
subject to restrictions on their resale. Prospective purchasers
of the shares offered should conduct their own due diligence on
the shares. If you do not understand the contents of this
document you should consult an authorised financial adviser.
S-37
LEGAL
MATTERS
Bryan Cave LLP, St. Louis, Missouri, will pass upon certain
legal matters for us in connection with the common stock offered
by this prospectus supplement and the accompanying prospectus.
Goodwin Procter LLP, Boston, Massachusetts, will pass upon
certain legal matters for the underwriters.
EXPERTS
The consolidated financial statements of Centene Corporation as
of December 31, 2008 and 2007, and for each of the years in
the three-year period ended December 31, 2008, and
managements assessment of the effectiveness of internal
control over financial reporting as of December 31, 2008
(which is included in Managements Report on Internal
Control over Financial Reporting) have been incorporated herein
and in the registration statement in reliance upon the reports
of KPMG LLP, an independent registered public accounting firm,
incorporated by reference herein, and upon the authority of said
firm as experts in accounting and auditing.
WHERE YOU
CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements
and other information with the SEC. You may read and copy any
document we file at the SECs Public Reference Room,
100 F Street, N.E., Washington, D.C. 20549.
Please call the SEC at
1-800-SEC-0330
for further information on their public reference room. Our SEC
filings are also available to the public at the SECs
website at
http://www.sec.gov.
Our common stock is listed and traded on the New York Stock
Exchange (the NYSE). You may also inspect the
information we file with the SEC at the NYSEs offices at
20 Broad Street, New York, New York 10005. Information
about us, including our SEC filings, is also available at our
Internet site at
http://www.centene.com.
However, the information on our Internet site is not a part of
this prospectus or any prospectus supplement.
The SEC allows us to incorporate by reference
information into this prospectus. This means that we can
disclose important information to you by referring you to
another document filed separately with the SEC. The information
incorporated by reference is considered to be a part of this
prospectus, and later information that we file with the SEC will
automatically update and supersede this information. We
incorporate by reference the documents listed below and any
future filings made with the SEC under Section 13(a),
13(c), 14 or 15(d) of the Securities Exchange Act of 1934 (other
than the portions provided pursuant to Item 2.02 or
Item 7.01 of
Form 8-K
or other information furnished to the SEC) after the
date of this prospectus and before the end of the offering of
the securities pursuant to this prospectus (SEC File
No. 001-31826):
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our Annual Report on
Form 10-K
for the year ended December 31, 2008, filed with the SEC on
February 23, 2009;
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our Quarterly Report on
Form 10-Q
for the period ended March 31, 2009, filed with the SEC on
April 28, 2009;
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our Quarterly Report on
Form 10-Q
for the period ended June 30, 2009, filed with the SEC on
July 28, 2009;
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our Quarterly Report on
Form 10-Q
for the period ended September 30, 2009, filed with the SEC
on October 27, 2009;
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our Current Report on
Form 8-K,
filed with the SEC on May 8, 2009;
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our Current Report on
Form 8-K,
filed with the SEC on October 2, 2009; and
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the description of our common and preferred stock purchase
rights contained in our registration statement on
Form 8-A
filed with the SEC on October 14, 2003, as amended by our
Forms 8-A/A
filed with the SEC on December 17, 2004 and April 26,
2007, including any amendments or reports filed for the purpose
of updating such description.
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We encourage you to read our SEC reports, as they provide
additional information about us which prudent investors find
important. We will provide to each person, including any
beneficial owner, to whom a prospectus is delivered, a copy of
any or all of the information that has been incorporated by
reference in the prospectus but not delivered with the
prospectus at no charge upon written or oral request made by
contacting us at Centene Corporation, Attn: Corporate Secretary,
7711 Carondelet Avenue, St. Louis, Missouri 63105,
telephone
(314) 725-4477.
S-38
PROSPECTUS
Common Stock
We may offer and sell from time to time shares of our common
stock in amounts, at prices and on terms that we will determine
at the times of the offerings. We will provide specific terms of
any offering in supplements to this prospectus. The supplements
may add, update or change information contained in this
prospectus. You should read this prospectus and any prospectus
supplement carefully before you invest.
We may offer shares of common stock for sale directly to
purchasers or through underwriters, dealers or agents to be
designated at a future date. The supplements to this prospectus
will provide the names of any underwriters, the specific terms
of the plan of distribution, the underwriters discounts
and commissions, and the terms of any overallotment options.
Our common stock is listed on the New York Stock Exchange under
the symbol CNC.
Investing in our securities involves risk. See Risk
Factors beginning on page 2 of this prospectus.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or passed upon the accuracy or adequacy of this
prospectus. Any representation to the contrary is a criminal
offense.
The date of this prospectus is January 19, 2010
TABLE OF
CONTENTS
No dealer, salesperson or other person is authorized to give
you any information or to represent anything not contained in
this prospectus. You must not rely on any unauthorized
information or representations. This prospectus is an offer to
sell only the shares offered hereby, but only under
circumstances and in jurisdictions where it is lawful to do so.
The information contained in this prospectus is current only as
of its date.
ABOUT
THIS PROSPECTUS
This prospectus is part of an automatic shelf
registration statement on
Form S-3
that we filed with the Securities and Exchange Commission, or
SEC, as a well-known seasoned issuer as defined in
Rule 405 under the Securities Act of 1933, as amended (the
Securities Act). Under this shelf registration
process, we may, from time to time, sell the securities
described in this prospectus in one or more offerings. For
further information about our business and the securities, you
should refer to the registration statement and its exhibits. The
exhibits to our registration statement contain the full text of
certain contracts and other important documents we have
summarized in this prospectus. Since these summaries may not
contain all the information that you may find important in
deciding whether to purchase the securities we offer, you should
review the full text of these documents. The registration
statement and the exhibits can be obtained from the SEC as
indicated under the heading Where You Can Find More
Information.
This prospectus provides you with a general description of our
common stock. Each time we offer shares of our common stock, we
will provide you with a prospectus supplement
and/or other
offering material that will contain specific information about
the terms of that offering. When we refer to a prospectus
supplement, we are also referring to any free writing
prospectus or other offering material authorized by us. The
prospectus supplement may also add, update or change information
contained in this prospectus. If there is any inconsistency
between the information in this prospectus and the applicable
prospectus supplement, you should rely on the information in the
prospectus supplement. You should read this prospectus and any
prospectus supplement together with additional information
described under the heading Where You Can Find More
Information.
You should rely only on the information provided in this
prospectus, in any prospectus supplement, or any other offering
material that we authorize, including the information
incorporated by reference. We have not authorized anyone to
provide you with different information. You should not assume
that the information in this prospectus, any supplement to this
prospectus, or any other offering material that we authorize, is
accurate at any date other than the date indicated on the cover
page of these documents or the date of the statement contained
in any incorporated documents, respectively. This prospectus is
not an offer to sell or a solicitation of an offer to buy any
securities other than the securities referred to in the
prospectus supplement. This prospectus is not an offer to sell
or a solicitation of an offer to buy such securities in any
circumstances in which such offer or solicitation is unlawful.
You should not interpret the delivery of this prospectus, or any
sale of securities, as an indication that there has been no
change in our affairs since the date of this prospectus. You
should also be aware that information in this prospectus may
change after this date. Unless the context otherwise requires,
in this prospectus Centene, we,
us, our and ours refer to
Centene Corporation and its consolidated subsidiaries.
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RISK
FACTORS
Investing in our common stock involves risks. You should
carefully consider the risks described under Risk
Factors in Item 1A of Part II of our Quarterly
Report on
Form 10-Q
for the period ended September 30, 2009, filed with the SEC
on October 27, 2009, and under Risk Factors in
Item 1A of Part I of our Annual Report on
Form 10-K
for the year ended December 31, 2008, filed with the SEC on
February 23, 2009, and in the other documents incorporated
by reference into this prospectus (which risk factors are
incorporated by reference herein), as well as the additional
risk factors and other information contained or incorporated by
reference in this prospectus or in any prospectus supplement
hereto before making a decision to invest in our common stock.
See Where You Can Find More Information.
CENTENE
CORPORATION
We are a multi-line healthcare enterprise operating in two
segments: Medicaid Managed Care and Specialty Services. Our
Medicaid Managed Care segment provides Medicaid and
Medicaid-related health plan coverage to individuals through
government subsidized programs, including Medicaid, the State
Childrens Health Insurance Program, or CHIP, Foster Care,
Medicare Special Needs Plans and the Supplemental Security
Income Program, also known as the Aged, Blind or Disabled
Program, or collectively ABD. At September 30, 2009,
Medicaid accounted for 75% of our at-risk membership, while CHIP
(also including Foster Care) and ABD (also including Medicare)
accounted for 19% and 6%, respectively. Our Specialty Services
segment provides specialty services, including behavioral
health, individual health insurance, life and health management,
long-term care programs, managed vision, telehealth services,
and pharmacy benefits management to state programs, healthcare
organizations, employer groups and other commercial
organizations, as well as to our own subsidiaries. Our Specialty
Services segment also provides a full range of healthcare
solutions for the rising number of uninsured Americans.
Our initial health plan commenced operations in Wisconsin in
1984. We were organized in Wisconsin in 1993 as a holding
company for our initial health plan and reincorporated in
Delaware in 2001. Our corporate office is located at 7711
Carondelet Avenue, St. Louis, Missouri 63105, and our
telephone number is
(314) 725-4477.
Our stock is publicly traded on the New York Stock Exchange
under the ticker symbol CNC.
WHERE YOU
CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements
and other information with the SEC. You may read and copy any
document we file at the SECs Public Reference Room,
100 F Street, N.E., Washington, D.C. 20549.
Please call the SEC at
1-800-SEC-0330
for further information on their public reference room. Our SEC
filings are also available to the public at the SECs
website at
http://www.sec.gov.
Our common stock is listed under the symbol CNC and
traded on the New York Stock Exchange (the NYSE).
You may also inspect the information we file with the SEC at the
NYSEs offices at 20 Broad Street, New York, New York
10005. Information about us, including our SEC filings, is also
available at our Internet site at
http://www.centene.com.
However, the information on our Internet site is not a part of
this prospectus or any prospectus supplement.
The SEC allows us to incorporate by reference
information into this prospectus. This means that we can
disclose important information to you by referring you to
another document filed separately with the SEC. The information
incorporated by reference is considered to be a part of this
prospectus, and later information that we file with the SEC will
automatically update and supersede this information. We
incorporate by reference the documents listed below and any
future filings made with the SEC under Section 13(a),
13(c), 14 or 15(d) of the Securities Exchange Act of 1934 (other
than the portions provided pursuant to Item 2.02 or
Item 7.01 of
Form 8-K
or other information furnished to the SEC) after the
date of this prospectus and before the end of the offering of
the securities pursuant to this prospectus (SEC File
No. 001-31826):
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our Annual Report on
Form 10-K
for the year ended December 31, 2008, filed with the SEC on
February 23, 2009;
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our Quarterly Report on
Form 10-Q
for the period ended March 31, 2009, filed with the SEC on
April 28, 2009;
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our Quarterly Report on
Form 10-Q
for the period ended June 30, 2009, filed with the SEC on
July 28, 2009;
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our Quarterly Report on
Form 10-Q
for the period ended September 30, 2009, filed with the SEC
on October 27, 2009;
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our Current Report on
Form 8-K,
filed with the SEC on May 8, 2009;
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our Current Report on
Form 8-K,
filed with the SEC on October 2, 2009; and
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the description of our common and preferred stock purchase
rights contained in our registration statement on
Form 8-A
filed with the SEC on October 14, 2003, as amended by our
Forms 8-A/A
filed with the SEC on December 17, 2004 and April 26,
2007, including any amendments or reports filed for the purpose
of updating such description.
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We encourage you to read our SEC reports, as they provide
additional information about us which prudent investors find
important. We will provide to each person, including any
beneficial owner, to whom a prospectus is delivered, a copy of
any or all of the information that has been incorporated by
reference in the prospectus but not delivered with the
prospectus at no charge upon request by contacting us at Centene
Corporation, Attn: Corporate Secretary, 7711 Carondelet
Avenue, St. Louis, Missouri 63105, telephone
(314) 725-4477.
USE OF
PROCEEDS
Unless we specify another use in the applicable prospectus
supplement, we will use the net proceeds from the sale of any
securities offered by us for general corporate purposes. Such
general corporate purposes may include the repayment of
indebtedness, funding for acquisitions, capital expenditures,
additions to working capital and to meet statutory capital
requirements in new or existing states. We evaluate possible
acquisitions from time to time, although we currently have no
commitments or binding agreements to make any acquisitions, and
we cannot assure you that we will make any acquisitions in the
future. We are currently in negotiations on non-binding letters
of intent that would expand our programs in our existing and new
states; however, the proposed purchase prices for these
acquisitions would not be material individually or in the
aggregate. Pending such use, the proceeds may be invested
temporarily in short-term, interest-bearing, investment-grade
securities or similar assets.
CAUTIONARY
STATEMENT ON FORWARD-LOOKING STATEMENTS
All statements, other than statements of current or historical
fact, contained in this prospectus are forward-looking
statements. We have attempted to identify these statements by
terminology including believe,
anticipate, plan, expect,
estimate, intend, seek,
target, goal, may,
will, should, can,
continue and other similar words or expressions in
connection with, among other things, any discussion of future
operating or financial performance. In particular, these
statements include statements about our market opportunity, our
growth strategy, competition, expected activities and future
acquisitions, investments and the adequacy of our available cash
resources. 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 our or our industrys 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. These statements are not
guarantees of future performance and are subject to risks,
uncertainties and assumptions.
All forward-looking statements included in this prospectus are
based on information available to us on the date of this
prospectus. Actual results may differ from projections or
estimates due to a variety of important factors, including:
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our ability to accurately predict and effectively manage health
benefits and other operating expenses;
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competition;
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changes in healthcare practices;
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changes in federal or state laws or regulations;
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inflation;
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provider contract changes;
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new technologies;
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reduction in provider payments by governmental payors;
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major epidemics or pandemics;
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disasters and numerous other factors affecting the delivery and
cost of healthcare;
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the expiration, cancellation or suspension of our Medicaid
managed care contracts by state governments;
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availability of debt and equity financing, on terms that are
favorable to us; and
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general economic and market conditions.
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The risk factors set forth or incorporated by reference above in
the section entitled Risk Factors contains a further
discussion of these and other important factors that could cause
actual results to differ from expectations. We disclaim any
current intention or obligation to update or revise any
forward-looking statements, whether as a result of new
information, future events or otherwise. Due to these important
factors and risks, we cannot give assurances with respect to our
future premium levels or our ability to control our future
medical costs.
DESCRIPTION
OF CAPITAL STOCK
The following is a summary of the material terms of our capital
stock and the provisions of our certificate of incorporation and
by-laws. It also summarizes some relevant provisions of the
General Corporation Law of the State of Delaware, which we refer
to as Delaware law or the DGCL. Since the terms of our
certificate of incorporation, by-laws, and Delaware law are more
detailed than the general information provided below, you should
only rely on the actual provisions of those documents and
Delaware law. If you would like to read those documents, they
are on file with the SEC as described under the heading
Where You Can Find More Information.
General
Centenes authorized capital stock consists of
110 million shares, of which:
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100 million shares are designated as common stock, par
value $.001 per share, and
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10 million shares are designated as preferred stock, par
value $.001 per share.
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As of January 15, 2010, Centene had 43,221,757 shares
of common stock issued and outstanding and no shares of
preferred stock issued and outstanding.
Common
Stock
Each share of our common stock entitles the holder to one vote
on all matters submitted to a vote of stockholders, including
the election of directors. Subject to any preference rights of
holders of preferred stock, the holders of common stock are
entitled to receive dividends, if any, declared from time to
time by the directors out of legally available funds. In the
event of our liquidation, dissolution or winding up, the holders
of common stock are entitled to share ratably in all assets
remaining after the payment of liabilities, subject to any
rights of holders of preferred stock to prior distribution.
Holders of common stock have no cumulative voting rights. The
common stock has no preemptive or conversion rights or other
subscription rights. No redemption or sinking fund provisions
apply to the common stock. All outstanding shares of common
stock are fully paid and nonassessable, and the shares of common
stock to be issued upon the completion of this offering will be
fully paid and nonassessable.
We may issue additional shares of authorized common stock
without stockholder approval, subject to applicable rules of the
NYSE and Delaware law.
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The transfer agent and registrar for the common stock is BNY
Mellon Investor Shareowner Services. Information about BNY
Mellon Investor Shareowner Services may be obtained at
(888) 213-0965.
Our common stock is listed on the NYSE under the symbol
CNC.
Preferred
Stock
The following is a description of general terms and provisions
of the preferred stock. All of the terms of the preferred stock
are, or will be contained in our certificate of incorporation or
in one or more certificates of designation relating to each
series of the preferred stock, which will be filed with the SEC
at or prior to the issuance of the series of preferred stock,
and will be available as described under the heading Where
You Can Find More Information.
Our board of directors is authorized, without further
stockholder approval but subject to applicable rules of the NYSE
and any limitations prescribed by law, to issue up to
10 million shares of preferred stock from time to time. Our
board of directors has the discretion to provide for the
issuance of all or any shares of preferred stock in one or more
classes or series, and to fix for each such class or series such
voting powers, full or limited, or no voting powers, and such
designations, preferences and relative, participating, optional
or other special rights and such qualifications, limitations or
restrictions thereof, as shall be stated and expressed in the
resolution or resolutions adopted by the board of directors
providing for the issuance of such class or series, including,
without limitation, the authority to provide that any such class
or series may be:
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subject to redemption at such time or times and at such price or
prices,
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entitled to receive dividends (which may be cumulative or
non-cumulative) at such rates, on such conditions, and at such
times, and payable in preference to, or in such relation to, the
dividends payable on any other class or classes or any other
series,
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entitled to such rights upon the dissolution of Centene or upon
any distribution of our assets, or
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convertible into, or exchangeable for, shares of any other class
or classes of stock or of any other series of the same or any
other class or classes of stock of Centene at such price or
prices or at such rates of exchange and with such adjustments as
the board may determine.
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In connection with the rights plan described below, our board of
directors has designated 100,000 shares of preferred stock
as Series A Junior Participating Preferred Stock,
$0.001 par value per share, the terms of which are set
forth in the Certificate of Designations of Series A Junior
Participating Preferred Stock, filed with the Secretary of State
of the State of Delaware on August 30, 2002, as it may be
amended from time to time, and are summarized below under
Rights Plan.
The purpose of authorizing our board of directors to issue
preferred stock and determine its rights and preferences is to
eliminate delays associated with a stockholder vote on specific
issuances. The issuance of preferred stock may provide desirable
flexibility in connection with possible acquisitions and other
corporate purposes, but could have the effect of making it more
difficult for a third party to acquire, or could discourage a
third party from acquiring, a majority of our outstanding voting
stock.
Certain
Effects of Authorized but Unissued Stock
We may issue additional shares of common stock or preferred
stock without stockholder approval, subject to applicable rules
of the NYSE and Delaware law, for a variety of corporate
purposes, including future public or private offerings to raise
additional capital, corporate acquisitions, and employee benefit
plans and equity grants. The existence of unissued and
unreserved common and preferred stock may enable us to issue
shares to persons who are friendly to current management, which
could discourage an attempt to obtain control of Centene by
means of a proxy contest, tender offer, merger or otherwise. We
will not solicit approval of our stockholders for issuance of
common and preferred stock unless our board of directors
believes that approval is advisable or is required by applicable
rules of the NYSE or Delaware law.
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Rights
Plan
On August 26, 2002, our board of directors declared a
dividend of one Right for each outstanding share of our common
stock to our stockholders of record at the close of business on
September 10, 2002, which we refer to as the record date.
As a result of previous automatic adjustments under the Rights
Agreement, dated as of August 30, 2002, for our stock
splits in July 2003 and December 2004 (effected in the form of
stock dividends), each share of our common stock is currently
associated with one-third of a Right, which entitles its
registered holder to purchase from Centene (or receive the value
of) one three-thousandth of a share of our Series A Junior
Participating Preferred Stock. On April 23, 2007, we
executed Amendment No. 1 to the Rights Agreement providing
for a purchase price of $95 per one three-thousandth share of
this preferred stock, subject to adjustment.
The description and terms of the Rights are set forth in the
Rights Agreement and in Amendment No. 1 to that agreement.
Currently, the Rights are not exercisable and will be attached
to all certificates representing outstanding shares of our
common stock, and no separate certificate representing the
Rights, called a Rights Certificate, will be distributed. The
Rights will separate from our common stock, and the distribution
date will occur, upon the earlier of:
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ten business days following the first date of a public
announcement that a person or group of affiliated or associated
persons, called an acquiring person, has acquired, or obtained
the right to acquire, beneficial ownership of 15% or more of the
outstanding shares of our common stock or
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ten business days following the commencement of a tender offer
or exchange offer that would result in a person or group
beneficially owning 15% or more of the outstanding shares of our
common stock, which date we refer to as the distribution date.
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The distribution date may be deferred in certain circumstances
by our board of directors. In addition, certain inadvertent
acquisitions will not trigger the occurrence of the distribution
date. Until the distribution date (or earlier redemption or
expiration of the Rights):
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the Rights will be evidenced by our common stock certificates
outstanding on the record date or by new certificates
representing common stock issued after the record date which
contain a notation incorporating the Rights Agreement by
reference,
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the Rights will be transferred with and only with such
certificates, and
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the surrender for transfer of any certificates representing
shares of our common stock outstanding will also constitute the
transfer of the Rights associated with the common stock
represented by such certificate.
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The Rights are not exercisable until the distribution date and
will expire upon the close of business on August 30, 2012,
called the final expiration date, unless earlier redeemed or
exchanged. As soon as practicable after the distribution date,
separate Rights Certificates will be mailed to the holders of
record of our common stock as of the close of business on the
distribution date and, thereafter, the separate Rights
Certificates alone will represent the Rights. Except as
otherwise determined by our board of directors, and except for
shares of our common stock issued upon exercise, conversion or
exchange of then outstanding options, convertible or
exchangeable securities or other contingent obligations to issue
shares or pursuant to any employee benefit plan or arrangement,
only shares of our common stock issued prior to the distribution
date will be issued with Rights.
If any person becomes an acquiring person, then, promptly
following the first occurrence of such event, each holder of a
Right shall thereafter have the right to receive, upon exercise,
that number of shares of our common stock, or, in certain
circumstances, cash, property or other securities, which equals
the purchase price divided by 50% of the current market price
per share of our common stock at the date of the occurrence of
such event. However, Rights are not exercisable following such
event until such time as the Rights are no longer redeemable by
us. Notwithstanding any of the foregoing, following the
occurrence of such event, all
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Rights that are, or, under certain circumstances, were,
beneficially owned by any acquiring person will be null and
void. We refer to this event as an A Trigger Event.
For example, at a purchase price of $90, each one-third of a
Right not owned by an acquiring person following an A Trigger
Event would entitle its holder to purchase for $90 such number
of shares of our common stock as equals $90 divided by one-half
of the current market price of our common stock. Assuming that
our common stock had a market price of $30 per share at such
time, the holder of each valid one-third of a Right would be
entitled to purchase six shares of our common stock, having a
market value of 6 x $30, or $180, for $90.
If, after any person becomes an acquiring person,
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we are consolidated with, or merged with and into, another
entity and we are not the surviving entity of such consolidation
or merger or if we are the surviving entity, but shares of our
outstanding common stock are changed or exchanged for stock or
securities, cash or any other property, or
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more than 50% of our assets or earning power is sold or
transferred,
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then each holder of a Right shall thereafter have the right to
receive, upon exercise, that number of shares of common stock of
the acquiring company which equals the exercise price divided by
50% of the current market price of such common stock at the date
of the occurrence of the event. We refer to this event as a
B Trigger Event.
For example, at an exercise price of $90, each valid one-third
of a Right following a B Trigger Event would entitle its holder
to purchase for $90 such number of shares of common stock of the
acquiring company as equals $90 divided by one-half of the
current market price of such common stock. Assuming that such
common stock had a market price of $30 per share at such time,
the holder of each valid one-third of a Right would be entitled
to purchase six shares of common stock of the acquiring company,
having a market value of 6 x $30, or $180, for $90.
At any time after the occurrence of an A Trigger Event, when no
person owns a majority of our common stock, our board of
directors may exchange the Rights in whole or in part, at an
exchange ratio of one share of our common stock, or one
one-thousandth of a share of our preferred stock, or of a share
of a class or series of our preferred stock having equivalent
rights, preferences and privileges, per Right.
The purchase price payable and the number of units of our
preferred stock or other securities or property issuable upon
exercise of the Rights are subject to adjustment from time to
time to prevent dilution:
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in the event of a stock dividend on, or a subdivision,
combination or reclassification of, our preferred stock,
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if holders of our preferred stock are granted certain rights or
warrants to subscribe for our preferred stock or convertible
securities at less than the then-current market price of our
preferred stock, or
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upon the distribution to holders of our preferred stock of
evidences of indebtedness or assets or of subscription rights or
warrants.
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The number of Rights associated with each share of our common
stock is also subject to adjustment in the event of a stock
split of our common stock or a stock dividend on our common
stock payable in common stock or subdivisions, consolidations or
combinations of our common stock occurring, in any such case,
prior to the distribution date.
With certain exceptions, no adjustment in the purchase price
will be required until cumulative adjustments amount to at least
1% of the purchase price. No fractional shares of our preferred
stock, other than fractions which are integral multiples of one
one-thousandth of a share of our preferred stock, will be issued
and, in lieu thereof, an adjustment in cash will be made based
on the market price of our preferred stock on the last trading
date prior to the date of exercise.
Preferred stock purchasable upon exercise of the Rights will not
be redeemable. Each share of our preferred stock will be
entitled to receive, when, as and if declared by our board of
directors, a minimum
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preferential quarterly dividend payment of $10 per share or, if
greater, an aggregate dividend of 3,000 times the dividend
declared per share of our common stock. In the event of
liquidation, the holders of our preferred stock will be entitled
to a minimum preferential liquidation payment of $1,000 per
share, plus an amount equal to accrued and unpaid dividends, and
will be entitled to an aggregate payment of 3,000 times the
payment made per share of our common stock. Each share of our
preferred stock will have 3,000 votes, voting together with our
common stock. In the event of any merger, consolidation or other
transaction in which our common stock is changed or exchanged,
each share of our preferred stock will be entitled to receive
3,000 times the amount received per share of our common stock.
These rights are protected by customary antidilution provisions.
Because of the nature of our preferred stocks dividend,
liquidation and voting rights, the value of one three-thousandth
of a share of our preferred stock purchasable upon exercise of
each one-third of a Right should approximate the value of one
share of our common stock.
At any time prior to the earlier of the tenth business day after
the stock acquisition date or the final expiration date, we may
redeem the Rights in whole, but not in part, at a price of
$0.001 per Right, called the redemption price, payable in cash
or stock, as such amount may be appropriately adjusted to
reflect any stock split, stock dividend or similar transaction
following August 30, 2002. Immediately upon the redemption
of the Rights or such earlier time as established by our board
of directors in the resolution ordering the redemption of the
Rights, the Rights will terminate and the only right of the
holders of Rights will be to receive the redemption price. The
Rights may also be redeemable following certain other
circumstances specified in the Rights Agreement.
Until a Right is exercised, the holder thereof, as such, will
have no rights as a stockholder, including, without limitation,
the right to vote or to receive dividends. Although the
distribution of the Rights should not be taxable to our
stockholders or to us, our stockholders may, depending upon the
circumstances, recognize taxable income in the event that the
Rights become exercisable for our common stock or for common
stock of an acquiring company as set forth above.
Any provision of the Rights Agreement, other than the redemption
price, may be amended by our board of directors prior to such
time as the Rights are no longer redeemable. Once the Rights are
no longer redeemable, our board of directors authority to
amend the Rights is limited to correcting ambiguities or
defective or inconsistent provisions in a manner that does not
adversely affect the interest of holders of Rights.
The Rights are intended to protect our stockholders in the event
of an unfair or coercive offer to acquire us and to provide the
board of directors with adequate time to evaluate unsolicited
offers. The Rights may have anti-takeover effects. The Rights
will cause substantial dilution to a person or group that
attempts to acquire us without conditioning the offer on a
substantial number of Rights being acquired. The Rights,
however, should not affect any prospective offer or willing to
make an offer at a fair price and determined by the board. The
Rights should not interfere with any merger or other business
combination approved by the board of directors.
Limitation
on Liability of Directors; Indemnification
Our certificate of incorporation provides that no director shall
be personally liable to Centene or any of its stockholders for
monetary damages for breach of fiduciary duty as a director,
except to the extent such exemption from liability or limitation
thereof is not permitted under the DGCL as the same exists or
may hereafter be amended. If the DGCL is amended hereafter to
authorize the further elimination or limitation of the liability
of directors, then the liability of directors shall be
eliminated or limited to the fullest extent authorized by the
DGCL, as so amended. Our certificate of incorporation further
provides that any repeal or modification of this limitation of
liability by our stockholders shall not adversely affect any
right or protection of a director of Centene existing at the
time of such repeal or modification with respect to acts or
omissions occurring prior to such repeal or modification.
Our certificate of incorporation requires that we indemnify our
directors and officers to the fullest extent authorized or
permitted by law, as now or hereafter in effect, and that such
right to indemnification shall continue as to a person who has
ceased to be a director or officer and shall inure to the
benefit of his or her heirs, executors and personal and legal
representatives. Except for proceedings to enforce rights to
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indemnification, however, Centene shall not be obligated to
indemnify in connection with a proceeding (or part thereof) if
such director, officer or successor in interest initiated such
proceeding (or part thereof) unless such proceeding was
authorized or consented to by the board of directors. The right
to indemnification includes the right to be paid the expenses
incurred in defending or otherwise participating in any
proceeding in advance of its final disposition. Any repeal or
modification by the stockholders of indemnification or
advancement rights shall not adversely affect any rights to
indemnification and to the advancement of expenses of a director
or officer of Centene existing at the time of such repeal or
modification with respect to any acts or omissions occurring
prior to such repeal or modification.
The board of directors may in its discretion provide rights to
indemnification and to the advancement of expenses to employees
and agents of Centene similar to those described above.
The inclusion of these provisions in our certificate of
incorporation and by-laws may have the effect of reducing the
likelihood of derivative litigation against our directors and
may discourage or deter Centene or its stockholders from
bringing a lawsuit against our directors for breach of their
duty of care, even though such an action, if successful, might
otherwise have benefited Centene and its stockholders.
Anti-Takeover
Effects of Provisions of Delaware Law and Our Certificate of
Incorporation and By-Laws
Some of the provisions in our certificate of incorporation and
by-laws, as well as our rights plan, and Delaware law could have
the following effects, among others:
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delaying, deferring or preventing a change in control of Centene;
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delaying, deferring or preventing the removal of our existing
management or directors;
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deterring potential acquirors from making an offer to our
stockholders; and
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limiting our stockholders opportunity to realize premiums
over prevailing market prices of our common stock in connection
with offers by potential acquirors.
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The following is a summary of some of the provisions in our
certificate of incorporation and by-laws that could have the
effects described above. We believe that the benefits of
increased protection of our potential ability to negotiate with
the proponent of an unfriendly or unsolicited proposal to
acquire or restructure us outweigh the disadvantages of
discouraging takeover or acquisition proposals because
negotiation of these proposals could result in an improvement of
their terms.
Delaware Business Combination Statute. We must
comply with Section 203 of the Delaware General Corporation
Law, an anti-takeover law. In general, Section 203
prohibits a publicly held Delaware corporation from engaging in
a business combination with an interested
stockholder for a period of three years following the date
the person became an interested stockholder, unless the business
combination or the transaction in which the person became an
interested stockholder is approved in a prescribed manner.
Generally, a business combination includes a merger,
asset or stock sale, or other transaction resulting in a
financial benefit to an interested stockholder. An
interested stockholder includes a person who,
together with affiliates and associates, owns, or did own within
three years prior to the determination of interested stockholder
status, 15% or more of the corporations voting stock. The
existence of this provision generally will have an anti-takeover
effect for transactions not approved in advance by the board of
directors, including discouraging attempts that might result in
a premium over the market price for the shares of common stock
held by stockholders.
Other Supermajority Voting Requirements. In
addition to the supermajority requirement for certain business
combinations discussed above, Centenes certificate of
incorporation also contains other supermajority requirements,
including:
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a requirement that the vote of 75% of the outstanding shares of
common stock (and any other voting shares that may be
outstanding) entitled to vote generally in the election of
directors is required to remove a director, with or without
cause; and
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a requirement that the vote of 75% of the outstanding shares of
common stock (and any other voting shares that may be
outstanding) entitled to vote generally in the election of
directors is required for the stockholders to adopt, amend,
alter or repeal the by-laws; and
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a requirement that any amendment or repeal of specified
provisions of Centenes certificate of incorporation
(including provisions relating to directors and amendment of our
by-laws) must be approved by at least 75% of the outstanding
shares of our common stock (and any other voting shares that may
be outstanding) entitled to vote generally in the election of
directors.
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Actions at Meetings of Stockholders; Special
Meetings. Our certificate of incorporation and
by-laws require that any action required or permitted to be
taken by our stockholders must be effected at a duly called
annual or special meeting of the stockholders and may not be
effected by a consent in writing. In addition, special meetings
of our stockholders may be called only by the board of directors
or some of our officers. These provisions may have the effect of
deterring hostile takeovers or delaying or preventing changes in
our control or management.
Classified Board of Directors. Our certificate
of incorporation and by-laws provide that our board of directors
will be divided into three classes of directors serving
staggered three-year terms. Each class, to the extent possible,
will be equal in number. Each class holds office until the third
annual stockholders meeting for election of directors
following the most recent election of such class.
Directors, and Not Stockholders, Fix the Size of the Board of
Directors. Our certificate of incorporation and
by-laws provide that the number of directors will be fixed from
time to time exclusively pursuant to a resolution adopted by a
majority of our board of directors, but in no event will it
consist of less than five nor more than eleven directors.
Board Vacancies to Be Filled by Remaining Directors and Not
Stockholders. Under our certificate of
incorporation and by-laws, any vacancy created by any reason
prior to the expiration of the term in which the vacancy occurs
will be filled by a majority of the remaining directors, even if
less than a quorum. A director elected to fill a vacancy will be
elected for the unexpired term of his predecessor.
Advance Notice for Stockholder Proposals. Our
by-laws contain provisions requiring that advance notice be
delivered to Centene of any business to be brought by a
stockholder before an annual meeting and providing for
procedures to be followed by stockholders in nominating persons
for election to our board of directors. Ordinarily, the
stockholder must give notice not less than 60 days nor more
than 90 days prior to the anniversary date of the
immediately preceding annual meeting; provided, however, that in
the event that the date of the meeting is not within
30 days before or after such date, notice by the
stockholder must be received not later than the 10th day
following the day on which such notice of the date of the
meeting was mailed or on which such public notice was given. The
notice must include a description of the proposal, the reasons
for the proposal, and other specified matters. Our board of
directors may reject any proposals that have not followed these
procedures or that are not a proper subject for stockholder
action in accordance with the provisions of applicable law.
PLAN OF
DISTRIBUTION
We may sell any of the securities being offered by this
prospectus in any one or more of the following ways from time to
time:
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through agents or dealers;
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to or through underwriters;
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directly by us to purchasers; or
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through a combination of any of these methods.
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We will describe the details of any such offering and the plan
of distribution for any securities offering in a prospectus
supplement.
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Offered securities may also be offered and sold, if so indicated
in the applicable prospectus supplement, in connection with a
remarketing upon their purchase, in accordance with a redemption
or repayment pursuant to their terms, or otherwise, by one or
more remarketing firms, acting as principals for their own
accounts or as agents for us. Any remarketing firm will be
identified and the terms of its agreements, if any, with us, and
any related compensation arrangements contemplated thereby will
be described in the applicable prospectus supplement.
Underwriters, dealers and agents that participate in the
distribution of our securities may be underwriters as defined in
the Securities Act and any discounts or commissions they receive
from us and any profit on their resale of the securities may be
treated as underwriting discounts and commissions under the
Securities Act. We will identify in the applicable prospectus
supplement any underwriters, dealers or agents and will describe
their compensation. We may have agreements with the
underwriters, dealers and agents to indemnify them against
specified civil liabilities, including liabilities under the
Securities Act. Underwriters, dealers and agents may engage in
transactions with or perform services for us or our subsidiaries
in the ordinary course of their businesses.
LEGAL
MATTERS
The validity of the securities offered hereby will be passed
upon for us by Bryan Cave LLP, St. Louis, Missouri.
EXPERTS
The consolidated financial statements of Centene Corporation as
of December 31, 2008 and 2007, and for each of the years in
the three-year period ended December 31, 2008, and
managements assessment of the effectiveness of internal
control over financial reporting as of December 31, 2008
(which is included in Managements Report on Internal
Control over Financial Reporting) have been incorporated herein
and in the prospectus supplement in reliance upon the reports of
KPMG LLP, an independent registered public accounting firm,
incorporated by reference herein, and upon the authority of said
firm as experts in accounting and auditing.
11
5,000,000 Shares
Centene Corporation
Common Stock
PROSPECTUS SUPPLEMENT
BofA Merrill Lynch
Goldman, Sachs &
Co.
J.P.Morgan
Credit Suisse
Barclays Capital
Allen & Company
LLC
Stifel Nicolaus
January , 2010