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Executives

Michael Neidorff - Chairman & Chief Executive Officer

Eric Slusser - Executive Vice President & Chief Financial Officer

Ed Kroll - Senior Vice President of Finance & Investor Relations

Analysts

Daryn Miller - Goldman Sachs

Greg Genova - Deutsche Bank

Joshua Raskin - Barclays

Greg Nersessian - Credit Suisse

Tom Carroll - Stifel Nicolaus

Centene Corp. (CNC) Q4 2008 Earnings Call February 10, 2009 8:30 AM ET

Operator

Good morning. My name is Tim and I’ll be your conference operator today. At this time I’d like to welcome everyone to the CNC 2008, fourth quarter and year end financial results. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. (Operator Instructions)

I will now turn the call over to Ed Kroll, Senior Vice President of Finance and Investor Relations for Centene Corp. Sir, you may begin.

Ed Kroll

Thank you and good morning everyone. I’m Ed Kroll, Senior Vice President of Finance and Investor Relations at Centene. Thank you for joining us on today’s fourth quarter earnings call. Michael Neidorff, Chairman and Chief Executive Officer; and Eric Slusser, Executive Vice President and Chief Financial Officer of Centene, will host this morning’s call.

The call is expected to last about 45 minutes and may be accessed through our website at www.centene.com. A replay will be available shortly after this call’s completion, also on our website at www.centene.com or by dialing 800-642-1687 in the United States and Canada and 706-645-9291 from all other countries and for both, you enter access code 81401888.

Any remarks that Centene may make about future expectations, plans and prospects constitute forward-looking statements for purposes of the Safe Harbor Provision under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these forward-looking statements, as a result of various important factors, including those discussed in Centene’s Form 10-Q dated October 28, 2008 and other public SEC filings.

Centene anticipates that subsequent events and developments will cause its estimates to change. While the company may elect to update these forward-looking statements at some point in the future, we specifically disclaim any obligation to do so.

With that, I’d like to turn the call over to our Chairman and CEO, Michael Neidorff.

Michael Neidorff

Thank you, Ed. Good morning everyone and thank you for joining Centene’s fourth quarter and full year 2008 earnings call. I will briefly review some of the highlights of the fourth quarter and then turn the call over to Eric, who will walk you through the financial results.

Before I comment on what I feel was another solid quarter, I would like to reflect on the new era that the 2008 financial crisis ushered in and what this global realignment in finance and business structure means for Centene. One, we must be balance sheet managers and continue to be balance sheet managers. Liquidity and capital adequacy are prerequisites for the success of any business at any time as measured by our RBC levels, debt to total cap and days claims payable.

Secondly, our relationship with suppliers, i.e. providers, will require collaboration and we will only work with those who effectively balance quality and cost effectiveness. Thirdly, we will be selective in our pursuit of new opportunities. Fourth, we will seek or attempt to err on the side of conservators; and finally, we value systems enhancements that will enable us to be more efficient.

We believe that Centene is well positioned to help their citizens maintain access to quality healthcare services in these difficult times, when state budgets are a very sensitive and critical issue. States are more reliant than ever on Medicaid managed care companies, to help them stretch their budget dollars as far as possible. They are dependent on us to provide their Medicaid beneficiaries with access to quality care in the most equality and cost effective manner.

We believe that Centene’s unique multi-line strategy with our specialty companies and breadth of products gives us a compelling, competitive advantage. For example with Celtic as part of the Centene family, we now have the opportunity to work with states in designing coverage solutions for uninsured individuals and families that do not qualify for traditional government sponsored Medicaid. Celtic's individual coverage, skill set will complement and enhance Centene’s Medicaid healthcare expertise and should lead to product innovation and flexibility to meet the diverse needs of different states.

The US House of Representatives recently passed an $118 billion stimulus bill, including $87 billion in state Medicaid funds for two years, with additional funding for states based on their unemployment levels. The senate is currently working on a stimulus bill that also includes an F-map increase that is very similar to the house’s version.

While it’s too early to gauge the impact and timing of the federal stimulus bill in specific states, its passage serves as a state Medicaid budget stabilizer. On February 4, President Obama signed the Children’s Health Insurance Reauthorization Act of 2009. This expands to 7 million children currently covered under the SCHIP program, by approximately 4 million additional children, including legal immigrants.

We look forward to helping our state customers utilize these critically, needed new resources in an effective and efficient manner. We have already anticipated in our guidance as previously given to you, these numbers.

Now, back to our fourth quarter results; 2008 has been a very good year for Centene as we continue to execute on our strategic initiatives and provide quality care to our members. Our continued company-wide disciplined approach to managing the business has led to a significant HBR in G&A improvement this year. The fourth quarter and full year results we achieved in 2008 gives us confidence that we have laid the groundwork to produce a more predictable profit stream going forward as we look to achieve our future financial targets.

As Eric will indicate in his comments shortly, our balance sheet is strong, we are well capitalized and our cash flow is robust. We had a solid revenue growth in Q4 at over 22% year-over-year and revenue for the full year grew over 21% versus 2007. We are especially pleased with the diverse sources of this group, both geographically and with all our states, but for one contributing membership growth.

On the rate front, we remain comfortable with our assumption of low single digit, average increases across our markets, as we currently have final results on 71% of our anticipated 2009 member months. Our consolidated HBR improved on a year-over-year basis to 82.3% and was up slightly sequentially due to normal seasonality.

The year-over-year improvement in HBR shows that the medical management efforts put in place in Ohio and Wisconsin, as well as other states have gained traction. In particular, we are pleased with the improvement in Ohio ABD, where network streamlining and a back to basics medical management approach, helped us achieve a more favorable outcome. I do want to remind you that from period-to-period, our consolidation will vary within our stated 82% to 84% range due to normal seasonality.

Turning to our general and administrative expenses, the G&A ratio for the fourth quarter of 2008 was 13.8%, which is 40 basis points sequentially improved. That reflects our continued focus on better leveraging and reducing G&A. We expect continued improvement over the next 18 months, as our systems infrastructure investments start to bear fruit.

Before I turn the call over to Eric, I would like to make a few closing remarks. We will maintain the strong financial and fundamental focus through 2009 and beyond so that we can continue to produce and improve growth and margins. We are committed to enhancing profit margins in our long term target range of between 4% to 6% on a pretax basis. We are dedicated to producing better health outcomes at lower costs and will continue to work closely with our state partners.

Our foreign expansion is on track, as we started a conversion process to full risk there this month. Our South Carolina presence continues to grow as we ramp up our membership and are on-track to close on the purchase of Amerigroup which lies there, March 1.

Finally, I remind you that we will not comment on our New Jersey transaction with Amerigroup as it is our long standing policy not to comment on active litigation. Centene’s business model is built to grow in both good and bad times and we expect 2009 to be no different.

We appreciate your support and interest in our company, and with that, I’ll now turn the call to Eric for the financial details.

Eric Slusser

Thank you Michael and good morning everyone. Before I discuss the financial results from continuing operations, I would like to address the impact of reclassifying the New Jersey plan as a discontinued operation to help you reconcile to our previously issued 2008 financial guidance.

As discussed on our December 19, 2008 guidance call, the results of operations for University Health Plans, our New Jersey Health Plan, are now shown in the financial statements as a discontinued operation, as a result of our intent to sell the business.

For fiscal 2008, New Jersey had approximately $147.6 million of premium revenue and earnings from operations that equated to $0.03 of earnings per share. The $0.03 of earnings from operations for the year were offset by exit and other one-time charges in the fourth quarter of 2008, which equated to $0.05 of loss per share, together netting to $0.02 of loss from discontinued operations for the full year.

The New Jersey revenue and earnings from operations amounts for the year were included in our previous 2008 guidance numbers, but have been moved to discontinued operations in our financial statements in accordance with Generally Accepted Accounting Principles.

The financial results discussed throughout the remainder of this call will be in the context of continuing operations unless noted otherwise. For the quarter ended December 31, 2008, revenues net of premium taxes grew to $878.8 million, which represents 22.2% growth compared to the fourth quarter of 2007.

The revenue increase was driven by the following items: First, full risk membership growth in most of our states. Second, the April 1 start-up of our Texas foster care contract. Third, the acquisition of Celtic, which closed on July 1. Fourth, our new Arizona acute care contract that commenced during the quarter. Fifth, average premium rate increases in the low single digits, and finally, the effects of the 2007 Georgia retroactive rate increase included in the first quarter of 2008 rather than proportionally in the fourth quarter of 2007.

For the year ended December 31, 2008, revenues net of premium taxes grew to $3.3 billion, representing 21.6% growth compared to the year ended December 31, 2007. You should note that our annual guidance included the 2008 premium revenue of $147.6 million, associated with New Jersey, which is now included in the results from discontinued operations. Thus total annual revenues including revenues from New Jersey discontinued operations were $3.42 billion. This is slightly above our guidance of $3.39 billion to $3.41 billion issued prior to our announcement that we were selling New Jersey.

Our reported consolidated health benefits ratio or HBR was 82.3% for the fourth quarter of 2008, compared to 82.2% for the 2008 third quarter and 85.3% in the 2007 fourth quarter. The 10 basis point sequential increase from 82.2% in the 2008 third quarter to 82.3% in the 2008 fourth quarter was due to normal seasonality, which was almost entirely offset by better medical management results in Ohio.

The 300 basis point year-over-year improvement was the result of increased premium yields, medical management efforts, particularly in Ohio and Wisconsin and the acquisition of Celtic, which operates at a lower HBR than the rest of our business.

However, the launch of the Texas foster care and the Arizona acute care contracts adversely affected our year-over-year HBR comparison as we book all new contracts at conservative HBR levels until sufficient historical claims data becomes available. Our Texas foster care membership was approximately $33,100 at the end of 2008 and the plan has continued to perform in line with our expectations.

Turning to our general and administrative expenses, the G&A ratio for the fourth quarter of 2008 was 13.8% compared to 14.2% in the third quarter of 2008 and 14.9% in the fourth quarter of 2007. The 40 basis point sequential improvement reflects our continued focus on better leveraging and reducing G&A costs. The 110 basis point improvement year-over-year is primarily related to the prior year restructuring charge that drove a much higher percent in the fourth quarter of 2007.

Our fourth quarter investment and other income was $6 million, relatively flat over the 2007 fourth quarter and an increase of $3.3 million sequentially, due primarily to the approximate $4.5 million investment loss recorded in the third quarter of 2008. Our 2008 full year effective tax rate was 38.4%.

Earnings per diluted share from continuing operations were $0.53 for the 2008 fourth quarter. For the full year 2008, earnings per diluted share from continuing operations were $1.90 compared to $0.92 for the full year 2007. For comparison purposes, when you include New Jersey’s operations and exclude one-time charges associated with the planned sale, earnings per diluted share would have been $0.54 for the fourth quarter and $1.93 for the full year. This compares with our previously issued EPS guidance range for the year of $1.87 to $1.92.

Balance sheet highlights at December 31, 2008 include cash and short term investments of $480.4 million and long term investments including restricted deposits of $341.7 million. We have received a significant portion of the cash from our investment in the reserve primary fund. At December 31, 2008, our holdings in the reserve primary fund were approximately $13 million.

At December 31, 2008, cash and investments held by our unregulated subsidiaries were $24.1 million. Our regulated cash and investments were $798 million. We have estimated our regulated capital and surplus to be in excess of 330% of risk based capital or RBC requirements. Our total debt was $264.9 million and debt to total capitalization was 34.6%.

Our medical claims liabilities totaled $373 million, representing 48.5 days in claims payable, an increase of 0.6 days from 47.9 days at September 30, 2008. This increase was due mainly to state reconciliations of medical expense.

For the quarter, cash flows generated from operating activities were $95.5 million, approximately 4.1 times net earnings from continuing operations. The cash flows for the quarter were positively impacted by approximately $50.1 million of September Wisconsin and Indiana premium payments received in October.

That concludes my comments on our fourth quarter and annual results. Before we open the call up to questions, I would like to update you on our 2009 full year guidance. We are reaffirming the 2009 financial guidance provided to you in December. We continue to expect from continuing operations, revenues, net of premium taxes in the range of $3.65 billion to $3.775 billion; earnings per diluted share of $1.82 to $1.94; consolidated HBR in the range of 82% to 84% and a consolidated G&A expense ratio in the range of 13% to 13.5%.

With that, we can open the call up to questions.

Question-and-Answer Session

Operator

(Operator Instructions) And your first question comes from Daryn Miller from Goldman Sachs, your line is now open.

Daryn Miller - Goldman Sachs

Good morning.

Michael Neidorff

Good morning.

Daryn Miller - Goldman Sachs

Hey, a quick question, is it possible to get the enrollment number for New Jersey?

Eric Slusser

Yes, 55,000 members approximately.

Daryn Miller - Goldman Sachs

And then can you guys talk specifically on Ohio, how much MCR improvement did you see sequentially in the fourth quarter in the ABD population?

Eric Slusser

Fourth quarter Ohio was essentially flat from third quarter. As we noted, we saw a significant improvement from where we were a year ago at this time, but a lot of that improvement was first quarter to second quarter to third quarter. Again, it was relatively flat to the fourth quarter.

Daryn Miller - Goldman Sachs

And that was ABD or that was the entire population?

Eric Slusser

That was ABD.

Daryn Miller - Goldman Sachs

And then, looking at what you’re seeing so far in 2009 in terms of enrollment growth, can you guys talk about that a little bit?

Michael Neidorff

Like I said, we would really like to talk about enrollment at the end of the quarter, Darren, versus what’s occurring in the quarter because it varies month to month and you’re reconciling the premium received with the members. So I think it might be a little early to talk about that.

Daryn Miller - Goldman Sachs

Okay, and then just in terms of the period end claims as per member, it continues to come down. Can you just talk about what’s driving that down?

Eric Slusser

Yes, that’s driven a lot by timing of payments, because that’s claims that have been submitted for payment. It just so happened with the timing around year end that all of our plans had a check run at the end of December, around the holidays. In addition, we had one state that has changed their compliance requirements for processing first claim and they reduced that requirement by nine days. Those two items together are the main drivers of that reduction.

Daryn Miller - Goldman Sachs

Which plan pushed that change through?

Eric Slusser

Indiana.

Daryn Miller - Goldman Sachs

And then just looking at the trend over the course of 2008, it continued to come down over the year. What was driving that longer term trend?

Eric Slusser

Just, as we’ve talked about in all of our calls, we continue to focus on operational improvements and the claims and claim processing area has been a particular focus around process improvements and best practices. So it is simply a combination of that, combined with timing, and again a lot of times if you get close to the end of the month, that’s an end of month, end of quarter figure, so the timing of your payments will drive that, but over the year improvement is a lot of process improvement and focus.

Michael Neidorff

And we’re getting more claims electronically as well and we are working with our providers to get them in electronically, because they tend to be more accurate and we can pay it that much faster. So there’s a lot of that.

Daryn Miller - Goldman Sachs

Just following up on that, did you guys implement any new systems or are more of your providers implementing systems? Is this a kind of a broader trend we’re seeing across the Medicaid space?

Michael Neidorff

Well, in the case of our business, we do see more providers as, I said, to do it electronically and we’re working with them to help them do that. Our systems enhancements were starting to kick in, but I would attribute it more to the work we do with the providers to get it in and getting away from the manual side of things.

Daryn Miller - Goldman Sachs

Okay, great. Thank you very much.

Michael Neidorff

Thank you.

Operator

And your next question comes from Greg Genova with Deutsche Bank.

Greg Genova - Deutsche Bank

Good morning.

Michael Neidorff

Good morning, Greg.

Greg Genova - Deutsche Bank

First on SCHIP, you said that’s been factored into your guidance, but can you talk about which states have the most membership there? And then on the stimulus plan, granted that’s not in your guidance and it’s a bit early, but as you look at it right now the way it stands maybe in the house version, let’s say, how that will work its way through with rate increases and/or membership, just how we should think about that and let’s say it gets signed soon.

Michael Neidorff

On the SCHIP, I think $2 million of the $4 billion fall was in the states we’re in, but $1.2 million of it alone is in Texas, and so we knew it was coming. It was clear that the SCHIP was going to be, so when we were putting it in our budget, we did consider that kind of factors we alluded to on the guidance for ‘09, but it’s kind of early to say what the impact will be as we have to see how Texas implements it; what they do about it, as well as the other states.

While it’s effective now, it needs more definition around it and what we’ve said is it’s kind of an input/output, the puts and takes in our overall guidance when we consider that. Relatively to the F-Map, even more so, so we have to wait and see how it’s implemented and the timing of it.

We believe that initially the greatest benefit will be to stabilize the state’s costs and the medical expense as they have had increased enrollment from the uninsured and things of that nature. So we see it initially as stabilizing. We do not expect additional rate increases as a result of it, but I think it will allow the states to maintain their adequacy of rates that is required actuarially.

Greg Genova - Deutsche Bank

Thanks and then maybe can you run through any rate updates since last time when we spoke. I think maybe Wisconsin, I don’t know if that has been finalized or Ohio ended up being 11.

Eric Slusser

Yes, as I think we talked about it, the year end guidance call, they have been finalized for Indiana, Wisconsin and Ohio and really after that there’s nothing else on the horizon until the July 1 Georgia rate increase that will be out there. So the three other states were finalized low single digits as we had expected effective January 1.

Greg Genova - Deutsche Bank

Okay and last question, on the days, do you expect that to be steady going forward? Is there any impact for New Jersey that should cause that to shift as that's discontinued or is that factored into the current days and that should be pretty steady?

Michael Neidorff

Yes, the current day’s metric as you see in the press release is a continuing operations. So one of the things if you notice, the rate or the days as of September 30 that are in there changed slightly, that’s due to taking New Jersey out of there. So throughout the press release everything has been moved to continuing operations, which excludes New Jersey. I would expect as we have been, we will continue to see days claims payable in that range that we’ve been at, the 49 give or take, half a day in there.

Greg Genova - Deutsche Bank

Great, thank you.

Operator

And your next question is from Joshua Raskin with Barclays.

Joshua Raskin - Barclays

Thanks, good morning. First question, just relates to your expectation for 2009 membership growth. What sort of organic membership growth I guess are you looking for?

Michael Neidorff

We haven’t talked specific organic growth, Josh. That’s something we got to wait for because as we cross-sell products, it can become a very contingent number. So that’s something several years ago we said “look, we’ll give you revenue, we’ll give you” -- I mean you look at Florida conversion and things of that nature. It could become misleading.

Joshua Raskin - Barclays

Okay. I guess you’ve given your sort of rate expectations and you’ve given the revenue, so we can sort of back into an organic membership number, but I guess my question maybe directionally then, is there any increase in expectations due to the economy and how should we think about that?

Michael Neidorff

Yes, we expect some growth in membership and planned for that. Just as you saw in the numbers this past year, we just saw membership grow absent Wisconsin. So we expect some growth, but we also have new products we’re talking to the states about. So, that’s why it gets difficult to talk specifically organic growth.

Joshua Raskin - Barclays

And then maybe Eric, what was the day claims payable in the New Jersey plan specifically?

Eric Slusser

Days claims payable in New Jersey averages around 70 days. It’s driven by regulatory requirements there and they also have a significant SSI population, which tends to have a much longer claims processing time. So give or take, it’s right around 70 days average.

Joshua Raskin - Barclays

Okay, perfect. That makes sense to your statement. I guess this last question, why is New Jersey discontinued?

Michael Neidorff

Well, we have what we believe was a valid contract and which is now being litigated and until such times those results, sound practices, say you’ll leave it in discontinued under the accounting.

Eric Slusser

Yes, like I indicated in my comments, it is our intent to sell the business and under Generally Accepted Accounting Principles around discontinued operations, that requires us to now classify it as discontinued because of our intent.

Joshua Raskin - Barclays

Okay. So we should assume that despite the sort of termination or whatever, the litigation with Amerigroup, may be there’s a process built in place to sell those assets. Is that what we should assume or is that still based on the contract with Amerigroup?

Michael Neidorff

We have what we believe to be a valid contract with Anerigroup and I’ll leave it at that.

Joshua Raskin - Barclays

Okay, and then I’m sorry, last question; New Jersey, what is the expectation for the discontinued operations in 2009? Is that going to be a positive or a negative contributor?

Eric Slusser

We addressed that on the guidance call and right now given the activities going on with New Jersey and the litigation, we’re not going to give out any further information related to New Jersey.

Michael Neidorff

We did tell you we had a penny profit.

Eric Slusser

We showed $0.03 of profit for ‘08 fiscal year and a penny in Q4.

Joshua Raskin - Barclays

All right. So we can just use those as run rates maybe with lack of any sort of addition. Okay, thanks.

Operator

And your next question is from Greg Nersessian with Credit Suisse.

Greg Nersessian - Credit Suisse

Hey, good morning. I guess the first question was just on the reserve roll forward. It looked like there was an increase sequentially. I know you guys do this on a rolling 12 month basis, but was there a bolus of favorable reserve development this quarter or was there something that rolled off as of the last quarter; if you could just talk to that a little bit?

Eric Slusser

Sure. There’s pretty well a blend throughout the quarters. At any one time in this business, the reserves are an estimation process. You’re going to see both positive and negative prior period development, but there’s no significant portion of that that fell in any one particular quarter the. Again we every quarter throughout plan see positive, negative development against our estimates.

Michael Neidorff

I mean it’s fair to say, as Eric just said Greg, it’s throughout the course of the year.

Greg Nersessian - Credit Suisse

Yes, it’s just that if I look at the third quarter number it was $7 million over a four quarter period and this quarter was almost $19 million. So $12 million delta in one quarter; I’m just trying to figure out how much of that was related to an increase. I mean typically in the fourth quarter you don’t see that much favorable reserves development. So I’m just trying to figure out how much was this quarter versus something that happened a year ago that rolled off.

Michael Neidorff

I think if we get to look at it, it was sort of both, because you have to look at the base year four quarters back, which could have been lower.

Eric Slusser

Also, that also is going to be driven by pulling New Jersey out of there.

Greg Nersessian - Credit Suisse

Okay, so you may have had some negative reserve development last year in New Jersey or something like that?

Eric Slusser

Possible. I don’t have that last year’s figures in front of me.

Greg Nersessian - Credit Suisse

Okay, and then I forget if you mentioned this on the guidance call, but the cash flow from operations expectation for 2009, it came in a little higher than expected in ‘08. Is there anything, any payments that were accelerated this quarter? I guess what’s your expectation for ‘09 CFFO, what’s your net income ratio?

Eric Slusser

I don’t have a 2009 number here, but as we indicated, we expect to continue to see strong cash flows in the business. It has been historically, again it was for 2008 and we expect that trend to continue.

We have seen throughout the year, state payments as I indicated here, that may lag rather than at the end of the month to the beginning of the following month, which impacts your quarter-to-quarter metrics, but the year end total, again we saw strong cash flows and we would just expect that trend to continue. We see nothing out there that would cause us to believe otherwise.

Michael Neidorff

It’s typically been 1.5 to 2 times. That’s the range of net income and of course as we highlighted in this quarter, it was a function of some (Inaudible) from a couple of states.

Greg Nersessian - Credit Suisse

And then I was a little curious why the Arizona business, the long term care business, I guess the bridge way business, was classified under your specialty services. I mean that seems like mostly a premium based business.

Eric Slusser

Well we’ve had the long term care business in Arizona since October 1, 2006 classified in the specialty segment. The acute care which we added on October 1, the 14,000 some odd members, is folded into bridge way as part of our operations there. So we continue to classify that there and that’s really more of an administrative convenience at this point than really a technical point.

Michael Neidorff

It's 14,000 members; it’s half the population available. We didn’t see any swings back and forth across it and its being managed by bridge way is what, is worth really saying. So we said 14,000 was up until we start breaking it out.

Greg Nersessian - Credit Suisse

Was that the main driver or the specialty MLR was up significantly this quarter, or did something happen with Celtic?

Michael Neidorff

I think there’s a combination of both adding Celtic in and the acute care business. As we said in the comments, in the first six months, particularly of a new line, we are very conservative in what we put into reserves and so that would apply obviously for the fourth quarter of 2008 for the acute care business.

Greg Nersessian - Credit Suisse

Okay, great and just a final question, do you intend to break out your Celtic either membership or revenue or anything going forward, any details?

Michael Neidorff

Specifically we’ve been talking about it probably as it continues to grow, becomes more material, we would end up and say “maybe we need that insurance segment.” Right now it was not that material to start breaking it out, but I expect as it starts to grow, there’ll be a reason we’ll expect that at some point Greg.

Greg Nersessian - Credit Suisse

Okay, thanks.

Operator

And your next question is from Tom Carroll with Stifel Nicolaus.

Tom Carroll - Stifel Nicolaus

Hi, good morning. I jumped on late, so I apologize if this has been discussed already and just tell me so and I’ll refer to the transcripts, but I guess two quick things. From discontinued operations in ‘07, I’m seeing that $0.72 number. Maybe if you could just refresh our memory on why that just seems very high; and then secondly, your accounts payable doubled into ‘08. I was wondering if we could get color on that. That certainly helped cash flow from ops quite a bit in 2008. Thanks.

Eric Slusser

Yes, on the first question; last year, that discontinued operations and the sizable number related to our first guard operations that we had abandoned in the previous years, that operation is pretty well gone as the claims have tailed out, but it had a significant impact in those prior years.

As far as the payables, let me just get my number here, so that we’re both looking at the same number. Just so we’re clear, you’re talking about the accounts payable in the accrued expenses line?

Tom Carroll - Stifel Nicolaus

Yes.

Eric Slusser

Okay. So several things in there, big drivers; one is the consolidation of Celtic that’s driving that. Second thing is at the end of any period we have checks that have been submitted, but not turned in to the bank. So those drafts get reclassified as payables. There’s about $35 million that’s attributable to that ongoing, just increases in payroll accruals that, just because of timing of payroll versus year end, etc, and beyond that, those are most of the largest drivers of it. Again, a lot of it’s just timing of year end and payment activity versus when our cycles are, etc.

Tom Carroll - Stifel Nicolaus

Okay. Thank you very much.

Michael Neidorff

Thank you.

Operator

And at this time, there are no other questions in queue.

Michael Neidorff

Well, if there are no other questions, then we thank you all for participating and look forward to the Q1 call in April. Thank you everyone.

Operator

This concludes today’s conference call. You may now disconnect.

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