UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
                                            


FORM 10-Q


 

(Mark One)
 
[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
   

For the quarterly period ended June 30, 2009 
OR

[  ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
   

For the transition period from  to
                                            


Commission file number 001-31826


 
CENTENE CORPORATION
(Exact name of registrant as specified in its charter)

Delaware
42-1406317
(State or other jurisdiction of
(I.R.S. Employer
incorporation or organization)
Identification Number)
   
7711 Carondelet Avenue
 
St. Louis, Missouri
63105
(Address of principal executive offices)
(Zip Code)

Registrant’s telephone number, including area code:
 
(314) 725-4477
 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: T Yes £ No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). £ Yes £ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer”, “accelerated filer” and “small reporting company” in Rule 12b-2 of the Exchange Act.  Large accelerated filer T Accelerated filer £ Non-accelerated filer £ (do not check if a smaller reporting company) Smaller reporting company £

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
  Yes  £    No  T

As of July 17, 2009, the registrant had 45,357,834 shares of common stock outstanding.





CENTENE CORPORATION

QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS

   
PAGE
     
Part I
Financial Information
Item 1.
Financial Statements
 
 
1
 
2
 
3
 
4
 
5
Item 2.
10
Item 3.
16
Item 4.
16
Part II
Other Information
Item 1.
17
Item 1A.
17
Item 2.
23
Item 4.
23
Item 6.
24
25





PART I

FINANCIAL INFORMATION

ITEM 1. Financial Statements.

CENTENE CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)
 
   
June 30,
2009
   
December 31,
 2008
 
ASSETS
           
Current assets:
           
Cash and cash equivalents of continuing operations
  $ 382,700     $ 370,999  
Cash and cash equivalents of discontinued operations
    1,799       8,100  
Total cash and cash equivalents
    384,499       379,099  
Premium and related receivables, net of allowance for uncollectible accounts of $48 and $595, respectively
    157,863       92,531  
Short-term investments, at fair value (amortized cost $60,749 and $108,469, respectively)
    61,217       109,393  
Other current assets
    73,686       75,333  
Current assets of discontinued operations other than cash
    8,499       9,987  
Total current assets
    685,764       666,343  
Long-term investments, at fair value (amortized cost $387,166 and $329,330, respectively)
    394,395       332,411  
Restricted deposits, at fair value (amortized cost $14,436 and $9,124, respectively)
    14,526       9,254  
Property, software and equipment, net of accumulated depreciation of $88,469 and $74,194, respectively
    194,277       175,858  
Goodwill
    218,121       163,380  
Intangible assets, net
    22,714       17,575  
Other long-term assets
    28,957       59,083  
Long-term assets of discontinued operations
    27,455       27,248  
Total assets
  $ 1,586,209     $ 1,451,152  
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
Current liabilities:
               
Medical claims liability
  $ 394,787     $ 373,037  
Accounts payable and accrued expenses
    181,605       219,566  
Unearned revenue
    62,958       17,107  
Current portion of long-term debt
    243       255  
Current liabilities of discontinued operations
    23,851       31,013  
Total current liabilities
    663,444       640,978  
Long-term debt
    288,513       264,637  
Other long-term liabilities
    48,678       43,539  
Long-term liabilities of discontinued operations
    557       726  
Total liabilities
    1,001,192       949,880  
                 
Commitments and contingencies
               
                 
Stockholders’ equity:
               
Common stock, $.001 par value; authorized 100,000,000 shares; issued and outstanding 45,344,717 and 45,071,179 shares, respectively
    45       45  
Additional paid-in capital
    273,029       263,835  
Accumulated other comprehensive income:
               
Unrealized gain on investments, net of tax
    5,081       3,152  
Retained earnings
    313,924       275,236  
Treasury stock, at cost (2,369,133 and 2,083,415 shares, respectively)
    (46,405 )     (40,996 )
Total Centene stockholders’ equity
    545,674       501,272  
Noncontrolling interest
    39,343        
Total stockholders’ equity
    585,017       501,272  
Total liabilities and stockholders’ equity
  $ 1,586,209     $ 1,451,152  
 
The accompanying notes to the consolidated financial statements are an integral part of these statements. 

1

CENTENE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share data)
(Unaudited)

 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
 
2009
 
2008
 
2009
   
2008
 
Revenues:
                         
Premium
$
909,698
 
$
783,996
 
$
1,794,704
   
$
1,520,810
 
Service
 
21,591
   
18,466
   
45,440
     
38,996
 
Premium and service revenues
 
931,289
   
802,462
   
1,840,144
     
1,559,806
 
Premium tax
 
108,180
   
21,468
   
131,760
     
43,352
 
Total revenues
 
1,039,469
   
823,930
   
1,971,904
     
1,603,158
 
Expenses:
                         
Medical costs
 
755,706
   
650,878
   
1,495,046
     
1,260,252
 
Cost of services
 
14,559
   
14,437
   
30,521
     
30,613
 
General and administrative expenses
 
129,221
   
109,270
   
251,500
     
204,763
 
Premium tax
 
108,548
   
21,468
   
132,490
     
43,352
 
Total operating expenses
 
1,008,034
   
796,053
   
1,909,557
     
1,538,980
 
Earnings from operations
 
31,435
   
27,877
   
62,347
     
64,178
 
Other income (expense):
                         
Investment and other income
 
4,418
   
5,434
   
8,031
     
13,016
 
Interest expense
 
(4,160
)
 
(4,065
)
 
(8,146
)
   
(8,059
)
Earnings from continuing operations, before income tax expense
 
31,693
   
29,246
   
62,232
     
69,135
 
Income tax expense
 
11,789
   
11,363
   
22,634
     
26,319
 
Earnings from continuing operations, net of income tax expense
 
19,904
   
17,883
   
39,598
     
42,816
 
Discontinued operations, net of income tax (benefit) expense of $(196), $(116), $(356) and $148, respectively
 
(485
)
 
320
   
(934
)
   
1,010
 
Net earnings
 
19,419
   
18,203
   
38,664
     
43,826
 
Noncontrolling interest (loss)
 
(811
)
 
   
(24
)
   
 
Net earnings attributable to Centene Corporation
$
20,230
 
$
18,203
 
$
38,688
   
$
43,826
 
                           
Amounts attributable to Centene Corporation common shareholders:
                         
Earnings from continuing operations, net of income tax expense
$
20,715
 
$
17,883
 
$
39,622
   
$
42,816
 
Discontinued operations, net of income tax (benefit) expense
 
(485
)
 
320
   
(934
)
   
1,010
 
    Net earnings
$
20,230
 
$
18,203
 
$
38,688
   
$
43,826
 
                           
Net earnings (loss) per share attributable to Centene Corporation:
                         
Basic:
                         
Continuing operations
$
0.48
 
$
0.41
 
$
0.92
   
$
0.99
 
Discontinued operations
 
(0.01
)
 
0.01
   
(0.02
)
   
0.02
 
Earnings per common share
$
0.47
 
$
0.42
 
$
0.90
   
$
1.01
 
Diluted:
                         
Continuing operations
$
0.47
 
$
0.40
 
$
0.90
   
$
0.96
 
Discontinued operations
 
(0.01
)
 
0.01
   
(0.02
)
   
0.02
 
Earnings per common share
$
0.46
 
$
0.41
 
$
0.88
   
$
0.98
 
                           
Weighted average number of shares outstanding:
                         
Basic
 
43,001,157
   
43,375,944
   
43,034,390
     
43,457,076
 
Diluted
 
44,242,339
   
44,275,601
   
44,240,071
     
44,516,890
 

The accompanying notes to the consolidated financial statements are an integral part of these statements.


2

CENTENE CORPORATION AND SUBSIDIARIES
 
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(In thousands, except share data)
(Unaudited)
 ­
   
Centene Stockholders’ Equity
               
   
Common Stock
                       
Treasury Stock
               
   
$.001 Par
Value
Shares
   
Amt
   
Additional
Paid-in
Capital
   
Accumulated
Other
Comprehensive
Income
 
Retained
Earnings
 
$.001 Par
Value
Shares
 
Amt
 
Non
controlling
Interest
   
Total
 
Balance, December 31, 2008
 
45,071,179
   
$
45
   
$
263,835
   
$
3,152
 
$
275,236
 
2,083,415 
 
$
(40,996)
 
$
—  
   
$
501,272
 
Consolidation of Access Health Solutions LLC
 
—  
     
—  
     
—  
     
—  
   
—  
 
—  
   
—  
   
29,144  
     
29,144
 
Consolidation of Centene Center LLC
 
—  
     
—  
     
—  
     
—  
   
—  
 
—  
   
—  
   
17,400  
     
17,400
 
Comprehensive Earnings:
                                                           
Net earnings
 
—  
     
—  
     
—  
     
—  
   
38,688
 
—  
   
—  
   
(24) 
     
38,664
 
Change in unrealized investment gains, net of $1,322 tax
 
—  
     
—  
     
—  
     
1,929
   
—  
 
—  
   
—  
   
—  
     
1,929
 
Total comprehensive earnings
                                                       
40,593
 
Common stock issued for employee stock compensation and employee stock purchase plan
 
273,538
     
—  
     
1,568
     
—  
   
—  
       
—  
   
—  
     
1,568
 
Common stock repurchases
 
—  
     
—  
     
—  
     
—  
   
—  
 
287,718 
   
(5,447)
   
—  
     
(5,447
)
Treasury stock issued for compensation
 
—  
             
—  
     
—  
   
—  
 
(2,000)
   
38 
           
38
 
Stock compensation expense
 
—  
     
—  
     
7,611
     
—  
   
—  
 
—  
   
—  
   
—  
     
7,611
 
Excess tax benefits from stock compensation
 
—  
     
—  
     
15
     
—  
   
—  
 
—  
   
—  
   
—  
     
15
 
Conversion fee1
 
—  
     
—  
     
—  
     
—  
   
—  
 
—  
   
—  
   
(5,428) 
     
(5,428
)
Dividend paid to noncontrolling interest
 
—  
     
—  
     
—  
     
—  
   
—  
 
—  
   
—  
   
(1,749) 
     
(1,749
)
Balance, June 30, 2009
 
45,344,717
   
$
45
   
$
273,029
   
$
5,081
 
$
313,924
 
2,369,133
 
$
(46,405)
 
$
39,343  
   
$
585,017
 

(1)  
Conversion fee represents additional purchase price to noncontrolling holders of Access Health Solutions LLC  for the transfer of membership to the Company’s wholly-owned subsidiary, Sunshine State Health Plan, Inc.


 
The accompanying notes to the consolidated financial statements are an integral part of these statements.

3

CENTENE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

   
Six Months Ended June 30,
 
   
2009
   
2008
 
             
Cash flows from operating activities:
           
Net earnings
  $ 38,664     $ 43,826  
Adjustments to reconcile net earnings to net cash provided by operating activities
               
Depreciation and amortization
    20,892       16,229  
Stock compensation expense
    7,611       7,839  
Loss (gain) on sale of investments, net
    450       (201 )
Deferred income taxes
    1,512       11,879  
Changes in assets and liabilities —
               
Premium and related receivables
    (23,327     (23,144 )
Other current assets
    1,357       (4,294 )
Other assets
    (608 )     (1,671 )
Medical claims liabilities
    16,369       27,316  
Unearned revenue
    44,129       (38,753 )
Accounts payable and accrued expenses
    (48,653     45,907  
Other operating activities
    3,723       1,743  
Net cash provided by operating activities
    62,119       86,676  
Cash flows from investing activities:
               
Capital expenditures
    (29,833 )     (34,581 )
Purchases of investments
    (415,052 )     (172,873 )
Sales and maturities of investments
    377,320       210,277  
Investments in acquisitions, net of cash acquired, and investment in equity method investee
    (7,621 )     (7,818 )
Net cash used in investing activities
    (75,186 )     (4,995 )
Cash flows from financing activities:
               
Proceeds from exercise of stock options
    1,109       3,029  
Proceeds from borrowings
    288,000       56,005  
Payment of long-term debt
    (264,135 )     (41,287 )
Dividend to noncontrolling interest
    (1,749 )      
Contribution from noncontrolling interest
    1,042        
Excess tax benefits from stock compensation
    15       2,792  
Common stock repurchases
    (5,447 )     (13,316 )
Debt issue costs
    (368 )      
Net cash provided by financing activities
    18,467       7,223  
Net increase in cash and cash equivalents
    5,400       88,904  
Cash and cash equivalents, beginning of period
    379,099       268,584  
Cash and cash equivalents, end of period
  $ 384,499     $ 357,488  
                 
Supplemental disclosures of cash flow information:
               
Interest paid
  $ 7,658     $ 7,590  
Income taxes paid
  $ 31,512     $ 15,966  
                 
Supplemental disclosure of non-cash investing and financing activities:
               
Contribution from noncontrolling interest
  $ 5,107     $  
 
 
The accompanying notes to the consolidated financial statements are an integral part of these statements.

4

CENTENE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share data)
(Unaudited)

1. Organization and Operations

Centene Corporation, or the Company, is a multi-line healthcare enterprise operating in two segments: Medicaid Managed Care and Specialty Services.  The Medicaid Managed Care segment provides Medicaid and Medicaid-related health plan coverage to individuals through government subsidized programs, including Medicaid, the State Children’s 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 ABD.  The Specialty Services segment provides related services, including behavioral health,  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 the Company’s own subsidiaries.  The  Specialty Services segment also provides a full range of healthcare solutions for individuals and the rising number of uninsured Americans.

2. Basis of Presentation

The unaudited interim financial statements herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission, or SEC.  The accompanying interim financial statements have been prepared under the presumption that users of the interim financial information have either read or have access to the audited financial statements for the fiscal year ended December 31, 2008.  Accordingly, footnote disclosures, which would substantially duplicate the disclosures contained in the December 31, 2008 audited financial statements, have been omitted from these interim financial statements where appropriate.  In the opinion of management, these financial statements reflect all adjustments, consisting only of normal recurring adjustments, which are necessary for a fair presentation of the results of the interim periods presented.

Beginning January 1, 2009, the Company has presented the investment in Access Health Solutions LLC, or Access, as a consolidated subsidiary in its financial statements.  Prior to January 1, 2009, Access had been recorded under the equity method of accounting.  We recently determined that we should have accounted for our investment in Access as a consolidated subsidiary since July 1, 2007.  The impact of the difference in presentation is not material to our financial statements for any prior period.  As a result of the presentation of Access as a consolidated subsidiary beginning January 1, 2009, cash flows from investing activities increased by by $4,839 to reflect the cash held by Access on January 1, 2009.  In accordance with Financial Accounting Standards Board, or FASB, Statement No. 160, Noncontrolling Interests in Consolidated Financial Statements (Accounting Standards Codification, or ASC, subtopic 810-10, Consolidation), the noncontrolling interest of Access is presented within stockholders’ equity. 
 
Certain 2008 amounts in the consolidated financial statements have been reclassified to conform to the 2009 presentation. These reclassifications have no effect on net earnings or stockholders’ equity as previously reported. Any material subsequent events have been considered for disclosure through the filing date of this Form 10-Q.
 
3. Recent Accounting Pronouncements

 Effective January 1, 2009, the Company adopted FASB Statement No.141 (revised 2007), Business Combinations (ASC 805-10, Business Combinations).  The changes from the previous guidance include, but are not limited to: (1) acquisition costs are recognized separately from the acquisition; (2) known contractual contingencies at the time of the acquisition are considered part of the liabilities acquired and and measured at their fair value; all other contingencies are part of the liabilities acquired and measured at their fair value only if it is more likely than not that they meet the definition of a liability; (3) contingent consideration based on the outcome of future events is recognized and measured at the time of the acquisition; and (4) business combinations achieved in stages (step acquisitions) recognize the identifiable assets and liabilities, as well as noncontrolling interests, in the acquiree, at the full amounts of their fair values.  The adoption of FASB Statement No. 141 (revised 2007) had an immaterial impact on the Company.

Effective January 1, 2009, the Company adopted FASB Statement No. 160, Noncontrolling Interests in Consolidated Financial Statements (ASC 810-10, Consolidation), which was issued to improve the relevance, comparability, and transparency of financial information provided to investors by requiring all entities to report noncontrolling (minority) interests in subsidiaries in the same way, that is, as equity in the consolidated financial statements. Moreover, FASB Statement No. 160 eliminates the diversity that existed in accounting by requiring transactions between an entity and noncontrolling interests be treated as equity transactions.  As discussed in Note 2, Basis of Presentation, and Note 7, Centene Center LLC, the noncontrolling interest in Access and Centene Center LLC is presented within stockholders’ equity.
 
In April 2009, FASB issued Staff Position, or FSP, No. FAS 115-2 and FAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairments, or the FSP (ASC 320-10, Investments – Debt and Equity Securities).  The FSP applies to fixed maturity securities only and requires separate display of losses related to credit deterioration and losses related to other market factors.  When an entity does not intend to sell the security and it is more likely than not that an entity will not have to sell the security before recovery of its cost basis, it must recognize the credit component of an other-than-temporary impairment in earnings and the remaining portion in other comprehensive income.  The adoption of the FSP did not have a material effect on the Company’s financial statements.

In June 2009, the FASB issued FASB Statement No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles (ASC 105-10), which approves the Accounting Standards Codification, or ASC, as the single source of authoritative United States accounting and reporting standards applicable for all non-governmental entities. The ASC, which changes the referencing of financial standards, is effective for interim or annual financial periods ending after September 15, 2009. To facilitate the transition to the new ASC references, the Company has included the new codification references in addition to the original GAAP reference throughout this filing.  As the ASC is not intended to change or alter existing US GAAP, it is not expected to have any impact on the Company’s consolidated financial position or results of operations.

In June 2009, the FASB issued FASB Statement No. 167, Amendments to FASB Interpretation No. 46R, which amends FASB Interpretation No. 46 (revised December 2003), Consolidation of Variable Interest Entities, to require an analysis to determine whether a variable interest gives the entity a controlling financial interest in a variable interest entity. This statement requires an ongoing reassessment and eliminates the quantitative approach previously required for determining whether an entity is the primary beneficiary. This statement is effective for fiscal years beginning after November 15, 2009 and early adoption is prohibited.  The Company is currently evaluating the impact of adopting this standard on the consolidated financial statements and related disclosures.

The Company has determined that all other recently issued accounting pronouncements will not have a material impact on its consolidated financial position, results of operations and cash flows, or do not apply to its operations.

4. Discontinued Operations: University Health Plans, Inc.

In November 2008, the Company announced its intention to sell certain assets of its New Jersey health plan, University Health Plans, Inc., or UHP.  The assets, liabilities and results of operations of UHP were classified as discontinued operations for all periods presented beginning in December 2008.  UHP was previously reported in the Medicaid Managed Care segment.  The Company expects the sale to be completed within 12 months.  The total revenue associated with UHP included in results from discontinued operations was $35.1 million and $36.1 million for the three months ended June 30, 2009 and 2008, respectively, and $72.1 million and $73.5 million for the six months ended June 30, 2009 and 2008, respectively.  Additional information regarding the sale of UHP is included in Note 13, Contingencies.

In 2008, the Company conducted an impairment analysis of the assets of UHP.  The impairment analysis resulted in an impairment charge associated with property, software and equipment of $2,546.  During the six months ending June 30, 2009, the Company incurred additional restructuring costs primarily related to employee retention programs.  In total, the Company has incurred $2,464 of restructuring costs.  The change in the restructuring cost liability for UHP is summarized as follows:

Balance, December 31, 2008
$
1,110 
Incurred
 
1,354 
Paid
 
(200)
Balance, June 30, 2009
$
2,264 

5

 
5. Acquisitions

2009 Acquisitions

·  
Access.  In July 2007, the Company acquired a 49% ownership interest in Access, a Medicaid managed care entity in Florida.  The Company accounted for its investment in Access using the equity method of accounting through December 31, 2008.  During the quarter ended March 31, 2009, the Company began presenting its investment in Access as a consolidated subsidiary in our financial statements. The consolidation of Access resulted in goodwill of approximately $44,600, and other identified intangible assets of approximately $5,400.    In 2009, the Company paid an additional $5,428 conversion fee for the transfer of membership from Access to the Company’s wholly-owned subsidiary, Sunshine State Health Plan, Inc.

·  
Additional 2009 Acquisitions.  The Company acquired assets of the following entities: Pediatric Associates LLC, effective February 2009, and AMERIGROUP Community Care of South Carolina, Inc., effective March 2009.  The Company paid a total of approximately $10,000 in cash for these acquisitions.  Goodwill of approximately $8,500 and other identifiable intangible assets of approximately $1,500 were included in the Medicaid Managed Care segment, all of which is deductible for income tax purposes.

2008 Acquisitions

·  
Celtic Insurance Company.  On July 1, 2008, the Company acquired Celtic Insurance Company, or Celtic.  The Company paid approximately $82,100 in cash and related transaction costs, net of unregulated cash acquired.  In conjunction with the closing of the acquisition, Celtic paid to the Company an extraordinary dividend of $31,411 in July 2008.  Goodwill of $24,300 and other identifiable intangible assets of $8,600 were included in the Specialty Services segment.

6. Goodwill
 
The following table summarizes the changes in goodwill by operating segment:
 
   
Medicaid Managed Care
   
Specialty
Services
   
Total
 
Balance as of December 31, 2008
  $ 51,548     $ 111,832     $ 163,380  
Acquisitions
    53,049       1,692       54,741  
Balance as of June 30, 2009
  $ 104,597     $ 113,524     $ 218,121  

Increases to goodwill in 2009 were related to the presentation of Access as a consolidated subsidiary and the acquisitions discussed in Note 5, Acquisitions.

7. Centene Center LLC

In June 2009, the Company executed an agreement as a 50% joint venture partner in a real estate development entity, Centene Center LLC, related to the construction of a new corporate headquarters facility.  Centene Center LLC is a variable interest entity, or VIE, as defined by FIN 46R (ASC 810-10, Consolidation).  When evaluating whether the Company is the primary beneficiary of a VIE and must therefore consolidate the entity, the Company performs a qualitative analysis that considers the design of the VIE, the nature of our involvement and the variable interest held by other parties.  The Company concluded it was the primary beneficiary and, accordingly, the Company’s consolidated financial statements include the accounts of Centene Center LLC.  The Company’s variable interest in Centene Center LLC includes an equity investment of $17,400.  Centene Center LLC has posted a $1,750 letter of credit to a tenant of the development, collateralized by a portion of the entity’s cash balances.  The assets and liabilities of Centene Center LLC as of June 30, 2009 are as follows (on a 100% basis):

   
Centene Center LLC
 
Total Assets
  $ 57,705  
Total Liabilities
    22,905  
         
Equity
       
Centene Corporation (50% ownership)
  $ 17,400  
Joint venture partners (50% ownership)
    17,400  
Total equity
  $ 34,800  

As part of financing the real estate development, the joint venture executed a $95,000 construction loan due June 1, 2011.  The Company and its development partners have guaranteed up to $65,000 each associated with this construction loan.  As of June 30, 2009, there were no amounts outstanding under this loan.  Additional information regarding the construction loan is included in Note 10, Debt.
 
8. Short-term and Long-term Investments and Restricted Deposits

Short-term and long-term investments and restricted deposits available for sale by investment type consist of the following:

   
June 30, 2009
   
December 31, 2008
 
   
Amortized
Cost
   
Gross
Unrealized
Gains
   
Gross
Unrealized
Losses
   
Fair
Value
   
Amortized
Cost
   
Gross
Unrealized
Gains
   
Gross
Unrealized
Losses
   
Fair
Value
 
U.S. Treasury securities
  $ 7,290     $ 96     $ (1 )   $ 7,385     $ 4,054     $ 130     $     $ 4,184  
Corporate securities
    34,867       427       (242 )     35,052       47,733       74       (1,154 )     46,653  
State and municipal securities
    392,160       8,222       (480 )     399,902       360,638       5,964       (11 )     366,591  
Equity securities
    9,521       192       (427 )     9,286       7,183       17       (885 )     6,315  
Money market funds
    4,018                   4,018       12,988                   12,988  
Life insurance contracts
    14,495                   14,495       14,327                   14,327  
Total
  $ 462,351     $ 8,937     $ (1,150 )   $ 470,138     $ 446,923     $ 6,185     $ (2,050 )   $ 451,058  

The Company monitors investments for other than temporary impairment.  Certain investments have experienced a decline in fair value due to changes in credit quality, market interest rates and/or general economic conditions.  Based on management’s intent and ability to not sell these investments prior to their anticipated recovery, no other than temporary impairment has been recorded in the six months ended June 30, 2009.  Investments in a gross unrealized loss position at June 30, 2009 and December 31, 2008 are as follows:

 
June 30, 2009
 
December 31, 2008
 
 
Less Than 12 Months
 
12 Months or More
 
Less Than 12 Months
 
12 Months or More
 
 
Unrealized Losses
 
Fair Value
 
Unrealized Losses
 
Fair Value
 
Unrealized Losses
 
Fair Value
 
Unrealized Losses
 
Fair Value
 
U.S. Treasury securities
  $ (1 )   $ 540     $     $     $     $ 314     $     $  
Corporate securities
    (235 )     2,206       (7 )     125       (1,071 )     20,898       (83 )     2,072  
State and municipal securities
    (479 )     79,495       (1 )     100       (9 )     3,798       (2 )     101  
Equity securities
    (427 )     2,313                   (885 )     2,658              
Total
  $ (1,142 )   $ 84,554     $ (8 )   $ 225     $ (1,965 )   $ 27,668     $ (85 )   $ 2,173  
 
6

 
The contractual maturities of short-term and long-term investments and restricted deposits as of June 30, 2009, are as follows:

   
Investments
   
Restricted Deposits
 
   
Amortized Cost
   
Fair Value
   
Amortized Cost
   
Fair Value
 
One year or less
  $ 60,749     $ 61,217     $ 7,549     $ 7,552  
One year through five years
    287,668       294,969       6,887       6,974  
Five years through ten years
    46,351       46,482              
Greater than ten years
    53,147       52,944              
Total
  $ 447,915     $ 455,612     $ 14,436     $ 14,526  

The contractual maturities of short-term and long-term investments and restricted deposits as of December 31, 2008, are as follows:
   
Investments
   
Restricted Deposits
 
   
Amortized Cost
   
Fair Value
   
Amortized Cost
   
Fair Value
 
One year or less
  $ 108,469     $ 109,393     $ 6,038     $ 6,044  
One year through five years
    181,958       185,867       3,086       3,210  
Five years through ten years
    56,936       56,188              
Greater than ten years
    90,436       90,356              
Total
  $ 437,799     $ 441,804     $ 9,124     $ 9,254  

Actual maturities may differ from contractual maturities due to call or prepayment options.  Equity securities and life insurance contracts are included in the five years through ten years category.
 
The Company’s gross recorded realized gains and losses on investments were as follows:

 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2009
 
2008
 
2009
 
2008
 
Gains
  $ 173     $ 355     $ 553     $ 572  
Losses
    (164 )     (182 )     (983 )     (371 )
 
Additional information regarding investments is included in Note 9, Fair Value Measurements.

9. Fair Value Measurements
 
The Company adopted FASB Statement No. 157, Fair Value Measurements (ASC 820-10, Fair Value Measurements and Disclosures), for financial assets and liabilities on January 1, 2008.  Under FASB Statement No. 157, assets and liabilities recorded at fair value in the consolidated balance sheets are categorized based upon the level of judgment associated with the inputs used to measure their fair value.  Level inputs, as defined by FASB Statement No.157, are as follows:
 
 
Level Input:
 
  
 
Input Definition:
 
Level I
  
Inputs are unadjusted, quoted prices for identical assets or liabilities in active markets at the measurement date.
   
Level II
  
Inputs other than quoted prices included in Level I that are observable for the asset or liability through corroboration with market data at the measurement date.
   
Level III
  
Unobservable inputs that reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date.
 
The following table summarizes fair value measurements by level at June 30, 2009 for assets and liabilities measured at fair value on a recurring basis:
 
   
Level I
   
Level II
   
Level III
   
Total
 
Investments available for sale:
                       
U.S. Treasury securities and obligations of U.S. government corporations and agencies
  $ 7,385     $     $     $ 7,385  
Corporate securities
    32,858                   32,858  
State and municipal securities
    399,901                   399,901  
Equity securities
    3,372                   3,372  
Total
  $ 443,516     $     $     $ 443,516  

The fair value of a cost method investment is not estimated if there are no identified events or changes in circumstances that may have a significant adverse effect on the fair value of the investment.  The aggregate carrying amount of all cost-method investments was $26,622 as of June 30, 2009.

10. Debt

Debt consists of the following:
   
June 30, 2009
   
December 31, 2008
 
$175,000 senior notes
  $ 175,000     $ 175,000  
$300,000 revolving credit agreement
    87,000       63,000  
$20,500 revolving loan agreement
    20,364       20,364  
Capital leases
    6,392       6,528  
Joint venture construction loan
           
     Total debt
    288,756       264,892  
Less current maturities
    (243 )     (255 )
     Long-term debt
  $ 288,513     $ 264,637  
 
$20,500 Revolving Loan Agreement

In July 2009, the Company paid off the $20,364 balance of this loan agreement and refinanced the balance with another bank.  As a result of this refinancing subsequent to June 30, 2009, the entire $20,364 is classified as long-term debt.

Joint Venture Construction Loan

In June 2009, the Company and its development partners executed a $95,000 construction loan associated with the construction of a real estate development to include the Company’s corporate headquarters.  The construction loan is due June 1, 2011 and bears interest at the LIBOR rate plus 4%.  The loan may be extended for two additional one year terms.  The Company and its development partners have each guaranteed up to $65,000 associated with the construction loan.  The agreement contains non-financial and financial covenants, including requirements for the Company to maintain a specified net worth.  As of June 30, 2009, there were no amounts outstanding under the construction loan.

7

 
11. Earnings Per Share

The following table sets forth the calculation of basic and diluted net earnings per common share:

   
Three Months Ended June 30,
 
Six Months Ended June 30,
 
   
2009
   
2008
 
2009
   
2008
 
Earnings (loss) attributable to Centene Corporation common shareholders:
                             
Earnings from continuing operations, net of tax
 
$
20,715
   
$
17,883
 
$
39,622
   
$
42,816
 
Discontinued operations, net of tax
   
(485
)
   
320
   
(934
)
   
1,010
 
Net earnings
 
$
20,230
   
$
18,203
 
$
38,688
   
$
43,826
 
Shares used in computing per share amounts:
                             
Weighted average number of common shares outstanding
   
43,001,157
     
43,375,944
   
43,034,390
     
43,457,076
 
Common stock equivalents (as determined by applying the treasury stock method)
   
1,241,182
     
899,657
   
1,205,681
     
1,059,814
 
Weighted average number of common shares and potential dilutive common shares outstanding
   
44,242,339
     
44,275,601
   
44,240,071
     
44,516,890
 
                               
Net earnings (loss) per share attributable to Centene Corporation:
                             
Basic:
                             
  Continuing operations
 
$
0.48
   
$
0.41
 
$
0.92
   
$
0.99
 
  Discontinued operations
   
(0.01
)
   
0.01
   
(0.02
)
   
0.02
 
  Earnings per common share
 
$
0.47
   
$
0.42
 
$
0.90
   
$
1.01
 
                               
Diluted:
                             
  Continuing operations
 
$
0.47
   
$
0.40
 
$
0.90
   
$
0.96
 
  Discontinued operations
   
(0.01
)
   
0.01
   
(0.02
)
   
0.02
 
  Earnings per common share
 
$
0.46
   
$
0.41
 
$
0.88
   
$
0.98
 
                               
The calculation of diluted earnings per common share for the three and six months ended June 30, 2009 excludes the impact of 2,538,599 and 2,537,990 shares, respectively, related to anti-dilutive stock options, restricted stock and restricted stock units.  The calculation of diluted earnings per common share for the three and six months ended June 30, 2008 excludes the impact of 3,127,400 and 2,824,000 shares, respectively, related to anti-dilutive stock options, restricted stock and restricted stock units.

12. Stockholders’ Equity

In October 2008, the Company’s board of directors extended the November 2005 stock repurchase program, authorizing the Company to repurchase up to 4,000,000 shares of common stock from time to time on the open market or through privately negotiated transactions.  The repurchase program expires October 31, 2009, but the Company reserves the right to suspend or discontinue the program at any time.  During the six months ended June 30, 2009, the Company repurchased 287,718 shares at an average price of $18.93 and an aggregate cost of $5,447.
 

13. Contingencies
 
On January 8, 2009, the Company filed a complaint in the Chancery Division of the Superior Court of New Jersey, asserting a breach of contract claim against AMERIGROUP New Jersey, or AGPNJ, and a tortious interference with contract claim against AMERIGROUP Corporation, in connection with AGPNJ’s refusal to proceed to closing under its contract to purchase certain assets of UHP’s business.  In December 2008, AGPNJ sent the Company a termination notice claiming that a material adverse effect had occurred under the contract and attempted to terminate the contract.  The Company is contesting whether a material adverse effect occurred and correspondingly the propriety and validity of the purported termination, and is seeking to obtain specific performance of the contract and damages.
 
On April 20, 2009, AMERIGROUP Corporation and AGPNJ answered the complaint and filed a counterclaim alleging that there had been misrepresentations and/or omissions of material fact made by or on behalf of UHP and the Company.  The Company believes that the counterclaim is without merit.  While the results of litigation cannot be predicted with certainty, the Company believes that the final outcome of the counterclaim will not have a material adverse effect on its financial condition, results of operation or liquidity.
 
In May 2008, the Internal Revenue Services began an audit of the Company’s 2006 and 2007 tax returns.  As a result of this audit, the IRS has initially denied the $34,856 tax benefit the Company recognized for the abandonment of the FirstGuard stock in 2007.  The Company is proceeding with the appeals process and believes that it is more likely than not that the Company’s tax position will be upheld.   Accordingly, the Company has not made any adjustments to the reserve for this position.
 
The Company is routinely subjected to legal proceedings in the normal course of business.  While the ultimate resolution of such matters is uncertain, the Company does not expect the results of any of these matters discussed above individually, or in the aggregate, to have a material effect on its financial position or results of operations.
 
8

 
14. Segment Information

Centene operates in two segments: Medicaid Managed Care and Specialty Services.  The Medicaid Managed Care segment consists of Centene’s health plans including all of the functions needed to operate them.  The Specialty Services segment consists of Centene’s specialty companies including behavioral health, individual health, life and health management, long-term care, managed vision, telehealth services and pharmacy benefits management functions.

Factors used in determining the reportable business segments include the nature of operating activities, existence of separate senior management teams, and the type of information presented to the Company’s chief operating decision maker to evaluate all results of operations.

Segment information for the three months ended June 30, 2009, follows:

   
Medicaid
Managed Care
   
Specialty
Services
   
Eliminations
   
Consolidated
Total
 
Revenue from external customers
  $ 923,109     $ 116,360     $     $ 1,039,469  
Revenue from internal customers
    16,450       132,096       (148,546 )      
Total revenue
  $ 939,559     $ 248,456     $ (148,546 )   $ 1,039,469  
                                 
Earnings from operations
  $ 21,347     $ 10,088     $     $ 31,435  

Segment information for the three months ended June 30, 2008, follows:

   
Medicaid
Managed Care
   
Specialty
Services
   
Eliminations
   
Consolidated
Total
 
Revenue from external customers
  $ 753,006     $ 70,924     $     $ 823,930  
Revenue from internal customers
    15,026       122,042       (137,068 )      
Total revenue
  $ 768,032     $ 192,966     $ (137,068 )   $ 823,930  
                                 
Earnings from operations
  $ 23,967     $ 3,910     $     $ 27,877  

Segment information for the six months ended June 30, 2009, follows:

   
Medicaid
Managed Care
   
Specialty
Services
   
Eliminations
   
Consolidated
Total
 
Revenue from external customers
  $ 1,741,776     $ 230,128     $     $ 1,971,904  
Revenue from internal customers
    32,124       266,172       (298,296 )      
Total revenue
  $ 1,773,900     $ 496,300     $ (298,296 )   $ 1,971,904  
                                 
Earnings from operations
  $ 38,090     $ 24,257     $     $ 62,347  

Segment information for the six months ended June 30, 2008, follows:

   
Medicaid
Managed Care
   
Specialty
Services
   
Eliminations
   
Consolidated
Total
 
Revenue from external customers
  $ 1,461,685     $ 141,473     $     $ 1,603,158  
Revenue from internal customers
    29,704       228,678       (258,382 )      
Total revenue
  $ 1,491,389     $ 370,151     $ (258,382 )   $ 1,603,158  
                                 
Earnings from operations
  $ 54,204     $ 9,974     $     $ 64,178  

15. Comprehensive Earnings

Differences between net earnings and total comprehensive earnings resulted from changes in unrealized gains (losses) on investments available for sale, as follows:

   
Three Months Ended June 30,
   
Six Months Ended June 30,
 
   
2009
   
2008
   
2009
   
2008
 
Net earnings
  $ 19,419     $ 18,203     $ 38,664     $ 43,826  
                                 
Reclassification adjustment, net of tax
    (76 )     126       (138 )     151  
Change in unrealized gains (losses) on investments, net of tax
    21       (1,514 )       2,067        
Total change
    (55 )     (1,388 )     1,929       151  
                                 
Comprehensive earnings
    19,364       16,815       40,593       43,977  
Comprehensive (loss) attributable to the noncontrolling interest
    (811 )           (24 )      
Comprehensive earnings attributable to Centene Corporation
  $ 20,175     $ 16,815     $ 40,617     $ 43,977  


9

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes included elsewhere in this filing, and in our annual report on Form 10-K for the year ended December 31, 2008.
 
FORWARD-LOOKING STATEMENTS

All statements, other than statements of current or historical fact, contained in this filing 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.  These statements may be found in the various sections of this filing, including those entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” Part II, Item 1A.  “Risk Factors,” and Part I, Item 1 “Legal Proceedings.”  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 industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.  These statements are not guarantees of future performance and are subject to risks, uncertainties and assumptions.

All forward-looking statements included in this filing are based on information available to us on the date of this filing.  Actual results may differ from projections or estimates due to a variety of important factors, including:

·  
our ability to accurately predict and effectively manage health benefits and other operating expenses;
·  
competition;
·  
changes in healthcare practices;
·  
changes in federal or state laws or regulations;
·  
inflation;
·  
provider contract changes;
·  
new technologies;
·  
reduction in provider payments by governmental payors;
·  
major epidemics;
·  
disasters and numerous other factors affecting the delivery and cost of healthcare;
·  
the expiration, cancellation or suspension of our Medicaid managed care contracts by state governments;
·  
availability of debt and equity financing, on terms that are favorable to us; and
·  
general economic and market conditions.

Item 1A “Risk Factors” of Part II of this filing 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.
10

OVERVIEW

We are a multi-line healthcare enterprise operating in two segments.  The Medicaid Managed Care segment provides Medicaid and Medicaid-related programs to organizations and individuals through government subsidized programs, including Medicaid, the State Children’s Health Insurance Program, or CHIP, and, Supplemental Security Income including Aged, Blind or Disabled programs, or ABD. The Specialty Services segment provides specialty services, including behavioral health, 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 individuals and the rising number of uninsured Americans.

During 2008, we announced our intention to sell certain assets of University Health Plans, Inc., or UHP, our New Jersey health plan.  Unless specifically noted, with the exception of cash flow information, the discussions below are in the context of continuing operations, and therefore, exclude our New Jersey health plan, UHP.  The results of operations for UHP are classified as discontinued operations for all periods presented.

The first quarter of 2008 included $20.8 million of premium revenue for the Georgia premium rate increase for July 1, 2007 through December 31, 2007.  All 2008 ratios and year over year changes discussed below are inclusive of this revenue.  Our second quarter performance for 2009 is summarized as follows:

 
Quarter-end at-risk managed care membership of 1,289,000.
 
Total revenues of $1,039.5 million.
 
Health Benefits Ratio, or HBR, of 83.1%.
 
General and Administrative, or G&A, expense ratio of 13.9%.
 
Operating earnings of $31.4 million.
 
Diluted earnings per share of $0.47.
 
 
Operating cash flows of $38.7 million.

The following new contracts and acquisitions contributed to our growth over the last year:
 
 
In March 2009, we completed the acquisition of certain assets of AMERIGROUP Community Care of South Carolina, Inc.  We now serve 46,000 at-risk members in South Carolina at June 30, 2009.
 
In February 2009, we began converting non-risk managed care membership in Florida from Access Health Solutions LLC, or Access, to our new subsidiary, Sunshine State Health Plan on an at-risk basis.  We previously acquired a 49% ownership interest in Access in July 2007.  At June 30, 2009, we served 22,300 members on an at-risk basis while Access served 110,100 members on a non-risk basis.  Beginning January 1, 2009, we have presented our investment in Access as a consolidated subsidiary.
 
In October 2008, we began operating under our contract in Arizona to provide Acute Care services in Yavapai county, with 16,200 members at June 30, 2009.
 
Effective July 1, 2008, we completed the acquisition of Celtic, a health insurance carrier focused on the individual health insurance market.
 
We have a new opportunity to continue our growth through the following:
 
 
In March 2009, we were awarded a contract to manage health care services for Massachusetts residents who lack access to traditional public or private health insurance.  Effective July 1, 2009, we began serving the Central, Northern, Boston and Southern regions operating as CeltiCare Health Plan of Massachusetts.
 
11

RESULTS OF OPERATIONS AND KEY METRICS

Summarized comparative financial data are as follows ($ in millions, except share data):

   
Three Months Ended June 30,
   
Six months Ended June 30,
 
   
2009
   
2008
   
% Change
2008-2009
   
2009
   
2008
   
% Change
2008-2009
 
Premium
  $ 909.7     $ 784.0       16.0 %   $ 1,794.7     $ 1,520.8       18.0 %
Service
    21.6       18.5       16.9 %     45.4       39.0       16.5 %
Total premium and service revenues
    931.3       802.5       16.1 %     1,840.1       1,559.8       18.0 %
Premium tax
    108.2       21.5       403.9 %     131.8       43.4       203.9 %
Total revenues
    1,039.5       824.0       26.2 %     1,971.9       1,603.2       23.0 %
Medical costs
    755.7       650.9       16.1 %     1,495.1       1,260.3       18.6 %
Cost of services
    14.6       14.4       0.8 %     30.5       30.6       (0.3 )%
General and administrative expenses
    129.2       109.3       18.3 %     251.5       204.8       22.8 %
Premium tax expense
    108.5       21.5       405.6 %     132.5       43.4       205.6 %
Earnings from operations
    31.5       27.9       12.8 %     62.3       64.1       (2.9 )%
Investment and other income, net
    0.2       1.4       (81.2 )%     (0.1 )     5.0       (102.3 )%
Earnings from continuing operations, before income tax expense
    31.7       29.3       8.4 %     62.2       69.1       (10.0 )%
Income tax expense
    11.8       11.4       3.7 %     22.6       26.3       (14.0 )%
Earnings from continuing operations, net of income tax expense
    19.9       17.9       11.3 %     39.6       42.8       (7.5 )%
Discontinued operations, net of income tax (benefit) expense of $(0.2), $(0.1), $(0.4) and $0.1 respectively
    (0.5 )     0.3       %     (0.9 )     1.0       %
Net earnings
    19.4       18.2       6.7 %     38.7       43.8       (11.8 )%
Noncontrolling interest (loss)
    (0.8 )           %                 %
Net earnings attributable to Centene Corporation
  $ 20.2     $ 18.2       11.1 %   $ 38.7     $ 43.8       (11.7 )%
                                                 
Diluted earnings per common share attributable to Centene Corporation:
                                               
Continuing operations
  $ 0.47     $ 0.40       17.5 %   $ 0.90     $ 0.96       (6.3 )%
Discontinued operations
    (0.01 )     0.01       (200.0 )%     (0.02 )     0.02       (200.0 )%
Total diluted earnings per common share
  $ 0.46     $ 0.41       12.2 %   $ 0.88     $ 0.98       (10.2 )%
                                                 
Revenues and Revenue Recognition

Our Medicaid Managed Care segment generates revenues primarily from premiums we receive from the states in which we operate health plans.  We receive a fixed premium per member per month pursuant to our state contracts.  We generally receive premium payments during the month we provide services and recognize premium revenue during the period in which we are obligated to provide services to our members.  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 state’s Medicaid membership.  Some states enact premium taxes or similar assessments, collectively, premium taxes, and these taxes are recorded as a component of revenues as well as operating expenses.  During the second quarter of 2009, one of the states in which we operate increased their premium which was required to be passed through to hospitals in the state.  This $84.7 million increase was recorded as premium tax revenue and expense.  Some contracts allow for additional premium associated with certain supplemental services provided, such as maternity deliveries.  Revenues are recorded based on membership and eligibility data provided by the states, which may be adjusted by the states for updates to this data.  These eligibility adjustments have been immaterial in relation to total revenue recorded and are reflected in the period known.
 
Our Specialty Services segment generates revenues under contracts with state programs, healthcare organizations, and other commercial organizations, as well as from our own subsidiaries.  Revenues are recognized when the related services are provided or as ratably earned over the covered period of services.

Premium and service revenues collected in advance are recorded as unearned revenue.  For performance-based contracts, we do not recognize revenue subject to refund until data is sufficient to measure performance.  Premium and service revenues due to us are recorded as premium and related receivables and are recorded net of an allowance based on historical trends and our management’s judgment on the collectability of these accounts.  As we generally receive payments during the month in which services are provided, the allowance is typically not significant in comparison to total revenues and does not have a material impact on the presentation of our financial condition or results of operations.
 
Our total revenue increased in the three and six months ended June 30, 2009 over the previous year primarily through 1) membership growth, 2) premium rate increases, and 3) growth in our Specialty Services segment.

 
1.
Membership growth

From June 30, 2008 to June 30, 2009, we increased our at-risk managed care membership by 12.2%.  The following table sets forth our membership by state for our managed care organizations:

   
June 30,
 
   
2009
   
2008
 
Arizona
    16,200        
Florida
    22,300        
Georgia
    292,800       278,800  
Indiana
    196,100       161,700  
Ohio
    141,200       137,300  
South Carolina
    46,000       22,500  
Texas
    443,200       423,700  
Wisconsin
    131,200       124,800  
Total at-risk membership
    1,289,000       1,148,800  
Non-risk membership
    114,000       3,500  
Total
    1,403,000       1,152,300  

12

The following table sets forth our membership by line of business:
 
   
June 30,
 
   
2009
   
2008
 
Medicaid
    958,600