Attached files
file | filename |
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EX-32 - EX-32 - AMERIGROUP CORP | w78324exv32.htm |
EX-31.1 - EX-31.1 - AMERIGROUP CORP | w78324exv31w1.htm |
EX-31.2 - EX-31.2 - AMERIGROUP CORP | w78324exv31w2.htm |
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C. 20549
Washington, D.C. 20549
Form 10-Q
þ
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the quarterly period ended
March 31, 2010 |
||
OR
|
||
o
|
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
001-31574
AMERIGROUP
Corporation
(Exact name of registrant as
specified in its charter)
Delaware (State or Other Jurisdiction of Incorporation or Organization) |
54-1739323 (I.R.S. Employer Identification No.) |
|
4425 Corporation Lane, Virginia Beach, VA (Address of principal executive offices) |
23462 (Zip Code) |
Registrants telephone number, including area code:
(757) 490-6900
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. Yes þ No o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate website, 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 o No o
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 smaller reporting company in Rule
12b-2 of the
Exchange Act. (Check one):
Large accelerated filer þ | Accelerated filer o | Non-accelerated filer o | Smaller reporting company o |
(Do not check if a 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 o No þ
As of April 30, 2010, there were 51,703,926 shares
outstanding of AMERIGROUPs common stock, par value $0.01
per share.
AMERIGROUP
Corporation And
Subsidiaries
Table
of Contents
2
Part I.
Financial Information
Item 1. | Financial Statements |
AMERIGROUP
Corporation And Subsidiaries
Condensed Consolidated
Balance Sheets
(Dollars in thousands, except per share data)
(Unaudited)
March 31, |
December 31, |
|||||||
2010 | 2009 | |||||||
ASSETS
|
||||||||
Current assets:
|
||||||||
Cash and cash equivalents
|
$ | 441,184 | $ | 505,915 | ||||
Short-term investments
|
196,004 | 137,523 | ||||||
Premium receivables
|
148,908 | 104,867 | ||||||
Deferred income taxes
|
26,784 | 26,361 | ||||||
Provider and other receivables
|
37,638 | 33,083 | ||||||
Prepaid expenses
|
17,968 | 8,959 | ||||||
Other current assets
|
5,666 | 5,274 | ||||||
Total current assets
|
874,152 | 821,982 | ||||||
Long-term investments
|
683,027 | 711,196 | ||||||
Investments on deposit for licensure
|
105,964 | 102,780 | ||||||
Property, equipment and software, net of accumulated
depreciation and amortization of $163,475 and $156,693
|
99,152 | 101,002 | ||||||
Goodwill
|
260,496 | 249,276 | ||||||
Other long-term assets
|
15,668 | 13,398 | ||||||
Total assets
|
$ | 2,038,459 | $ | 1,999,634 | ||||
LIABILITIES AND STOCKHOLDERS EQUITY | ||||||||
Current liabilities:
|
||||||||
Claims payable
|
$ | 549,220 | $ | 529,036 | ||||
Accounts payable
|
3,465 | 4,685 | ||||||
Unearned revenue
|
47,126 | 98,298 | ||||||
Accrued payroll and related liabilities
|
57,863 | 37,311 | ||||||
Accrued expenses and other
|
100,284 | 89,967 | ||||||
Total current liabilities
|
757,958 | 759,297 | ||||||
Long-term convertible debt
|
237,765 | 235,104 | ||||||
Deferred income taxes
|
8,262 | 8,430 | ||||||
Other long-term liabilities
|
8,870 | 12,359 | ||||||
Total liabilities
|
1,012,855 | 1,015,190 | ||||||
Stockholders equity:
|
||||||||
Common stock, $0.01 par value. Authorized 100,000,000 shares;
issued and outstanding 50,533,257 and 50,638,474 at
March 31, 2010 and December 31, 2009, respectively
|
548 | 546 | ||||||
Additional paid-in capital
|
501,151 | 494,735 | ||||||
Accumulated other comprehensive income
|
1,596 | 1,354 | ||||||
Retained earnings
|
632,814 | 590,632 | ||||||
1,136,109 | 1,087,267 | |||||||
Less treasury stock at cost (4,232,927 and 3,956,560 shares at
March 31, 2010 and December 31, 2009, respectively)
|
(110,505 | ) | (102,823 | ) | ||||
Total stockholders equity
|
1,025,604 | 984,444 | ||||||
Total liabilities and stockholders equity
|
$ | 2,038,459 | $ | 1,999,634 | ||||
See accompanying notes to condensed consolidated financial
statements.
3
AMERIGROUP
Corporation And
Subsidiaries
Condensed Consolidated Income Statements
(Dollars in thousands, except per share data)
(Unaudited)
Condensed Consolidated Income Statements
(Dollars in thousands, except per share data)
(Unaudited)
Three Months Ended |
||||||||
March 31, | ||||||||
2010 | 2009 | |||||||
Revenues:
|
||||||||
Premium
|
$ | 1,366,767 | $ | 1,217,447 | ||||
Investment income and other
|
4,882 | 12,347 | ||||||
Total revenues
|
1,371,649 | 1,229,794 | ||||||
Expenses:
|
||||||||
Health benefits
|
1,141,572 | 1,019,303 | ||||||
Selling, general and administrative
|
117,423 | 110,375 | ||||||
Premium tax
|
31,472 | 28,118 | ||||||
Depreciation and amortization
|
8,710 | 8,326 | ||||||
Interest
|
3,990 | 4,238 | ||||||
Total expenses
|
1,303,167 | 1,170,360 | ||||||
Income before income taxes
|
68,482 | 59,434 | ||||||
Income tax expense
|
26,300 | 22,525 | ||||||
Net income
|
$ | 42,182 | $ | 36,909 | ||||
Net income per share:
|
||||||||
Basic net income per share
|
$ | 0.83 | $ | 0.70 | ||||
Weighted average number of common shares outstanding
|
50,550,754 | 52,684,000 | ||||||
Diluted net income per share
|
$ | 0.82 | $ | 0.69 | ||||
Weighted average number of common shares and dilutive potential
common shares outstanding
|
51,226,435 | 53,424,802 | ||||||
See accompanying notes to condensed consolidated financial
statements.
4
AMERIGROUP
Corporation And
Subsidiaries
Condensed Consolidated Statement of Stockholders Equity
Three Months Ended March 31, 2010
(Dollars in thousands)
(Unaudited)
Condensed Consolidated Statement of Stockholders Equity
Three Months Ended March 31, 2010
(Dollars in thousands)
(Unaudited)
Accumulated |
||||||||||||||||||||||||||||||||
Additional |
Other |
Total |
||||||||||||||||||||||||||||||
Common Stock |
Paid-in |
Comprehensive |
Retained |
Treasury Stock |
Stockholders |
|||||||||||||||||||||||||||
Shares | Amount | Capital | Income | Earnings | Shares | Amount | Equity | |||||||||||||||||||||||||
Balances at December 31, 2009
|
50,638,474 | $ | 546 | $ | 494,735 | $ | 1,354 | $ | 590,632 | 3,956,560 | $ | (102,823 | ) | $ | 984,444 | |||||||||||||||||
Common stock issued upon exercise of stock options and vesting
of restricted stock grants
|
171,150 | 2 | 1,850 | | | | | 1,852 | ||||||||||||||||||||||||
Compensation expense related to share-based payments
|
| | 4,427 | | | | | 4,427 | ||||||||||||||||||||||||
Tax benefit related to share-based payments
|
| | 139 | | | | | 139 | ||||||||||||||||||||||||
Common stock redeemed for payment of employee taxes
|
(25,787 | ) | | | | | 25,787 | ( 700 | ) | ( 700 | ) | |||||||||||||||||||||
Common stock repurchases
|
(250,580 | ) | | | | | 250,580 | (6,982 | ) | (6,982 | ) | |||||||||||||||||||||
Unrealized gain on
available-for-
sale securities, net of tax |
| | | 242 | | | | 242 | ||||||||||||||||||||||||
Net income
|
| | | | 42,182 | | | 42,182 | ||||||||||||||||||||||||
Balances at March 31, 2010
|
50,533,257 | $ | 548 | $ | 501,151 | $ | 1,596 | $ | 632,814 | 4,232,927 | $ | (110,505 | ) | $ | 1,025,604 | |||||||||||||||||
See accompanying notes to condensed consolidated financial
statements.
5
AMERIGROUP
Corporation And
Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Dollars in thousands)
(Unaudited)
Condensed Consolidated Statements of Cash Flows
(Dollars in thousands)
(Unaudited)
Three Months Ended |
||||||||
March 31, | ||||||||
2010 | 2009 | |||||||
Cash flows from operating activities:
|
||||||||
Net income
|
$ | 42,182 | $ | 36,909 | ||||
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
|
||||||||
Depreciation and amortization
|
8,710 | 8,326 | ||||||
Loss on disposal or abandonment of property, equipment and
software
|
8 | 21 | ||||||
Deferred tax (benefit) expense
|
(821 | ) | 4,894 | |||||
Compensation expense related to share-based payments
|
4,427 | 2,924 | ||||||
Convertible debt non-cash interest
|
2,661 | 2,494 | ||||||
Gain on sale of contract rights
|
| (5,810 | ) | |||||
Other
|
1,903 | 242 | ||||||
Changes in assets and liabilities (decreasing) increasing cash
flows from operations:
|
||||||||
Premium receivables
|
(44,041 | ) | 2,129 | |||||
Prepaid expenses, provider and other receivables and other
current assets
|
(15,567 | ) | (22,830 | ) | ||||
Other assets
|
(783 | ) | 522 | |||||
Claims payable
|
20,184 | 34,328 | ||||||
Accounts payable, accrued expenses and other current liabilities
|
28,949 | (6,739 | ) | |||||
Unearned revenue
|
(51,172 | ) | (17,100 | ) | ||||
Other long-term liabilities
|
(3,489 | ) | (4,204 | ) | ||||
Net cash (used in) provided by operating activities
|
(6,849 | ) | 36,106 | |||||
Cash flows from investing activities:
|
||||||||
Proceeds from sale of trading securities
|
2,950 | | ||||||
Proceeds from sale of
available-for-sale
securities
|
213,793 | | ||||||
Purchase of
available-for-sale
securities
|
(248,224 | ) | | |||||
Proceeds from redemption of
held-to-maturity
securities
|
| 132,655 | ||||||
Purchase of
held-to-maturity
securities
|
| (135,189 | ) | |||||
Proceeds from redemption of investments on deposit for licensure
|
18,315 | 19,515 | ||||||
Purchase of investments on deposit for licensure
|
(21,481 | ) | (33,119 | ) | ||||
Purchase of property, equipment and software
|
(6,435 | ) | (6,339 | ) | ||||
Purchase of contract rights and related assets
|
(13,420 | ) | | |||||
Proceeds from sale of contract rights
|
| 5,810 | ||||||
Net cash used in investing activities
|
(54,502 | ) | (16,667 | ) | ||||
Cash flows from financing activities:
|
||||||||
Repayment of borrowings under credit facility
|
| (127 | ) | |||||
Net decrease in bank overdrafts
|
| (2,492 | ) | |||||
Customer funds administered
|
1,611 | (1,552 | ) | |||||
Proceeds from exercise of stock options and employee stock
purchases
|
1,852 | 1,451 | ||||||
Repurchase of common stock shares
|
(6,982 | ) | (6,375 | ) | ||||
Tax benefit related to share-based payments
|
139 | 638 | ||||||
Net cash used in financing activities
|
(3,380 | ) | (8,457 | ) | ||||
Net (decrease) increase in cash and cash equivalents
|
(64,731 | ) | 10,982 | |||||
Cash and cash equivalents at beginning of period
|
505,915 | 763,272 | ||||||
Cash and cash equivalents at end of period
|
$ | 441,184 | $ | 774,254 | ||||
Non-cash disclosures:
|
||||||||
Common stock redeemed for payment of employee taxes
|
$ | (700 | ) | $ | (572 | ) | ||
Unrealized gain (loss) on
available-for-sale
securities, net of tax
|
$ | 242 | $ | (157 | ) | |||
See accompanying notes to condensed consolidated financial
statements.
6
AMERIGROUP
Corporation And
Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Dollars in thousands, except per share data)
(Unaudited)
Notes to Condensed Consolidated Financial Statements
(Dollars in thousands, except per share data)
(Unaudited)
1. | Interim Financial Reporting |
Basis
of Presentation
The accompanying Condensed Consolidated Financial Statements as
of March 31, 2010 and for the three months ended
March 31, 2010 and 2009 of AMERIGROUP Corporation and its
subsidiaries (the Company), are unaudited and
reflect all adjustments, consisting only of normal recurring
adjustments, which are, in the opinion of management, necessary
for a fair presentation of the Companys financial position
at March 31, 2010 and operating results for the interim
periods ended March 31, 2010 and 2009. The
December 31, 2009 Condensed Consolidated Balance Sheet was
derived from the audited consolidated financial statements as of
that date. Certain reclassifications have been made to prior
year amounts to conform to the current year presentation.
The Condensed Consolidated Financial Statements should be read
in conjunction with the consolidated financial statements and
accompanying notes thereto and managements discussion and
analysis of financial condition and results of operations for
the year ended December 31, 2009 contained in the
Companys Annual Report on
Form 10-K
filed with the Securities and Exchange Commission
(SEC) on February 22, 2010. The results of
operations for the three months ended March 31, 2010 are
not necessarily indicative of the results to be expected for the
entire year ending December 31, 2010.
The Company has evaluated subsequent events for potential
recognition
and/or
disclosure through the date the Condensed Consolidated Financial
Statements included in this Quarterly Report on
Form 10-Q
were filed with the SEC.
2. | Earnings per Share |
Basic net income per common share is computed by dividing net
income by the weighted average number of shares of common stock
outstanding. Diluted net income per common share is computed by
dividing net income by the weighted average number of shares of
common stock outstanding plus other potentially dilutive
securities. The following table sets forth the calculation of
basic and diluted net income per share:
Three Months Ended |
||||||||
March 31, | ||||||||
2010 | 2009 | |||||||
Basic net income per share:
|
||||||||
Net income
|
$ | 42,182 | $ | 36,909 | ||||
Weighted average number of common shares outstanding
|
50,550,754 | 52,684,000 | ||||||
Basic net income per share
|
$ | 0.83 | $ | 0.70 | ||||
Diluted net income per share:
|
||||||||
Net income
|
$ | 42,182 | $ | 36,909 | ||||
Weighted average number of common shares outstanding
|
50,550,754 | 52,684,000 | ||||||
Dilutive effect of stock options and non-vested stock awards (as
determined by applying the treasury stock method)
|
675,681 | 740,802 | ||||||
Weighted average number of common shares and dilutive potential
common shares outstanding
|
51,226,435 | 53,424,802 | ||||||
Diluted net income per share
|
$ | 0.82 | $ | 0.69 | ||||
Potential common stock equivalents representing
2,801,645 shares and 2,547,505 shares for the three
months ended March 31, 2010 and 2009, respectively, were
not included in the computation of diluted net income per share
because to do so would have been anti-dilutive.
7
AMERIGROUP
Corporation And
Subsidiaries
Notes
to Condensed Consolidated Financial
Statements (Continued)
The shares issuable upon conversion of the Companys
2.0% Convertible Senior Notes (the
2.0% Convertible Senior Notes) due May 15,
2012 which were issued effective March 28, 2007 in the
aggregate principal amount of $260,000 (See
Note 7) were not included in the computation of
diluted net income per share for the three months ended
March 31, 2010 and 2009 because to do so would have been
anti-dilutive.
The Companys warrants to purchase shares of its common
stock sold on March 28, 2007 and April 9, 2007 (See
Note 7) were not included in the computation of
diluted net income per share for the three months ended
March 31, 2010 and 2009 because to do so would have been
anti-dilutive.
3. | Fair Value Measurements |
The fair value of a financial instrument is the amount that
would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants
at the measurement date. The following methods and assumptions
were used to estimate the fair value of each class of financial
instruments:
Cash and cash equivalents, premium receivables, provider and
other receivables, prepaid expenses, other current assets,
claims payable, accounts payable, unearned revenue, accrued
payroll and related liabilities, and accrued expenses and other
current liabilities: These financial instruments
are carried at cost which approximates fair value because of the
short maturity of these items.
Short-term investments, long-term investments, investments on
deposit for licensure, cash surrender value of life insurance
policies (included in other long-term assets) and the forward
contract related to certain auction rate securities (included in
other long-term assets): Fair values for these
items are determined based upon quoted market prices or
discounted cash flow analyses.
Convertible Senior Notes: The estimated fair
value of the Companys 2.0% Convertible Senior Notes
is determined based upon a quoted market price.
Assets and liabilities recorded at fair value in the Condensed
Consolidated Balance Sheets are categorized based upon a
three-tier fair value hierarchy, which prioritizes the inputs
used in measuring fair value. These tiers include: Level 1,
defined as observable inputs such as quoted prices in active
markets; Level 2, defined as inputs other than quoted
prices in active markets that are either directly or indirectly
observable; and Level 3, defined as unobservable inputs in
which little or no market data exists, therefore requiring an
entity to develop its own assumptions. Transfers between levels
as a result of changes in the inputs used to determine fair
value are recognized as of the beginning of the reporting period
in which the transfer occurs. There were no transfers between
levels for the three months ended March 31, 2010.
8
AMERIGROUP
Corporation And
Subsidiaries
Notes
to Condensed Consolidated Financial
Statements (Continued)
Assets
The Companys assets measured at fair value on a recurring
basis at March 31, 2010 were as follows:
Fair Value Measurements at Reporting Date Using | ||||||||||||||||
Quoted Prices in |
Significant |
|||||||||||||||
Active Markets for |
Significant Other |
Unobservable |
||||||||||||||
Identical Assets |
Observable Inputs |
Inputs |
||||||||||||||
(Level 1) | (Level 2) | (Level 3) | ||||||||||||||
Cash and cash equivalents
|
$ | 397,692 | $ | 397,692 | $ | | $ | | ||||||||
Auction rate securities (trading)
|
8,166 | | | 8,166 | ||||||||||||
Forward contract related to auction rate securities
|
885 | | | 885 | ||||||||||||
Money market funds
|
20,071 | 20,071 | | | ||||||||||||
Available-for-sale
securities:
|
||||||||||||||||
Auction rate securities
|
41,471 | | | 41,471 | ||||||||||||
Certificates of deposit
|
75,269 | | 75,269 | | ||||||||||||
Commercial paper
|
16,299 | | 16,299 | | ||||||||||||
Corporate bonds
|
208,031 | | 208,031 | | ||||||||||||
Debt securities of government sponsored entities
|
385,997 | 385,997 | | | ||||||||||||
Federally insured corporate bonds
|
43,912 | 43,912 | | | ||||||||||||
Municipal bonds
|
166,539 | | 166,539 | | ||||||||||||
U.S. Treasury securities
|
18,797 | 18,797 | | | ||||||||||||
Total assets measured at fair value
|
$ | 1,383,129 | $ | 866,469 | $ | 466,138 | $ | 50,522 | ||||||||
The Companys assets measured at fair value on a recurring
basis at December 31, 2009 were as follows:
Fair Value Measurements at Reporting Date Using | ||||||||||||||||
Quoted Prices in |
Significant |
|||||||||||||||
Active Markets for |
Significant Other |
Unobservable |
||||||||||||||
Identical Assets |
Observable Inputs |
Inputs |
||||||||||||||
(Level 1) | (Level 2) | (Level 3) | ||||||||||||||
Cash and cash equivalents
|
$ | 481,585 | $ | 481,585 | $ | | $ | | ||||||||
Auction rate securities (trading)
|
10,835 | | | 10,835 | ||||||||||||
Forward contract related to auction rate securities
|
1,165 | | | 1,165 | ||||||||||||
Money market funds
|
21,978 | 21,978 | | | ||||||||||||
Available-for-sale
securities:
|
||||||||||||||||
Auction rate securities
|
46,003 | | | 46,003 | ||||||||||||
Certificates of deposit
|
36,155 | 36,155 | | |||||||||||||
Commercial paper
|
8,992 | | 8,992 | | ||||||||||||
Corporate bonds
|
210,163 | | 210,163 | | ||||||||||||
Debt securities of government sponsored entities
|
382,976 | 382,976 | | | ||||||||||||
Federally insured corporate bonds
|
47,008 | 47,008 | | | ||||||||||||
Municipal bonds
|
165,681 | | 165,681 | | ||||||||||||
U.S. Treasury securities
|
21,294 | 21,294 | | | ||||||||||||
Total assets measured at fair value
|
$ | 1,433,835 | $ | 954,841 | $ | 420,991 | $ | 58,003 | ||||||||
9
AMERIGROUP
Corporation And
Subsidiaries
Notes
to Condensed Consolidated Financial
Statements (Continued)
The following table presents the changes in the Companys
assets measured at fair value on a recurring basis using
significant unobservable inputs (Level 3) for the
periods ended March 31, 2010 and December 31, 2009:
Fair Value Measurements Using Significant |
||||||||
Unobservable Inputs (Level 3) | ||||||||
Three Months Ended |
Twelve Months Ended |
|||||||
March 31, 2010 | December 31, 2009 | |||||||
Balance at beginning of period
|
$ | 58,003 | $ | 73,654 | ||||
Total net unrealized gains included in other comprehensive income
|
468 | 2,225 | ||||||
Total net realized (losses) gains included in earnings
|
(79 | ) | 224 | |||||
Settlements
|
(7,870 | ) | (18,100 | ) | ||||
Balance at end of period
|
$ | 50,522 | $ | 58,003 | ||||
At March 31, 2010, the Company did not elect the fair value
option available under current guidance for any financial assets
and liabilities that were not required to be measured at fair
value.
The Company has invested in auction rate securities that are
classified as either
available-for-sale
or trading securities which are reflected at fair value and
included in long-term investments in the accompanying Condensed
Consolidated Balance Sheets. The auction rate securities held by
the Company at March 31, 2010, totaling $49,637, were
securities issued by student loan corporations which are
non-profit entities established by various state governments.
The majority of the student loans backing these securities fall
under the Federal Family Education Loan Program which is
supported and guaranteed by the United States Department of
Education. During the three months ended March 31, 2010,
the Company sold certain investments in auction rate securities
for net proceeds of $7,870, resulting in a $201 net
realized gain recorded in earnings, of which $80 represents the
reclassification of prior period net unrealized losses from
other comprehensive income as determined on a
specific-identification basis.
For the three months ended March 31, 2010, an unrealized
gain of $468 was recorded to accumulated other comprehensive
income as a result of changes in fair value for auction rate
securities classified as
available-for-sale.
These securities, with a net unrealized loss of $3,679 at
March 31, 2010, continue to be held at fair values that are
below the purchased value of the investments due primarily to
the decreased liquidity of the investments and not as a result
of decreases in the creditworthiness of the underlying issuers.
As the Company does not intend to sell these securities prior to
maturity and as it is not likely that the Company will be
required to sell these securities, the net unrealized losses are
deemed temporary. Any future fluctuation in the fair value
related to these securities that the Company deems to be
temporary, including any additional recoveries of previous
write-downs, will be recorded to accumulated other comprehensive
income. If it is determined that any future valuation adjustment
is
other-than-temporary
and the Company continues to believe it will hold the security
to maturity, the amount of
other-than-temporary
impairment related to credit losses will be recognized in
earnings.
The auction events for these securities failed during early 2008
and have not resumed. Therefore, the estimated fair values of
these securities have been determined utilizing a discounted
cash flow analysis as of March 31, 2010. These analyses
consider, among other items, the creditworthiness of the issuer,
the timing of the expected future cash flows, including the
final maturity associated with the securities, and an assumption
of when the next time the security is expected to have a
successful auction. These securities were also compared, when
possible, to other observable and relevant market data. As the
timing of future successful auctions, if any, cannot be
predicted,
available-for-sale
auction rate securities are classified as long-term. During the
fourth quarter of 2008, the Company entered into a forward
contract with a registered broker-dealer, at no cost, for
auction rate securities with a fair value of $8,166 as of
March 31, 2010. This forward contract provides the Company
with the ability to sell these auction rate securities to the
registered broker-dealer at par within a defined timeframe,
beginning June 30, 2010. These
10
AMERIGROUP
Corporation And
Subsidiaries
Notes
to Condensed Consolidated Financial
Statements (Continued)
securities are classified as trading securities because the
Company does not intend to hold these securities until final
maturity. Trading securities are carried at fair value with
changes in fair value recorded in earnings. For the three months
ended March 31, 2010 and 2009, a realized gain of $281 and
a realized loss of $332, respectively, was recorded to earnings
related to these trading securities. The value of the forward
contract at March 31, 2010, of $885, was estimated using a
discounted cash flow analysis taking into consideration the
creditworthiness of the counterparty to the agreement. The
forward contract is included in other long-term assets. As the
trading securities increased in value for the three months ended
March 31, 2010, a corresponding decrease in fair value of
$280 for the forward contract was recorded to earnings. For the
three months ended March 31, 2009, a gain in fair value of
$90 was recorded to earnings related to the forward contract.
Liabilities
The estimated fair value of the 2.0% Convertible Senior
Notes is determined based upon a quoted market price. As of
March 31, 2010 and December 31, 2009, the fair value
of the borrowings under the 2.0% Convertible Senior Notes
was $267,558 and $246,025, respectively, compared to the face
value of $260,000.
4. | Short and Long-Term Investments and Investments on Deposit for Licensure |
The amortized cost, gross unrealized holding gains, gross
unrealized holding losses and fair value for
available-for-sale
short-term investments held at March 31, 2010 and
December 31, 2009 were as follows:
Gross |
Gross |
|||||||||||||||
Amortized |
Unrealized |
Unrealized |
Fair |
|||||||||||||
Cost | Holding Gains | Holding Losses | Value | |||||||||||||
March 31, 2010:
|
||||||||||||||||
Certificates of deposit
|
$ | 64,113 | $ | 6 | $ | | $ | 64,119 | ||||||||
Commercial paper
|
16,296 | 3 | | 16,299 | ||||||||||||
Corporate bonds
|
4,557 | 4 | 4 | 4,557 | ||||||||||||
Debt securities of government sponsored entities
|
82,820 | 18 | 22 | 82,816 | ||||||||||||
Municipal bonds
|
28,218 | 3 | 8 | 28,213 | ||||||||||||
Total short-term investments
|
$ | 196,004 | $ | 34 | $ | 34 | $ | 196,004 | ||||||||
Gross |
Gross |
|||||||||||||||
Amortized |
Unrealized |
Unrealized |
Fair |
|||||||||||||
Cost | Holding Gains | Holding Losses | Value | |||||||||||||
December 31, 2009:
|
||||||||||||||||
Certificates of deposit
|
$ | 25,000 | $ | 5 | $ | | $ | 25,005 | ||||||||
Commercial paper
|
8,989 | 3 | | 8,992 | ||||||||||||
Corporate bonds
|
5,605 | 4 | 1 | 5,608 | ||||||||||||
Debt securities of government sponsored entities
|
80,246 | 37 | 10 | 80,273 | ||||||||||||
Municipal bonds
|
17,643 | 5 | 3 | 17,645 | ||||||||||||
Total short-term investments
|
$ | 137,483 | $ | 54 | $ | 14 | $ | 137,523 | ||||||||
11
AMERIGROUP
Corporation And
Subsidiaries
Notes
to Condensed Consolidated Financial
Statements (Continued)
The amortized cost, gross unrealized holding gains, gross
unrealized holding losses and fair value for
available-for-sale
long-term investments held at March 31, 2010 and
December 31, 2009 were as follows:
Gross |
Gross |
|||||||||||||||
Amortized |
Unrealized |
Unrealized |
Fair |
|||||||||||||
Cost | Holding Gains | Holding Losses | Value | |||||||||||||
March 31, 2010:
|
||||||||||||||||
Auction rate securities, maturing between one year and five years
|
$ | 4,000 | $ | | $ | 219 | $ | 3,781 | ||||||||
Auction rate securities, maturing in greater than ten years
|
41,150 | | 3,460 | 37,690 | ||||||||||||
Corporate bonds, maturing within one year
|
65,314 | 672 | 14 | 65,972 | ||||||||||||
Corporate bonds, maturing between one year and five years
|
135,137 | 2,366 | 1 | 137,502 | ||||||||||||
Debt securities of government sponsored entities, maturing
within one year
|
89,917 | 601 | 8 | 90,510 | ||||||||||||
Debt securities of government sponsored entities, maturing
between one year and five years
|
150,307 | 907 | 44 | 151,170 | ||||||||||||
Debt securities of government sponsored entities, maturing
between five years and ten years
|
6,000 | | 2 | 5,998 | ||||||||||||
Federally insured corporate bonds, maturing within one year
|
22,029 | 242 | | 22,271 | ||||||||||||
Federally insured corporate bonds, maturing between one year and
five years
|
21,175 | 473 | 7 | 21,641 | ||||||||||||
Municipal bonds, maturing within one year
|
6,625 | 12 | | 6,637 | ||||||||||||
Municipal bonds, maturing between one year and five years
|
28,510 | 137 | 25 | 28,622 | ||||||||||||
Municipal bonds, maturing between five years and ten years
|
30,583 | 303 | 63 | 30,823 | ||||||||||||
Municipal bonds, maturing in greater than ten years
|
71,851 | 411 | 18 | 72,244 | ||||||||||||
Total long-term investments
|
$ | 672,598 | $ | 6,124 | $ | 3,861 | $ | 674,861 | ||||||||
12
AMERIGROUP
Corporation And
Subsidiaries
Notes
to Condensed Consolidated Financial
Statements (Continued)
Gross |
Gross |
|||||||||||||||
Amortized |
Unrealized |
Unrealized |
Fair |
|||||||||||||
Cost | Holding Gains | Holding Losses | Value | |||||||||||||
December 31, 2009:
|
||||||||||||||||
Auction rate securities, maturing between one year and five years
|
$ | 4,000 | $ | | $ | 231 | $ | 3,769 | ||||||||
Auction rate securities, maturing in greater than ten years
|
46,150 | | 3,916 | 42,234 | ||||||||||||
Corporate bonds, maturing within one year
|
40,117 | 623 | | 40,740 | ||||||||||||
Corporate bonds, maturing between one year and five years
|
162,017 | 1,897 | 99 | 163,815 | ||||||||||||
Debt securities of government sponsored entities, maturing
within one year
|
87,000 | 831 | 11 | 87,820 | ||||||||||||
Debt securities of government sponsored entities, maturing
between one year and five years
|
163,326 | 1,142 | 28 | 164,440 | ||||||||||||
Federally insured corporate bonds, maturing within one year
|
22,040 | 316 | | 22,356 | ||||||||||||
Federally insured corporate bonds, maturing between one year and
five years
|
24,200 | 459 | 7 | 24,652 | ||||||||||||
Municipal bonds, maturing within one year
|
4,969 | 13 | | 4,982 | ||||||||||||
Municipal bonds, maturing between one year and five years
|
15,271 | 138 | 6 | 15,403 | ||||||||||||
Municipal bonds, maturing between five years and ten years
|
32,632 | 300 | 57 | 32,875 | ||||||||||||
Municipal bonds, maturing in greater than ten years
|
94,366 | 415 | 5 | 94,776 | ||||||||||||
U.S. Treasury securities, maturing between one year and five
years
|
2,499 | | | 2,499 | ||||||||||||
Total long-term investments
|
$ | 698,587 | $ | 6,134 | $ | 4,360 | $ | 700,361 | ||||||||
The purchase amount, realized gains, realized losses and fair
value for trading securities held at March 31, 2010 and
December 31, 2009 were as follows:
Purchase |
Realized |
Fair |
||||||||||||||
Amount | Realized Gains | Losses | Value | |||||||||||||
March 31, 2010:
|
||||||||||||||||
Auction rate securities, maturing in greater than ten years
|
$ | 9,050 | $ | | $ | 884 | $ | 8,166 | ||||||||
Purchase |
Realized |
Fair |
||||||||||||||
Amount | Realized Gains | Losses | Value | |||||||||||||
December 31, 2009:
|
||||||||||||||||
Auction rate securities, maturing in greater than ten years
|
$ | 12,000 | $ | | $ | 1,165 | $ | 10,835 | ||||||||
13
AMERIGROUP
Corporation And
Subsidiaries
Notes
to Condensed Consolidated Financial
Statements (Continued)
As a condition for licensure by various state governments to
operate health maintenance organizations (HMOs),
health insuring corporations (HICs) or prepaid
health services plans (PHSPs), the Company is
required to maintain certain funds on deposit, in specific
dollar amounts based on either formulas or set amounts, with or
under the control of the various departments of insurance. The
Company purchases interest-bearing investments with a fair value
equal to or greater than the required dollar amount. The
interest that accrues on these investments is not restricted and
is available for withdrawal. The amortized cost, gross
unrealized holding gains, gross unrealized holding losses and
fair value for these
available-for-sale
investments at March 31, 2010 and December 31, 2009
were as follows:
Gross |
Gross |
|||||||||||||||
Amortized |
Unrealized |
Unrealized |
Fair |
|||||||||||||
Cost | Holding Gains | Holding Losses | Value | |||||||||||||
March 31, 2010:
|
||||||||||||||||
Cash
|
$ | 443 | $ | | $ | | $ | 443 | ||||||||
Certificates of deposit, maturing within one year
|
11,150 | | | 11,150 | ||||||||||||
Money market funds
|
20,071 | | | 20,071 | ||||||||||||
Available-for-sale
securities:
|
||||||||||||||||
Debt securities of government sponsored entities, maturing
within one year
|
93l | 1 | 1 | 931 | ||||||||||||
Debt securities of government sponsored entities, maturing
between one year and five years
|
54,305 | 314 | 47 | 54,572 | ||||||||||||
U.S. Treasury securities, maturing within one year
|
18,051 | 81 | 2 | 18,130 | ||||||||||||
U.S. Treasury securities, maturing between one year and five
years
|
598 | 69 | | 667 | ||||||||||||
Total
|
$ | 105,549 | $ | 465 | $ | 50 | $ | 105,964 | ||||||||
Gross |
Gross |
|||||||||||||||
Amortized |
Unrealized |
Unrealized |
Fair |
|||||||||||||
Cost | Holding Gains | Holding Losses | Value | |||||||||||||
December 31, 2009:
|
||||||||||||||||
Cash
|
$ | 414 | $ | | $ | | $ | 414 | ||||||||
Certificates of deposit, maturing within one year
|
11,150 | | | 11,150 | ||||||||||||
Money market funds
|
21,978 | | | 21,978 | ||||||||||||
Available-for-sale
securities:
|
||||||||||||||||
Debt securities of government sponsored entities, maturing
within one year
|
935 | | 1 | 934 | ||||||||||||
Debt securities of government sponsored entities, maturing
between one year and five years
|
49,262 | 285 | 38 | 49,509 | ||||||||||||
U.S. Treasury securities, maturing within one year
|
16,189 | 8 | 13 | 16,184 | ||||||||||||
U.S. Treasury securities, maturing between one year and five
years
|
2,460 | 151 | | 2,611 | ||||||||||||
Total
|
$ | 102,388 | $ | 444 | $ | 52 | $ | 102,780 | ||||||||
The following table shows the fair value of the Companys
available-for-sale
investments with unrealized losses that are not deemed to be
other-than-temporarily
impaired, aggregated by investment category and length of
14
AMERIGROUP
Corporation And
Subsidiaries
Notes
to Condensed Consolidated Financial
Statements (Continued)
time that individual securities have been in a continuous
unrealized loss position, at March 31, 2010 and
December 31, 2009:
Less than 12 Months | 12 Months or Greater | |||||||||||||||||||||||
Gross |
Gross |
|||||||||||||||||||||||
Unrealized |
Total |
Unrealized |
Total |
|||||||||||||||||||||
Fair |
Holding |
Number of |
Fair |
Holding |
Number of |
|||||||||||||||||||
Value | Losses | Securities | Value | Losses | Securities | |||||||||||||||||||
March 31, 2010:
|
||||||||||||||||||||||||
Auction rate securities
|
$ | | $ | | | $ | 41,471 | $ | 3,679 | 12 | ||||||||||||||
Corporate bonds
|
5,504 | 19 | 3 | | | | ||||||||||||||||||
Debt securities of government sponsored entities
|
117,817 | 124 | 28 | | | | ||||||||||||||||||
Federally insured corporate bond
|
4,064 | 7 | 1 | | | | ||||||||||||||||||
Municipal bonds
|
42,632 | 114 | 20 | | | | ||||||||||||||||||
U.S. Treasury securities
|
7,005 | 2 | 2 | | | | ||||||||||||||||||
Total temporarily impaired securities
|
$ | 177,022 | $ | 266 | 54 | $ | 41,471 | $ | 3,679 | 12 | ||||||||||||||
Less than 12 Months | 12 Months or Greater | |||||||||||||||||||||||
Gross |
Gross |
|||||||||||||||||||||||
Unrealized |
Total |
Unrealized |
Total |
|||||||||||||||||||||
Fair |
Holding |
Number of |
Fair |
Holding |
Number of |
|||||||||||||||||||
Value | Losses | Securities | Value | Losses | Securities | |||||||||||||||||||
December 31, 2009:
|
||||||||||||||||||||||||
Auction rate securities
|
$ | | $ | | | $ | 46,003 | $ | 4,147 | 13 | ||||||||||||||
Corporate bonds
|
40,971 | 100 | 32 | | | | ||||||||||||||||||
Debt securities of government sponsored entities
|
44,881 | 88 | 13 | | | | ||||||||||||||||||
Federally insured corporate bond
|
4,076 | 7 | 1 | | | | ||||||||||||||||||
Municipal bonds
|
17,771 | 71 | 7 | | | | ||||||||||||||||||
U.S. Treasury securities
|
9,420 | 13 | 2 | | | | ||||||||||||||||||
Total temporarily impaired securities
|
$ | 117,119 | $ | 279 | 55 | $ | 46,003 | $ | 4,147 | 13 | ||||||||||||||
The temporary declines in value at March 31, 2010, are
primarily due to fluctuations in short-term market interest
rates and the lack of liquidity of auction rate securities.
Auction rate securities that have been in an unrealized loss
position for greater than 12 months have experienced losses
due to the lack of liquidity for these instruments, not as a
result of impairment of the underlying debt securities.
Additionally, the Company does not intend to sell these
securities prior to maturity and it is not likely that the
Company will be required to sell these securities prior to
maturity; therefore, there is no indication of
other-than-temporary
impairment for these securities.
5. Market Updates
Tennessee
On March 1, 2010, the Companys Tennessee subsidiary,
AMERIGROUP Tennessee, Inc., began offering long-term care
(LTC) services to approximately 4,100 existing
members through the States TennCare CHOICES
15
AMERIGROUP
Corporation And
Subsidiaries
Notes
to Condensed Consolidated Financial
Statements (Continued)
program. The program, created as a result of the LTC Community
Choices Act of 2008, is an expansion program offered through
amendments to existing Medicaid managed care contracts and
became effective March 1, 2010. TennCare CHOICES focuses on
promoting independence, choice, dignity and quality of life for
LTC Medicaid managed care recipients by offering members the
option to live in their own homes while receiving LTC and other
medical services. As of March 31, 2010, AMERIGROUP
Tennessee, Inc. served approximately 202,000 members. The
Company can give no assurance that its entry into this business
will be favorable to its results of operations, financial
position or cash flows in future periods.
6. Summary of Goodwill and Acquired Intangible Assets
On March 1, 2010, the Companys New Jersey subsidiary,
AMERIGROUP New Jersey, Inc., acquired the Medicaid contract
rights and rights under certain provider agreements of
University Health Plans, Inc. (UHP) for $13,420 for
strategic reasons. The initial $13,420 payment is subject to a
post-closing adjustment based on the number of incremental
members as of May 1, 2010. The Company has concluded that
the probability that the number of incremental members as of
May 1, 2010 will result in a post-close adjustment to the
purchase price is remote. The purchase price was financed
through available cash. The entire purchase price was allocated
to goodwill and other intangibles, which includes $2,200 of
specifically identifiable intangibles allocated to the rights to
the Medicaid service contract and the assumed provider
contracts. Intangible assets related to the rights to the
Medicaid service contract are being amortized over a period of
approximately 117 months based on a projected disenrollment
rate of members in this market. Intangible assets related to the
provider network are being amortized over 120 months on a
straight-line basis.
The changes in the carrying amount of goodwill for the period
ended March 31, 2010 is as follows:
Changes in the |
||||
Carrying |
||||
Amount of |
||||
Goodwill | ||||
Balance at December 31, 2009:
|
||||
Goodwill
|
$ | 258,155 | ||
Accumulated impairment losses
|
(8,879 | ) | ||
249,276 | ||||
Goodwill acquired during the three months ended March 31,
2010
|
11,220 | |||
Balance at March 31, 2010:
|
||||
Goodwill
|
269,375 | |||
Accumulated impairment losses
|
(8,879 | ) | ||
$ | 260,496 | |||
Other acquired intangible assets, included in other long-term
assets in the accompanying Condensed Consolidated Balance
Sheets, at March 31, 2010 and December 31, 2009 are as
follows:
March 31, 2010 | December 31, 2009 | |||||||||||||||
Gross Carrying |
Accumulated |
Gross Carrying |
Accumulated |
|||||||||||||
Amount | Amortization | Amount | Amortization | |||||||||||||
Membership rights and provider contracts
|
$ | 28,171 | $ | (25,622 | ) | $ | 25,971 | $ | (25,517 | ) | ||||||
Non-compete agreements and trademarks
|
1,596 | (1,596 | ) | 1,596 | (1,596 | ) | ||||||||||
$ | 29,767 | $ | (27,218 | ) | $ | 27,567 | $ | (27,113 | ) | |||||||
16
AMERIGROUP
Corporation And
Subsidiaries
Notes
to Condensed Consolidated Financial
Statements (Continued)
7. Long-Term Obligations
Convertible Senior Notes
As of March 31, 2010, the Company had $260,000 outstanding
in aggregate principal amount of 2.0% Convertible Senior
Notes due May 15, 2012, the carrying amount of which was
$237,765. The unamortized discount of $22,235 will continue to
be amortized over the remaining period until maturity. In May
2007, an automatic shelf registration statement on
Form S-3
was filed with the SEC covering the resale of the
2.0% Convertible Senior Notes and common stock issuable
upon conversion. The 2.0% Convertible Senior Notes are
governed by an Indenture dated as of March 28, 2007 (the
Indenture). The 2.0% Convertible Senior Notes
are senior unsecured obligations of the Company and rank equally
with all of its existing and future senior debt and senior to
all of its subordinated debt. The 2.0% Convertible Senior
Notes are effectively subordinated to all existing and future
liabilities of the Companys subsidiaries and to any
existing and future secured indebtedness. The
2.0% Convertible Senior Notes bear interest at a rate of
2.0% per year, payable semiannually in arrears in cash on May 15
and November 15 of each year, beginning on May 15, 2007.
The 2.0% Convertible Senior Notes mature on May 15,
2012, unless earlier repurchased or converted in accordance with
the Indenture.
Upon conversion of the 2.0% Convertible Senior Notes, the
Company will pay cash up to the principal amount of the
2.0% Convertible Senior Notes converted. With respect to
any conversion value in excess of the principal amount, the
Company has the option to settle the excess with cash, shares of
its common stock, or a combination thereof based on a daily
conversion value, as defined in the Indenture. The initial
conversion rate for the 2.0% Convertible Senior Notes is
23.5114 shares of common stock per one thousand dollars of
principal amount of 2.0% Convertible Senior Notes, which
represents a 32.5% conversion premium based on the closing price
of $32.10 per share of the Companys common stock on
March 22, 2007 and is equivalent to a conversion price of
approximately $42.53 per share of common stock. The conversion
rate is subject to adjustment in some events but will not be
adjusted for accrued interest. In addition, if a
fundamental change occurs prior to the maturity
date, the Company will in some cases increase the conversion
rate for a holder of the 2.0% Convertible Senior Notes that
elects to convert their 2.0% Convertible Senior Notes in
connection with such fundamental change.
Concurrent with the issuance of the 2.0% Convertible Senior
Notes, the Company purchased convertible note hedges covering,
subject to customary anti-dilution adjustments,
6,112,964 shares of its common stock. The convertible note
hedges allow the Company to receive shares of its common stock
and/or cash
equal to the amounts of common stock
and/or cash
related to the excess conversion value that the Company would
pay to the holders of the 2.0% Convertible Senior Notes
upon conversion. These convertible note hedges will terminate at
the earlier of the maturity date of the 2.0% Convertible
Senior Notes or the first day on which none of the
2.0% Convertible Senior Notes remain outstanding due to
conversion or otherwise.
The convertible note hedges are expected to reduce the potential
dilution upon conversion of the 2.0% Convertible Senior
Notes in the event that the market value per share of the
Companys common stock, as measured under the convertible
note hedges, at the time of exercise is greater than the strike
price of the convertible note hedges, which corresponds to the
initial conversion price of the 2.0% Convertible Senior
Notes and is subject to certain customary adjustments. If,
however, the market value per share of the Companys common
stock exceeds the strike price of the warrants (discussed below)
when such warrants are exercised, the Company will be required
to issue common stock. Both the convertible note hedges and
warrants provide for net-share settlement at the time of any
exercise for the amount that the market value of the
Companys common stock exceeds the applicable strike price.
Also concurrent with the issuance of the 2.0% Convertible
Senior Notes, the Company sold warrants to acquire, subject to
customary anti-dilution adjustments, 6,112,964 shares of
its common stock at an exercise price of $53.77 per share. If
the average price of the Companys common stock during a
defined period ending on or about the settlement date exceeds
the exercise price of the warrants, the warrants will be
settled, at the Companys option, in cash or shares of its
common stock.
17
AMERIGROUP
Corporation And
Subsidiaries
Notes
to Condensed Consolidated Financial
Statements (Continued)
The convertible note hedges and warrants are separate
transactions which will not affect holders rights under
the 2.0% Convertible Senior Notes.
8. Share Repurchase Program
The Board of Directors has authorized the repurchase of up to
$200,000 of shares of the Companys common stock under the
Companys ongoing share repurchase program. The $200,000
authorization is for repurchases made from and after
August 5, 2009. Pursuant to this ongoing share repurchase
program, the Company repurchased 250,580 shares of its
common stock and placed them into treasury during the three
months ended March 31, 2010 for an average per share cost
of $27.86 and an aggregate cost of $6,982. As of March 31,
2010, the Company had authorization to purchase up to an
additional $155,866 of shares of its common stock under its
existing share repurchase program.
9. Commitments and Contingencies
Letter of Credit
Effective July 1, 2009, the Company has caused to be issued
a collateralized irrevocable standby letter of credit in an
aggregate principal amount of approximately $17,400 to meet
certain obligations under its Medicaid contract in the State of
Georgia through its Georgia subsidiary, AMGP Georgia Managed
Care Company, Inc. The letter of credit is collateralized
through investments held by AMGP Georgia Managed Care Company,
Inc.
Florida Medicaid Contract Dispute
Under the terms of the contract between AMERIGROUP Florida, Inc.
and the Florida Agency for Health Care Administration
(AHCA), AMERIGROUP Florida, Inc. is required to have
a process to identify members who are pregnant or newborn
members so that the newborn can be enrolled as a member of the
health plan as soon as possible after birth. This process is
referred to as the Unborn Activation Process.
Beginning in July 2008, AMERIGROUP Florida, Inc. received a
series of letters from the Florida Office of the Inspector
General (IG) and AHCA stating that AMERIGROUP
Florida, Inc. had failed to comply with the Unborn Activation
Process and, as a result, AHCA had paid approximately $10,600 in
Medicaid
fee-for-service
claims that should have been paid by AMERIGROUP Florida, Inc.
The letters requested that AMERIGROUP Florida, Inc. provide
documentation to evidence its compliance with the terms of
the contract with AHCA with respect to the Unborn Activation
Process.
In October 2008, the Company submitted its response to the
letters. In July 2009, the Company received another series of
letters from the IG and AHCA stating that, based on a review of
the Companys response, they had determined that AMERIGROUP
Florida, Inc. did not comply with the Unborn Activation Process
and assessed a penalty against AMERIGROUP Florida, Inc. in the
amount of two thousand, five hundred dollars per newborn for an
aggregate amount of approximately $6,000. The letters further
reserved AHCAs right to pursue collection of the amount
paid for the
fee-for-service
claims. AMERIGROUP Florida, Inc. appealed these findings and
submitted documentation to evidence its compliance with, and
performance under, the Unborn Activation Process requirements of
the contract. On January 14, 2010, AMERIGROUP Florida, Inc.
appealed AHCAs contract interpretation that anything less
than 100% compliance with the Unborn Activation Process could
result in sanctions. This appeal is pending.
In February 2010, the Company received another series of letters
from the IG and AHCA revising the damages from $10,600 to $3,200
for the
fee-for-service
claims that AHCA believed they paid. The revised damages include
an offset of premiums that would have been paid for the dates of
service covered by the claims. The letters also included an
updated penalty amount which was not materially different from
the prior letters.
The Company believes that AMERIGROUP Florida, Inc. has
substantial defenses to the claims asserted by AHCA and will
defend against the claims vigorously. However, there can be no
assurances that the ultimate outcome of this matter will not
have a material adverse effect on the Companys financial
position, results of operations or liquidity.
18
AMERIGROUP
Corporation And
Subsidiaries
Notes
to Condensed Consolidated Financial
Statements (Continued)
Legal Proceedings
Memorial Hermann Litigation
On November 21, 2007, Memorial Hermann Hospital System
(Memorial Hermann) filed an Original Petition in the
District Court of Harris County, Texas against AMERIGROUP Texas,
Inc. alleging, inter alia, that AMERIGROUP Texas failed
to pay claims for health care services rendered to members in
accordance with the terms set forth in the contract between the
parties. The Original Petition asserted a breach of contract
claim and requested damages in the principal amount of $723,
plus interest, punitive damages, attorneys fees, costs,
and other relief. On December 3, 2009, Memorial Hermann
filed a Second Amended Petition asserting claims for breach of
contract and quantum meruit and requesting damages in the
principal amount of $38,400, plus pre-judgment and post-judgment
interest, statutory damages, attorneys fees, and costs.
AMERIGROUP Texas has denied that it is indebted to Memorial
Hermann as alleged in the petitions. The case is currently
scheduled for trial on August 23, 2010.
The Company believes that AMERIGROUP Texas, Inc. has substantial
defenses to the claims asserted by Memorial Hermann and the
Company intends to vigorously contest their claims. Although it
is possible that the ultimate outcome of this litigation may not
be favorable to the Company, the amount of loss, if any, is
uncertain. Accordingly, the Company has not recorded any amounts
in the Condensed Consolidated Financial Statements for
unfavorable outcomes, if any, as a result of this litigation.
There can be no assurances that the ultimate outcome of this
litigation will not have a material adverse effect on the
Companys financial position, results of operations or
liquidity.
Other Litigation
Additionally, the Company is involved in various other legal
proceedings in the normal course of business. Based upon its
evaluation of the information currently available, the Company
believes that the ultimate resolution of any such proceedings
will not have a material adverse effect, either individually or
in the aggregate, on its financial position, results of
operations or liquidity.
10. Comprehensive Earnings
Differences between net income and total comprehensive income
resulted from net unrealized gains (losses) on the investment
portfolio as follows:
Three Months Ended March 31, | ||||||||
2010 | 2009 | |||||||
Net income
|
$ | 42,182 | $ | 36,909 | ||||
Other comprehensive income (loss):
|
||||||||
Unrealized gain (loss) on
available-for-sale
securities, net of tax
|
242 | (157 | ) | |||||
Comprehensive income
|
$ | 42,424 | $ | 36,752 | ||||
19
AMERIGROUP
Corporation And
Subsidiaries
Notes
to Condensed Consolidated Financial
Statements (Continued)
11. Claims Payable
The following table presents the components of the change in
claims payable for the periods presented:
Three Months Ended |
Twelve Months Ended |
|||||||
March 31, 2010 | December 31, 2009 | |||||||
Claims payable, beginning of period
|
$ | 529,036 | $ | 536,107 | ||||
Health benefits expense incurred during the period:
|
||||||||
Related to current year
|
1,208,760 | 4,492,590 | ||||||
Related to prior years
|
(67,188 | ) | (85,317 | ) | ||||
Total incurred
|
1,141,572 | 4,407,273 | ||||||
Health benefits payments during the period:
|
||||||||
Related to current year
|
798,460 | 4,007,789 | ||||||
Related to prior years
|
322,928 | 406,555 | ||||||
Total payments
|
1,121,388 | 4,414,344 | ||||||
Claims payable, end of period
|
$ | 549,220 | $ | 529,036 | ||||
Health benefits expense incurred during both periods were
reduced for amounts related to prior years. The amounts related
to prior years include the impact of amounts previously included
in the liability to establish it at a level sufficient under
moderately adverse conditions that were not needed and the
reduction in health benefits expense due to revisions to prior
estimates.
20
Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations |
Forward-looking
Statements
This Quarterly Report on
Form 10-Q,
and other information we provide from
time-to-time,
contains certain forward-looking statements as that
term is defined by Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended (the Exchange Act).
All statements regarding our expected future financial position,
membership, results of operations or cash flows, our continued
performance improvements, our ability to service our debt
obligations and refinance our debt obligations, our ability to
finance growth opportunities, our ability to respond to changes
in government regulations and similar statements including,
without limitation, those containing words such as
believes, anticipates,
expects, may, will,
should, estimates, intends,
plans and other similar expressions are
forward-looking statements.
Forward-looking statements involve known and unknown risks and
uncertainties that may cause our actual results in future
periods to differ materially from those projected or
contemplated in the forward-looking statements as a result of,
but not limited to, the following factors:
| our inability to manage medical costs; | |
| our inability to operate new products and markets at expected levels, including, but not limited to, profitability, membership and targeted service standards; | |
| local, state and national economic conditions, including their effect on the premium rate increase process and timing of payments; | |
| the effect of laws and regulations and changes in such laws and regulations governing the health care industry, including the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 and any regulations enacted thereunder; | |
| changes in Medicaid and Medicare payment levels and methodologies; | |
| increased use of services, increased cost of individual services, pandemics, epidemics, the introduction of new or costly treatments and technology, new mandated benefits, insured population characteristics and seasonal changes in the level of health care use; | |
| our ability to maintain and increase membership levels; | |
| our ability to enter into new markets or remain in our existing markets; | |
| changes in market interest rates or any disruptions in the credit markets; | |
| our ability to maintain compliance with all minimum capital requirements; | |
| liabilities and other claims asserted against us; | |
| demographic changes; | |
| the competitive environment in which we operate; | |
| the availability and terms of capital to fund acquisitions, capital improvements and maintain capitalization levels required by regulatory agencies; | |
| our ability to attract and retain qualified personnel; | |
| the unfavorable resolution of new or pending litigation; and | |
| catastrophes, including acts of terrorism or severe weather. |
Investors should also refer to our Annual Report on
Form 10-K
for the year ended December 31, 2009, filed with the
Securities and Exchange Commission (SEC) on
February 22, 2010, and Part II Other
Information Item 1A.
Risk Factors for a discussion of risk
factors. Given these risks and uncertainties, we can give no
assurances that any forward-looking statements will, in fact,
transpire, and therefore caution investors not to place undue
reliance on them.
21
Overview
We are a multi-state managed health care company focused on
serving people who receive health care benefits through publicly
sponsored programs, including Medicaid, Childrens Health
Insurance Program (CHIP), Medicaid expansion
programs and Medicare Advantage. We operate in one business
segment with a single line of business. We were founded in
December 1994 with the objective of becoming the leading managed
care organization in the U.S. focused on serving people who
receive these types of benefits. We believe that we are better
qualified and positioned than many of our competitors to meet
the unique needs of our members and the government agencies with
whom we contract because of our focus solely on recipients of
publicly sponsored health care, our medical management programs
and community-based education and outreach programs. We design
our programs to address the particular needs of our members, for
whom we facilitate access to health care benefits pursuant to
agreements with applicable state and Federal government
agencies. We combine medical, social and behavioral health
services to help our members obtain quality health care in an
efficient manner. Our success in establishing and maintaining
strong relationships with government agencies, providers and
members has enabled us to obtain new contracts and to establish
and maintain a leading market position in many of the markets we
serve. We continue to believe that managed health care remains
the only proven mechanism that improves health outcomes for our
members while helping our government customers manage the fiscal
viability of their health care programs.
Summary
highlights of our first quarter of 2010 include:
| Membership increased by 206,000 members, or 12.4%, to 1,863,000 members as of March 31, 2010 compared to 1,657,000 members as of March 31, 2009; | |
| Total revenues of $1.4 billion for the first quarter of 2010, an 11.5% increase over the first quarter of 2009; | |
| Health benefits ratio (HBR) of 83.5% of premium revenues for the first quarter of 2010 compared to 83.7% in the first quarter of 2009; | |
| Selling, general and administrative expense (SG&A) ratio of 8.6% of total revenues for the first quarter of 2010 compared to 9.0% in the first quarter of 2009; | |
| Cash used in operations was $6.8 million for the three months ended March 31, 2010; | |
| Unregulated cash and investments of $257.4 million as of March 31, 2010; | |
| Claims payable as of March 31, 2010 totaled $549.2 million, compared to $529.0 million as of December 31, 2009; | |
| We repurchased 250,580 shares of common stock for approximately $7.0 million during the first quarter of 2010; | |
| On March 1, 2010, our Tennessee health plan began providing long-term care (LTC) services to approximately 4,100 existing members under the States newly created TennCare CHOICES program; and | |
| On March 1, 2010, our New Jersey health plan completed the previously announced acquisition of certain assets of University Health Plans, Inc. (UHP). As of March 31, 2010, we served approximately 158,000 members in New Jersey. |
Our results for the three months ended March 31, 2010
reflect the impact of continued membership growth, which we
believe is driven by the macroeconomic environment that has
increased the number of Medicaid eligible individuals, similar
to our experience in 2009. Additionally, premium revenue
reflects the impact of a rate increase across the existing
Tennessee operations and benefit expansion to provide LTC
services to eligible members in that market. Health benefits
expense for the three months ended March 31, 2010 reflects
the revision of prior estimates related to 2009 generating
favorable development in the quarter due primarily to moderating
cost trends compared to our estimates in 2009.
Investment income and other revenue for the three months ended
March 31, 2010 continues to reflect the impact of
reinvestment of fixed-income securities as existing holdings
mature and are reinvested into lower yielding instruments at
current market rates. This is consistent with the patterns we
experienced in 2009. We do not anticipate investment yields will
increase significantly in the near term.
22
Our SG&A expenses for the three months ended March 31,
2010 reflect the impact of increases in variable compensation
expense which is directly tied to variations in operating
performance. Our operating results in the quarter were better
than anticipated driving an increase in accruals under our
variable compensation programs.
Health
Care Reform
On March 23, 2010, President Obama signed into law the
Patient Protection and Affordable Care Act and on March 30,
2010, President Obama signed into law the Health Care and
Education Reconciliation Act of 2010 (collectively, the
Acts). The passage of the Acts has resulted in
comprehensive health care reform legislation. The Acts are
intended to provide health insurance to approximately
32 million uninsured individuals of which approximately 16
to 21 million are expected to obtain health insurance
through the expansion of the Medicaid program beginning in 2014.
Funding for the expanded coverage is expected to largely come
from the Federal government.
We are currently evaluating the provisions of the Acts and
believe that, if implemented as passed, the Acts may provide us
with significant opportunities for growth in our existing
markets and, potentially, in new markets. There can be no
assurance that we will realize this growth, or that this growth
will be profitable. There are numerous steps required to
implement the Acts, including promulgating a substantial number
of new and potentially more onerous regulations to implement the
provisions of the Acts. Further, various health insurance reform
proposals are also emerging at the state level. Because of the
unsettled nature of these reforms and numerous steps required to
implement them, we cannot predict what additional health
insurance requirements will be implemented at the Federal or
state level, or the effect that any future legislation or
regulation will have on our business or our growth
opportunities. There is also considerable uncertainty regarding
the impact of the Acts and the other reforms on the health
insurance market as a whole. In addition, we cannot predict our
competitors reactions to the changes. Although we believe
the Acts will provide us with significant opportunity, the
enacted reforms, as well as future regulations and legislative
changes, may in fact have a material adverse affect on our
results of operations, financial position or liquidity. If we
fail to effectively implement our operational and strategic
initiatives with respect to the implementation of health care
reform or do not do so as effectively as our competitors, our
business may be materially adversely affected.
The Acts include the imposition of significant new
non-deductible Federal premium taxes and other assessments on
health insurers. If this Federal premium tax is imposed as
enacted, and if the cost of the Federal premium tax is not
included in the calculation of our premium rates, or if we are
unable to otherwise adjust our business model to address this
new tax, our results of operations, financial position and
liquidity may be materially adversely affected.
Market
Updates
Tennessee
On March 1, 2010, our Tennessee subsidiary, AMERIGROUP
Tennessee, Inc., began offering LTC services to approximately
4,100 existing members through the States TennCare CHOICES
program. The program, created as a result of the LTC Community
Choices Act of 2008, is an expansion program offered through
amendments to existing Medicaid managed care contracts and
became effective March 1, 2010. TennCare CHOICES focuses on
promoting independence, choice, dignity and quality of life for
LTC Medicaid managed care recipients by offering members the
option to live in their own homes while receiving LTC and other
medical services. At March 31, 2010, we served
approximately 202,000 members in Tennessee. We can give no
assurance that our entry into this business will be favorable to
our results of operations, financial position or cash flows in
future periods.
New
Jersey
On March 1, 2010, our New Jersey subsidiary, AMERIGROUP New
Jersey, Inc., completed the previously announced acquisition of
the Medicaid contract rights and rights under certain provider
agreements of UHP for $13.4 million. At March 31,
2010, we served approximately 158,000 members in the State of
New Jersey. We can give no assurance that this acquisition will
be favorable to our results of operations, financial position or
cash flows in future periods.
23
Texas
In November 2009, the Texas Health and Human Services Commission
(HHSC) issued a request for proposal to provide
managed care services for Aged, Blind and Disabled
(ABD) clients in the Dallas and Tarrant service
areas under the Texas Medicaid STAR+PLUS program. HHSC intends
to select no less than four managed care organizations (two per
service area) to serve approximately 77,000 eligible members. We
submitted a bid to HHSC on February 11, 2010. We anticipate
a contract award in the second quarter of 2010 with an
operational start date in early 2011. We can give no assurance
that we will be awarded this contract or that, if we are awarded
this contract, such business will be favorable to our results of
operations, financial position or cash flows in future periods.
Results
of Operations
The following table sets forth selected operating ratios. All
ratios, with the exception of the HBR, are shown as a percentage
of total revenues:
Three Months Ended |
||||||||
March 31, | ||||||||
2010 | 2009 | |||||||
Premium revenue
|
99.6 | % | 99.0 | % | ||||
Investment income and other
|
0.4 | 1.0 | ||||||
Total revenues
|
100.0 | % | 100.0 | % | ||||
Health
benefits(1)
|
83.5 | % | 83.7 | % | ||||
Selling, general and administrative expenses
|
8.6 | % | 9.0 | % | ||||
Income before income taxes
|
5.0 | % | 4.8 | % | ||||
Net income
|
3.1 | % | 3.0 | % |
(1) | The HBR is shown as a percentage of premium revenue because there is a direct relationship between the premium received and the health benefits provided. |
Three
Months Ended March 31, 2010 Compared to Three Months Ended
March 31, 2009
Summarized comparative financial information for the three
months ended March 31, 2010 and 2009 is as follows (dollars
in millions, except per share data; totals in the table below
may not equal the sum of individual line items as all line items
have been rounded to the nearest decimal.):
Three Months Ended March 31, | ||||||||||||
% Change |
||||||||||||
2010 | 2009 | 2010-2009 | ||||||||||
Revenues:
|
||||||||||||
Premium
|
$ | 1,366.8 | $ | 1,217.4 | 12.3 | % | ||||||
Investment income and other
|
4.9 | 12.3 | (60.5 | )% | ||||||||
Total revenues
|
1,371.6 | 1,229.8 | 11.5 | % | ||||||||
Expenses:
|
||||||||||||
Health benefits
|
1,141.6 | 1,019.3 | 12.0 | % | ||||||||
Selling, general and administrative
|
117.4 | 110.4 | 6.4 | % | ||||||||
Premium tax
|
31.5 | 28.1 | 11.9 | % | ||||||||
Depreciation and amortization
|
8.7 | 8.3 | 4.6 | % | ||||||||
Interest
|
4.0 | 4.2 | (5.9 | )% | ||||||||
Total expenses
|
1,303.2 | 1,170.4 | 11.3 | % | ||||||||
Income before income taxes
|
68.5 | 59.4 | 15.2 | % | ||||||||
Income tax expense
|
26.3 | 22.5 | 16.8 | % | ||||||||
Net income
|
$ | 42.2 | $ | 36.9 | 14.3 | % | ||||||
Diluted net income per share
|
$ | 0.82 | $ | 0.69 | 18.8 | % | ||||||
24
Premium
Revenue
Premium revenue for the three months ended March 31, 2010
increased $149.3 million, or 12.3%, to $1.4 billion
from $1.2 billion for the three months ended March 31,
2009. The increase was primarily due to significant increases in
full-risk membership across the majority of our existing
products and markets partially due to increased levels of
unemployment and the macroeconomic environment driving increases
in the number of people eligible for Medicaid. In addition,
premium revenue increased as a result of the final phase of the
statewide rollout of New Mexicos Coordination of Long-Term
Services (CoLTS) program in April 2009 to the
Southeast and Northeast regions of New Mexico, a Tennessee rate
increase in July 2009 and premium growth in Tennessee through
our entry into the TennCare CHOICES program in March 2010. These
increases were partially offset by our decision to exit the ABD
program in the Southwest region of Ohio as well as the
States election to remove pharmacy coverage from the
benefit package offered, both effective February 2010.
Additionally, premium revenue was impacted by our market exit
from South Carolina through the sale of our Medicaid contract
rights in March 2009.
Membership
The following table sets forth the approximate number of members
we served in each state as of March 31, 2010 and 2009.
Because we receive two premiums for members that are in both the
Medicare Advantage and Medicaid products, these members have
been counted twice in the states where we operate Medicare
Advantage plans.
March 31, | ||||||||
2010 | 2009 | |||||||
Texas(1)
|
510,000 | 453,000 | ||||||
Florida
|
250,000 | 253,000 | ||||||
Georgia
|
250,000 | 213,000 | ||||||
Tennessee
|
202,000 | 189,000 | ||||||
Maryland
|
197,000 | 179,000 | ||||||
New Jersey
|
158,000 | 109,000 | ||||||
New York
|
113,000 | 111,000 | ||||||
Nevada
|
69,000 | 49,000 | ||||||
Ohio
|
56,000 | 60,000 | ||||||
Virginia
|
37,000 | 26,000 | ||||||
New Mexico
|
21,000 | 15,000 | ||||||
Total
|
1,863,000 | 1,657,000 | ||||||
(1) | Membership includes approximately 13,000 members under an ASO contract that began June 1, 2009. |
As of March 31, 2010, we served approximately 1,863,000
members, reflecting an increase of approximately 206,000
members, or 12.4%, compared to March 31, 2009. The increase
is primarily a result of membership growth in the majority of
our products and markets driven by a surge in Medicaid
eligibility, which we believe was driven by high unemployment
and general adverse economic conditions. Our March 2010
acquisition of the Medicaid contract rights from UHP to provide
services to additional members in the State of New Jersey
resulted in further growth of our New Jersey plan. Additionally,
the final phase of the statewide rollout of New Mexicos
CoLTS program in April 2009 contributed to our membership growth.
25
The following table sets forth the approximate number of our
members who receive benefits under our products as of
March 31, 2010 and 2009. Because we receive two premiums
for members that are in both the Medicare Advantage and Medicaid
products, these members have been counted in each product.
March 31, | ||||||||
Product
|
2010 | 2009 | ||||||
TANF (Medicaid)
|
1,309,000 | 1,141,000 | ||||||
CHIP
|
269,000 | 264,000 | ||||||
ABD
(Medicaid)(1)
|
197,000 | 187,000 | ||||||
FamilyCare (Medicaid)
|
72,000 | 53,000 | ||||||
Medicare Advantage
|
16,000 | 12,000 | ||||||
Total
|
1,863,000 | 1,657,000 | ||||||
(1) | Membership includes approximately 13,000 members under an ASO contract in Texas that began June 1, 2009. |
Investment
income and other revenue
Investment income and other revenue was $4.9 million and
$12.3 million for the three months ended March 31,
2010 and 2009, respectively. The decrease in investment income
and other revenue was primarily due to a decrease in other
revenue resulting from a one-time benefit of $5.8 million
during the three months ended March 31, 2009 from the sale
of our South Carolina contract rights.
Our investment portfolio is comprised of fixed income securities
and cash and cash equivalents, which generated investment income
totaling $4.2 million for the three months ended
March 31, 2010 compared to $6.4 million for the three
months ended March 31, 2009. The decrease in investment
income is primarily a result of decreased rates of return due to
current market interest rates. We anticipate that our effective
yield will remain at or below the current rates as of
March 31, 2010 for the foreseeable future, which will
result in similar or reduced returns on our investment portfolio
in future periods. The performance of our investment portfolio
is interest rate driven, and consequently, changes in interest
rates affect our returns on, and the fair value of, our
portfolio which could materially adversely affect our results of
operations or liquidity in future periods.
Health
benefits expenses
Expenses relating to health benefits for the three months ended
March 31, 2010 increased $122.3 million, or 12.0%, to
$1.1 billion compared to $1.0 billion for the three
months ended March 31, 2009. Our HBR decreased to 83.5% for
the three months ended March 31, 2010 compared to 83.7% for
the same period of the prior year. The decrease in HBR primarily
resulted from favorable reserve development primarily due to
revisions to prior estimates for the three months ended
December 31, 2009. This revision primarily resulted from
moderation of cost trends compared to the trends expected when
developing our estimates at the end of 2009. In addition, we
believe a lighter than normal winter flu season, lower
utilization of health services due to severe winter weather in
some of our markets, as well as continued moderation of trends
in the current period, favorably impacted the ratio.
The following table presents the components of the change in
claims payable for the periods presented (in thousands):
Three Months Ended |
Twelve Months Ended |
|||||||
March 31, 2010 | December 31, 2009 | |||||||
Claims payable, beginning of period
|
$ | 529,036 | $ | 536,107 | ||||
Health benefits expense incurred during the period:
|
||||||||
Related to current year
|
1,208,760 | 4,492,590 | ||||||
Related to prior years
|
(67,188 | ) | (85,317 | ) | ||||
Total incurred
|
1,141,572 | 4,407,273 | ||||||
Health benefits payments during the period:
|
||||||||
Related to current year
|
798,460 | 4,007,789 | ||||||
Related to prior years
|
322,928 | 406,555 | ||||||
Total payments
|
1,121,388 | 4,414,344 | ||||||
Claims payable, end of period
|
$ | 549,220 | $ | 529,036 | ||||
26
Health benefits expense incurred during both periods were
reduced for amounts related to prior years. The amounts related
to prior years include the impact of amounts previously included
in the liability to establish it at a level sufficient under
moderately adverse conditions that were not needed and the
reduction in health benefits expense due to revisions to prior
estimates.
Selling,
general and administrative expenses
SG&A for the three months ended March 31, 2010
increased $7.0 million, or 6.4%, to $117.4 million
from $110.4 million for the three months ended
March 31, 2009. The increase in SG&A is primarily a
result of increased salary and benefit expenses due to increased
variable compensation accruals as a result of our operating
performance during the three months ended March 31, 2010.
Our SG&A to total revenues ratio was 8.6% and 9.0% for the
three months ended March 31, 2010 and 2009, respectively.
The decrease in the ratio is a result of leverage gained through
increased revenues due primarily to increases in membership in
the majority of our markets served as of March 31, 2010 as
well as premium growth in Tennessee through our entry into the
TennCare CHOICES program in March 2010, a rate increase in
Tennessee in July 2009 and the final phase of the statewide
rollout of New Mexicos CoLTS program in April 2009.
Premium
tax expense
Premium taxes were $31.5 million and $28.1 million for
the three months ended March 31, 2010 and March 31,
2009, respectively. The increase in premium tax expense for the
three months ended March 31, 2010 compared to the three
months ended March 31, 2009 is primarily due to a premium
tax rate increase in the State of Tennessee effective July 2009,
adoption of premium tax in the State of New York in April 2009
retroactive to January 2009 and growth in premium revenues in
the majority of markets where premium tax is levied. These
increases were partially offset by the termination of premium
tax in the State of Georgia in October 2009.
Provision
for income taxes
Income tax expense for the three months ended March 31,
2010 was $26.3 million with an effective tax rate of 38.4%
compared to $22.5 million of income tax expense with an
effective tax rate of 37.9% for the three months ended
March 31, 2009. The increase in the effective tax rate for
the three months ended March 31, 2010 as compared to the
three months ended March 31, 2009 is attributable to an
increase in non-deductible expenses and the blended state income
tax rate.
Significant
income tax uncertainties
We are currently evaluating the tax related provisions of the
Acts signed into law on March 23, 2010 and March 30,
2010 and do not expect that they will have a material impact on
our 2010 tax rate. However, the Acts do contain provisions that
we anticipate will impact our tax rate in future years. These
provisions include, among others, a limit on the deductibility
of compensation paid by health insurers to $0.5 million per
year for each officer, director, employee, or other service
provider paid in taxable years after 2012 with respect to
services performed after 2009 and a non-deductible Federal
premium tax on health insurers.
Liquidity
and capital resources
We manage our cash, investments and capital structure so we are
able to meet the short- and long-term obligations of our
business while maintaining financial flexibility and liquidity.
We forecast, analyze and monitor our cash flows to enable
prudent investment management and financing within the confines
of our financial strategy.
27
Our primary sources of liquidity are cash and cash equivalents,
short- and long-term investments, and cash flows from
operations. As of March 31, 2010, we had cash and cash
equivalents of $441.2 million, short and long-term
investments of $879.0 million and restricted investments on
deposit for licensure of $106.0 million. Cash, cash
equivalents, and investments which are unregulated totaled
$257.4 million at March 31, 2010.
Convertible
Senior Notes
As of March 31, 2010, we had $260.0 million
outstanding in aggregate principal amount of
2.0% Convertible Senior Notes (the
2.0% Convertible Senior Notes) due May 15,
2012. In May 2007, we filed an automatic shelf registration
statement on
Form S-3
with the SEC covering the resale of the 2.0% Convertible
Senior Notes and common stock issuable upon conversion. The
2.0% Convertible Senior Notes are governed by an Indenture
dated as of March 28, 2007 (the Indenture). The
2.0% Convertible Senior Notes are senior unsecured
obligations of the Company and rank equally with all of our
existing and future senior debt and senior to all of our
subordinated debt. The 2.0% Convertible Senior Notes are
effectively subordinated to all existing and future liabilities
of our subsidiaries and to any existing and future secured
indebtedness. The 2.0% Convertible Senior Notes bear
interest at a rate of 2.0% per year, payable semiannually in
arrears in cash on May 15 and November 15 of each year,
beginning on May 15, 2007. The 2.0% Convertible Senior
Notes mature on May 15, 2012, unless earlier repurchased or
converted in accordance with the Indenture.
Upon conversion of the 2.0% Convertible Senior Notes, we
will pay cash up to the principal amount of the
2.0% Convertible Senior Notes converted. With respect to
any conversion value in excess of the principal amount, we have
the option to settle the excess with cash, shares of our common
stock, or a combination thereof based on a daily conversion
value, as defined in the Indenture. The initial conversion rate
for the 2.0% Convertible Senior Notes is
23.5114 shares of common stock per one thousand dollars of
principal amount of 2.0% Convertible Senior Notes, which
represents a 32.5% conversion premium based on the closing price
of $32.10 per share of our common stock on March 22, 2007
and is equivalent to a conversion price of approximately $42.53
per share of common stock. The conversion rate is subject to
adjustment in some events but will not be adjusted for accrued
interest. In addition, if a fundamental change
occurs prior to the maturity date, we will in some cases
increase the conversion rate for a holder of
2.0% Convertible Senior Notes that elects to convert their
2.0% Convertible Senior Notes in connection with such
fundamental change.
Concurrent with the issuance of the 2.0% Convertible Senior
Notes, we purchased convertible note hedges covering, subject to
customary anti-dilution adjustments, 6,112,964 shares of
our common stock. The convertible note hedges allow us to
receive shares of our common stock
and/or cash
equal to the amounts of common stock
and/or cash
related to the excess conversion value that we would pay to the
holders of the 2.0% Convertible Senior Notes upon
conversion. These convertible note hedges will terminate at the
earlier of the maturity date of the 2.0% Convertible Senior
Notes or the first day on which none of the
2.0% Convertible Senior Notes remain outstanding due to
conversion or otherwise.
The convertible note hedges are expected to reduce the potential
dilution upon conversion of the 2.0% Convertible Senior
Notes in the event that the market value per share of our common
stock, as measured under the convertible note hedges, at the
time of exercise is greater than the strike price of the
convertible note hedges, which corresponds to the initial
conversion price of the 2.0% Convertible Senior Notes and
is subject to certain customary adjustments. If, however, the
market value per share of our common stock exceeds the strike
price of the warrants (discussed below) when such warrants are
exercised, we will be required to issue common stock. Both the
convertible note hedges and warrants provide for net-share
settlement at the time of any exercise for the amount that the
market value of our common stock exceeds the applicable strike
price.
Also concurrent with the issuance of the 2.0% Convertible
Senior Notes, we sold warrants to acquire, subject to customary
anti-dilution adjustments, 6,112,964 shares of our common
stock at an exercise price of $53.77 per share. If the average
price of our common stock during a defined period ending on or
about the settlement date exceeds the exercise price of the
warrants, the warrants will be settled, at our option, in cash
or shares of our common stock.
The convertible note hedges and warrants are separate
transactions which will not affect holders rights under
the 2.0% Convertible Senior Notes.
28
Universal
Automatic Shelf Registration
On December 15, 2008, we filed a universal automatic shelf
registration statement with the SEC which enables us to sell, in
one or more public offerings, common stock, preferred stock,
debt securities and other securities at prices and on terms to
be determined at the time of the applicable offering. The shelf
registration provides us with the flexibility to publicly offer
and sell securities at times we believe market conditions make
such an offering attractive. Because we are a well-known
seasoned issuer, the shelf registration statement was effective
upon filing. No securities have been issued under the shelf
registration.
Stock
Repurchase Program
Under the authorization of our Board of Directors, we maintain
an ongoing share repurchase program that allows us to repurchase
up to $200.0 million of shares of our common stock from and
after August 5, 2009. Pursuant to this ongoing share
repurchase program, we repurchased 250,580 shares of our
common stock at an average per share cost of $27.86 and an
aggregate cost of $7.0 million and placed them into treasury
during the three months ended March 31, 2010. As of
March 31, 2010, we had authorization to purchase up to an
additional $155.9 million of shares of our common stock
under the share repurchase program.
Cash and
Investments
Cash used in operations was $6.8 million for the three
months ended March 31, 2010 compared to cash provided by
operations of $36.1 million for the three months ended
March 31, 2009. The decrease in cash flows was primarily a
result of a decrease in cash flows generated from working
capital changes of $51.4 million. Cash used in operating
activities for working capital changes was $61.6 million
for the three months ended March 31, 2010 compared to
$10.2 million for the three months ended March 31,
2009. The increase in cash used in operating activities for
working capital changes primarily resulted from a net decrease
in cash provided through changes in premium receivables and
unearned revenues of $80.2 million due primarily to timing
of receipts from government agencies. These decreases were
partially offset by a net increase in cash provided through
changes in accounts payable, accrued expenses and other current
liabilities of $35.7 million due primarily to variations in
the accruals for and payments of variable compensation accruals.
Cash used in investing activities was $54.5 million for the
three months ended March 31, 2010 compared to
$16.7 million for the three months ended March 31,
2009. The increase in cash used in investing activities of
$37.8 million is due primarily to an increase in the net
purchases of investments of $18.5 million during the three
months ended March 31, 2010 compared to the three months
ended March 31, 2009 as well as the March 2010 acquisition
from UHP of the Medicaid contract rights to provide services to
additional members in the State of New Jersey for
$13.4 million. Additionally the three months ended
March 31, 2009 benefited from $5.8 million in proceeds
from the sale of our South Carolina contract rights. We
currently anticipate total capital expenditures for 2010 to be
between approximately $30.0 million and $35.0 million
related primarily to technological infrastructure development
and enhancement of core systems to increase scalability and
efficiency. For the three months ended March 31, 2010,
total capital expenditures were $6.4 million.
Our investment policies are designed to preserve capital,
provide liquidity and maximize total return on invested assets.
As of March 31, 2010, our investment portfolio consisted
primarily of fixed-income securities. The weighted average
maturity is approximately twenty-one months excluding our
auction rate securities which are discussed below. We utilize
investment vehicles such as auction rate securities, commercial
paper, certificates of deposit, corporate bonds, debt securities
of government sponsored entities, Federally insured corporate
bonds, municipal bonds, U.S. Treasury instruments and money
market funds. The states in which we operate prescribe the types
of instruments in which our subsidiaries may invest their funds.
The weighted average taxable equivalent yield on consolidated
investments as of March 31, 2010 was approximately 1.15%.
As of March 31, 2010, we had total cash and investments of
approximately $1.4 billion.
29
The following table shows the types, percentages and average
Standard and Poors (S&P) ratings of our
holdings within our investment portfolio at March 31, 2010:
Average S&P |
||||||||
% | Rating | |||||||
Auction rate securities
|
3.5 | % | AA+ | |||||
Cash, bank deposits and commercial paper
|
4.7 | % | AAA | |||||
Certificates of deposit
|
6.8 | % | AA+ | |||||
Corporate bonds
|
14.6 | % | A+ | |||||
Debt obligations of government sponsored entities, Federally
insured corporate bonds, municipal bonds and U.S. Treasury
securities
|
43.4 | % | AAA | |||||
Money market funds
|
27.0 | % | AAA | |||||
100.0 | % | AA+ | ||||||
As of March 31, 2010, $49.6 million of our investments
were comprised of securities with an auction reset feature
(auction rate securities) issued by student loan
corporations which are non-profit entities established by
various state governments. Liquidity for these auction rate
securities historically was provided by an auction process which
allowed holders to sell their notes and the interest rate was
reset at pre-determined intervals, usually every 28 or
35 days. Since early 2008, auctions for these auction rate
securities have failed and there is no assurance that auctions
for these securities will succeed in the future. An auction
failure means that the parties wishing to sell their securities
could not be matched with an adequate volume of buyers. In the
event that there is a failed auction, the indenture governing
the security requires the issuer to pay interest at a
contractually defined rate. The securities for which auctions
have failed will continue to accrue interest at the contractual
rate and be auctioned every 28 or 35 days until the auction
succeeds, the issuer calls the securities, or they mature. As a
result, our ability to liquidate and fully recover the carrying
value of our auction rate securities in the near term may be
limited or not exist. As we cannot predict the timing of future
successful auctions, if any, our auction rate securities are
classified as long-term investments. The weighted average life
of our auction rate securities portfolio, based on the final
maturity, is approximately twenty-two years. We currently have
the intent to hold our auction rate securities to maturity, if
required, or if and when market stability is restored with
respect to these investments.
Our auction rate securities are classified as either
available-for-sale
or trading securities and reflected at fair value. In periods
prior to 2008, due to the auction process which took place every
28-35 days
for most securities, quoted market prices were readily
available, which would qualify as Level 1 under the current
guidance related to fair value measurements. However, the
auction events for these securities failed during early 2008 and
have not resumed. Observable and relevant market data for
valuing auction rate securities is limited at this time. Due to
these events, we reclassified these instruments as Level 3
during 2008. During the three months ended March 31, 2010,
we sold certain investments in auction rate securities for net
proceeds of $7.9 million, resulting in a $0.2 million
net realized gain recorded in earnings, of which
$0.1 million represents the reclassification of prior
period net unrealized losses from other comprehensive income as
determined on a specific-identification basis.
For the three months ended March 31, 2010, we have recorded
an unrealized gain of $0.5 million to accumulated other
comprehensive income as a result of moderate recoveries in fair
value for auction rate securities classified as
available-for-sale.
We currently believe that the $3.7 million net unrealized
loss position that remains at March 31, 2010 is primarily
due to liquidity concerns and not the creditworthiness of the
underlying issuers. In addition, our holdings of auction rate
securities represented less than four percent of our total cash,
cash equivalents, and investments balance at March 31,
2010, which we believe allows us sufficient time for the
securities to return to full value. Because we believe that the
current decline in fair value is temporary and based primarily
on liquidity issues in the credit markets, any difference
between our fair value estimates and an estimate that would be
arrived at by another party would have no impact on our earnings
since such difference would also be recorded to accumulated
other comprehensive income. We will re-evaluate each of these
factors as market conditions change in subsequent periods.
During the fourth quarter of 2008, we entered into a forward
contract with a registered broker-dealer, at no cost to us, for
auction rate securities with a fair value of $8.2 million
as of March 31, 2010. This forward contract
30
provides us with the ability to sell these auction rate
securities to the registered broker-dealer at par within a
defined timeframe, beginning June 30, 2010. These
securities are classified as trading securities because we do
not intend to hold these securities until final maturity.
Trading securities are carried at fair value with changes in
fair value recorded in earnings. A realized gain of
$0.3 million was recorded to earnings for the three months
ended March 31, 2010, related to these trading securities.
The value of the forward contract of $0.9 million was
estimated using a discounted cash flow analysis taking into
consideration the creditworthiness of the counterparty to the
agreement. The forward contract is included in other long-term
assets. As the trading securities increased in value for the
three months ended March 31, 2010, a corresponding decrease
in fair value of $0.3 million for the forward contract was
recorded to earnings. For the three months ended March 31,
2009, a gain in fair value of $0.1 million was recorded to
earnings related to the forward contract.
Cash used in financing activities was $3.4 million for the
three months ended March 31, 2010, compared to
$8.5 million for the three months ended March 31,
2009. The decrease in cash used in financing activities of
$5.1 million is due primarily to changes in the receivable
from the Centers for Medicare and Medicaid Services for
reimbursements of prescription drug costs under the Medicare
Part D program for which we are not at risk as well as
changes in bank overdrafts.
We believe that existing cash and investment balances and cash
flow from operations will be sufficient to support continuing
operations, capital expenditures and our growth strategy for at
least 12 months. Our
debt-to-total
capital ratio at March 31, 2010 was 18.8%. The financial
markets have experienced periods of volatility and disruption
since 2008. Future volatility and disruption is possible and
unpredictable. In the event we need to access additional
capital, our ability to obtain such capital may be limited and
the cost of any such capital may be significantly higher than in
past periods depending on the market condition and our financial
position at the time we pursue additional financing.
The principal of our 2.0% Convertible Senior Notes may be
repaid with proceeds from debt or equity financing, existing
cash and investments, or a combination thereof. If we determine
that debt or equity financing is appropriate, our operations at
the time we enter the credit or equity markets cannot be
predicted and may cause our access to these markets to be
limited. Additionally, any disruptions in the credit markets
similar to that of the recent recession could further limit our
flexibility in planning for, or reacting to, changes in our
business and industry and addressing our future capital
requirements.
Our access to additional financing will depend on a variety of
factors such as market conditions, the general availability of
credit, the overall availability of credit to our industry, our
credit ratings and credit capacity, as well as the possibility
that lenders could develop a negative perception of our long- or
short-term 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.
This could restrict our ability to: (1) acquire new
businesses or enter new markets, (2) service or refinance
our existing debt, (3) make necessary capital investments,
(4) maintain statutory net worth requirements in the states
in which we do business; and (5) make other expenditures
necessary for the ongoing conduct of our business.
Regulatory
Capital and Dividend Restrictions
Our operations are conducted through our wholly-owned
subsidiaries, which include health maintenance organizations
(HMOs), one health insuring corporation
(HIC) and one Prepaid Health Services Plan
(PHSP). HMOs, HICs and PHSPs are subject to state
regulations that, among other things, require the maintenance of
minimum levels of statutory capital, as defined by each state,
and restrict the timing, payment and amount of dividends and
other distributions that may be paid to their stockholders.
Additionally, certain state regulatory agencies may require
individual regulated entities to maintain statutory capital
levels higher than the state regulations. As of March 31,
2010, we believe our subsidiaries are in compliance with all
minimum statutory capital requirements. The parent company may
be required to fund minimum net worth shortfalls during the
remainder of 2010 using unregulated cash, cash equivalents and
investments. We believe, as a result, that we will continue to
be in compliance with these requirements at least through the
end of 2010.
31
The National Association of Insurance Commissioners
(NAIC) has defined risk-based capital
(RBC) standards for HMOs and other entities bearing
risk for health care coverage that are designed to measure
capitalization levels by comparing each companys adjusted
surplus to its required surplus (RBC ratio). The RBC
ratio is designed to reflect the risk profile of HMOs. Within
certain ratio ranges, regulators have increasing authority to
take action as the RBC ratio decreases. There are four levels of
regulatory action, ranging from (a) requiring insurers to
submit a comprehensive plan to the state insurance commissioner,
to (b) requiring the state insurance commissioner to place
the insurer under regulatory control. Eight of our eleven states
have adopted RBC as the measure of required surplus. At
March 31, 2010, our RBC ratio in each of these states
exceeded the requirement thresholds at which regulatory action
would be initiated. Although not all states had adopted these
rules at March 31, 2010, at that date, each of our active
health plans had a surplus that exceeded either the applicable
state net worth requirements or, where adopted, the levels that
would require regulatory action under the NAICs RBC rules.
Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
Our Condensed Consolidated Balance Sheets include a certain
amount of assets whose fair values are subject to market risk.
Due to our significant investment in fixed-maturity investments,
interest rate risk represents a market risk factor affecting our
consolidated financial position. Increases and decreases in
prevailing interest rates generally translate into decreases and
increases in fair values of those instruments. In addition, the
credit markets experienced significant disruptions in prior
periods. Liquidity on many financial instruments contracted, the
creditworthiness of many issuers has fluctuated and defaults
have increased, along with other disruptions. While we do not
believe we have experienced material adverse changes in the
value of our cash, cash equivalents and investments, further
disruptions could impact the value of these assets and other
financial assets we may hold in the future. There can be no
assurance that future changes in interest rates,
creditworthiness of issuers, prepayment activity, liquidity
available in the market and other general market conditions will
not have a material adverse impact on our results of operations,
liquidity, financial position or cash flows.
As of March 31, 2010, substantially all of our investments
were in high quality securities that have historically exhibited
good liquidity which include commercial paper, certificates of
deposit, corporate bonds, debt securities of government
sponsored entities, Federally insured corporate bonds, municipal
bonds, U.S. Treasury instruments and money market funds.
The fair value of the fixed-maturity investment portfolio is
exposed to interest rate risk the risk of loss in
fair value resulting from changes in prevailing market rates of
interest for similar financial instruments. However, we have the
ability to hold fixed-maturity investments to maturity. We rely
on the experience and judgment of senior management to monitor
and mitigate the effects of market risk. The allocation among
various types of securities is adjusted from
time-to-time
based on market conditions, credit conditions, tax policy,
fluctuations in interest rates and other factors. In addition,
we place the majority of our investments in high-quality, liquid
securities and limit the amount of credit exposure to any one
issuer. As of March 31, 2010, an increase of 1% in interest
rates on securities with maturities greater than one year would
reduce the fair value of our marketable securities portfolio by
approximately $9.5 million. Conversely, a reduction of 1%
in interest rates on securities with maturities greater than one
year would increase the fair value of our marketable securities
portfolio by approximately $8.9 million. The above changes
in fair value are impacted by securities in our portfolio that
have a call provision feature. We believe this fair value
presentation is indicative of our market risk because it
evaluates each investment based on its individual
characteristics. Consequently, the fair value presentation does
not assume that each investment reacts identically based on a 1%
change in interest rates.
Item 4. | Controls and Procedures |
(a) Evaluation of Disclosure Controls and
Procedures. Our management, with the
participation of our Chief Executive Officer and Chief Financial
Officer, has evaluated the effectiveness of our disclosure
controls and procedures (as such term is defined in
Rules 13a-15(e)
and
15d-15(e)
under the Securities Exchange Act of 1934, as amended) as of the
end of the period covered by this report. Based on such
evaluation, our Chief Executive Officer
32
and Chief Financial Officer have concluded that, as of the end
of such period, our disclosure controls and procedures are
effective in recording, processing, summarizing and reporting,
on a timely basis, information required to be disclosed by us in
the reports that we file or submit under the Exchange Act and
are effective in ensuring that information required to be
disclosed by us in the reports that we file or submit under the
Exchange Act is accumulated and communicated to management,
including our Chief Executive Officer and Chief Financial
Officer, as appropriate, to allow timely decisions regarding
required disclosure.
(b) Changes in Internal Controls over Financial
Reporting. During the first quarter of 2010, in
connection with our evaluation of internal control over
financial reporting in accordance with Section 404 of the
Sarbanes-Oxley Act of 2002, we concluded there were no changes
in our internal control procedures that materially affected, or
are reasonably likely to materially affect, our internal control
over financial reporting.
33
Part II.
Other Information
Item 1. | Legal Proceedings |
The information required under this Item 1 of Part II
is contained in Item 1 of Part I of this Quarterly
Report on
Form 10-Q
in Note 9 to the Condensed Consolidated Financial
Statements, and such information is incorporated herein by
reference in this Item 1 of Part II.
Item 1A. | Risk Factors |
Certain risk factors may have a material adverse effect on our
business, financial condition and results of operations and you
should carefully consider them. The following risk factor was
identified by the Company during the first quarter of 2010 and
is a supplement to those risk factors included as part of
Item 1A., Risk Factors, of the Companys Annual Report
on
Form 10-K
for the year ended December 31, 2009 as filed with the
Securities and Exchange Commission on February 22, 2010.
Recently
enacted health care reform and the implementation of these laws
could have a material adverse effect on our results of
operations, financial position and liquidity. In addition, if
the new non-deductible Federal premium tax is imposed as
enacted, or if we are unable to adjust our business model to
address this new tax, our results of operations, financial
position and liquidity may be materially adversely
affected.
On March 23, 2010, the President signed into law The
Patient Protection and Affordable Care Act, and on
March 30, 2010 the President signed into law The Health
Care and Education Reconciliation Act of 2010 (collectively, the
Acts). Implementation of these new laws varies from
as early as six months from the date of enactment to as long as
2018.
There are numerous steps required to implement the Acts
including, promulgating a substantial number of new and
potentially more onerous regulations. Further, various health
insurance reform proposals are also emerging at the state level.
Because of the unsettled nature of these reforms and numerous
steps required to implement them, we cannot predict what
additional health insurance requirements will be implemented at
the Federal or state level, or the effect that any future
legislation or regulation will have on our business or our
growth opportunities. There is also considerable uncertainty
regarding the impact of the Acts and the other reforms on the
health insurance market as a whole. In addition, we cannot
predict our competitors reactions to the changes. Although
we believe the Acts will provide us with significant
opportunity, the enacted reforms, as well as future regulations
and legislative changes, may in fact have a material adverse
affect on our results of operations, financial position or
liquidity. If we fail to effectively implement our operational
and strategic initiatives with respect to the implementation of
health care reform or do not do so as effectively as our
competitors, our business may be materially adversely affected.
The Acts include the imposition of significant new
non-deductible Federal premium taxes and other assessments on
health insurers. If this Federal premium tax is imposed as
enacted, and if the cost of the Federal premium tax is not
included in the calculation of our premium rates, or if we are
unable to otherwise adjust our business model to address this
new tax, our results of operations, financial position and
liquidity may be materially adversely affected.
34
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
Set forth below is information regarding the Companys
stock repurchases during the three months ended March 31,
2010:
Approximate Dollar |
||||||||||||||||
Value of Shares |
||||||||||||||||
Total number of |
(or Units) |
|||||||||||||||
Average |
Shares (or Units) |
that May Yet Be |
||||||||||||||
Total Number of |
Price Paid |
Purchased as Part of |
Purchased Under |
|||||||||||||
Shares (or Units) |
per Share |
Publicly Announced |
the Plans or |
|||||||||||||
Period
|
Purchased | (or Unit) | Plans or Programs(1) | Programs(2) | ||||||||||||
January 1 January 31, 2010
|
73,890 | $ | 27.72 | 73,890 | $ | 160,798,687 | ||||||||||
February 1 February 28,
2010(3)
|
81,425 | 25.73 | 78,900 | 158,767,923 | ||||||||||||
March 1 March 31,
2010(3)
|
121,052 | 29.23 | 97,790 | 155,865,623 | ||||||||||||
Total
|
276,367 | $ | 27.79 | 250,580 | $ | 155,865,623 | ||||||||||
(1) | Shares purchased during the first quarter of 2010 were purchased as part of the Companys existing authorized share repurchase program. On March 8, 2010, the Company entered into a trading plan in accordance with Rule 10b5-1 of the Exchange Act, to facilitate repurchases of its common stock pursuant to its share repurchase program (the Rule 10b5-1 plan). The Rule 10b5-1 plan became effective on May 4, 2010 and expires on December 31, 2011, unless terminated earlier in accordance with its terms. | |
(2) | The ongoing share repurchase program authorized by the Board of Directors allows the Company to repurchase up to $200.0 million of shares of its common stock from and after August 5, 2009. No duration has been placed on the repurchase program and the Company reserves the right to discontinue the repurchase program at any time. | |
(3) | Our 2009 Equity Incentive Plan allows, upon approval by the plan administrator, stock option recipients to deliver shares of unrestricted Company common stock held by the participant as payment of the exercise price and applicable withholding taxes upon the exercise of stock options or vesting of restricted stock. During February and March 2010, certain employees elected to tender 2,525 shares and 23,262 shares, respectively, to the Company in payment of related withholding taxes upon vesting of restricted stock. |
Item 3. | Defaults Upon Senior Securities |
None.
Item 4. | Removed and Reserved |
Item 5. | Other Information |
None.
Item 6. | Exhibits |
The exhibits listed on the accompanying Exhibit Index
immediately following the Signatures page are incorporated by
reference into this report.
35
Signatures
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned thereunto duly authorized.
AMERIGROUP Corporation
By: |
/s/ James
G. Carlson
|
James G. Carlson
Chairman, President and
Chief Executive Officer
Date: May 4, 2010
By: |
/s/ James
W. Truess
|
James W. Truess
Executive Vice President and
Chief Financial Officer
Date: May 4, 2010
36
EXHIBITS
Exhibits.
The following exhibits, which are furnished with this Quarterly
Report on
Form 10-Q
or incorporated herein by reference, are filed as part of this
Quarterly Report on
Form 10-Q.
The agreements included or incorporated by reference as exhibits
to this Quarterly Report on
Form 10-Q
contain representations and warranties by each of the parties to
the applicable agreement. These representations and warranties
were made solely for the benefit of the other parties to the
applicable agreement and (i) were not intended to be
treated as categorical statements of fact, but rather as a way
of allocating the risk to one of the parties if those statements
prove to be inaccurate; (ii) may have been qualified in
such agreement by disclosures that were made to the other party
in connection with the negotiation of the applicable agreement;
(iii) may apply contract standards of
materiality that are different from
materiality under the applicable securities laws;
and (iv) were made only as of the date of the applicable
agreement or such other date or dates as may be specified in the
agreement.
The Company acknowledges that, notwithstanding the inclusion of
the foregoing cautionary statements, it is responsible for
considering whether additional specific disclosures of material
information regarding material contractual provisions are
required to make the statements in this Quarterly Report on
Form 10-Q
not misleading.
Exhibit |
||||
Number
|
Description
|
|||
3 | .1 | Amended and Restated Certificate of Incorporation of the Company (incorporated by reference to exhibit 3.1 to our Registration Statement on Form S-3 (No. 333-108831)). | ||
3 | .2 | Amended and Restated By-Laws of the Company (incorporated by reference to exhibit 3.1 to our Current Report on Form 8-K filed on February 14, 2008). | ||
4 | .1 | Form of share certificate for common stock (incorporated by reference to exhibit 4.1 to our Registration Statement on Form S-1 (No. 333-347410)). | ||
4 | .2 | Indenture related to the 2.0% Convertible Senior Notes due 2012 dated March 28, 2007, between AMERIGROUP Corporation and The Bank of New York, as trustee (including the form of 2.0% Convertible Senior Note due 2012) (incorporated by reference to exhibit 4.1 to our Current Report on Form 8-K filed on April 2, 2007). | ||
4 | .3 | Registration Rights Agreement dated March 28, 2007, between AMERIGROUP Corporation, Goldman Sachs, & Co., as representative of the initial purchasers (incorporated by reference to exhibit 4.2 to our Current Report on Form 8-K filed on April 2, 2007). | ||
31 | .1 | Certification of Chief Executive Officer pursuant to Section 302 of Sarbanes-Oxley Act of 2002, dated May 4, 2010. | ||
31 | .2 | Certification of Chief Financial Officer pursuant to Section 302 of Sarbanes-Oxley Act of 2002, dated May 4, 2010. | ||
32 | Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of Sarbanes-Oxley Act of 2002, dated May 4, 2010. |
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