Attached files
file | filename |
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EX-32 - EX-32 - AMERIGROUP CORP | w79138exv32.htm |
EX-31.1 - EX-31.1 - AMERIGROUP CORP | w79138exv31w1.htm |
EX-31.2 - EX-31.2 - AMERIGROUP CORP | w79138exv31w2.htm |
EXCEL - IDEA: XBRL DOCUMENT - AMERIGROUP CORP | Financial_Report.xls |
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 June 30, 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 þ 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 July 30, 2010, there were 51,022,288 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)
Condensed Consolidated Balance Sheets
(Dollars in thousands, except per share data)
(Unaudited)
June 30, |
December 31, |
|||||||
2010 | 2009 | |||||||
ASSETS
|
||||||||
Current assets:
|
||||||||
Cash and cash equivalents
|
$ | 409,833 | $ | 505,915 | ||||
Short-term investments
|
221,007 | 137,523 | ||||||
Premium receivables
|
115,007 | 104,867 | ||||||
Deferred income taxes
|
26,779 | 26,361 | ||||||
Provider and other receivables
|
37,370 | 33,083 | ||||||
Prepaid expenses and other
|
17,688 | 14,233 | ||||||
Total current assets
|
827,684 | 821,982 | ||||||
Long-term investments
|
773,933 | 711,196 | ||||||
Investments on deposit for licensure
|
115,391 | 102,780 | ||||||
Property, equipment and software, net of accumulated
depreciation of $160,410 and $156,693 at June 30, 2010 and
December 31, 2009, respectively
|
97,809 | 101,002 | ||||||
Other long-term assets
|
13,550 | 13,398 | ||||||
Goodwill
|
260,496 | 249,276 | ||||||
Total assets
|
$ | 2,088,863 | $ | 1,999,634 | ||||
LIABILITIES AND STOCKHOLDERS EQUITY | ||||||||
Current liabilities:
|
||||||||
Claims payable
|
$ | 525,603 | $ | 529,036 | ||||
Accounts payable
|
4,844 | 4,685 | ||||||
Unearned revenue
|
47,824 | 98,298 | ||||||
Accrued payroll and related liabilities
|
55,991 | 37,311 | ||||||
Accrued expenses and other
|
127,574 | 89,967 | ||||||
Total current liabilities
|
761,836 | 759,297 | ||||||
Long-term convertible debt
|
240,427 | 235,104 | ||||||
Deferred income taxes
|
7,372 | 8,430 | ||||||
Other long-term liabilities
|
10,645 | 12,359 | ||||||
Total liabilities
|
1,020,280 | 1,015,190 | ||||||
Stockholders equity:
|
||||||||
Common stock, $0.01 par value. Authorized
100,000,000 shares; outstanding 49,850,353 and 50,638,474
at June 30, 2010 and December 31, 2009, respectively
|
552 | 546 | ||||||
Additional paid-in capital
|
513,655 | 494,735 | ||||||
Accumulated other comprehensive income
|
2,298 | 1,354 | ||||||
Retained earnings
|
700,027 | 590,632 | ||||||
1,216,532 | 1,087,267 | |||||||
Less treasury stock at cost (5,303,442 and 3,956,560 shares
at June 30, 2010 and December 31, 2009, respectively)
|
(147,949 | ) | (102,823 | ) | ||||
Total stockholders equity
|
1,068,583 | 984,444 | ||||||
Total liabilities and stockholders equity
|
$ | 2,088,863 | $ | 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 |
Six Months Ended |
|||||||||||||||
June 30, | June 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Revenues:
|
||||||||||||||||
Premium
|
$ | 1,428,879 | $ | 1,284,890 | $ | 2,795,646 | $ | 2,502,337 | ||||||||
Investment income and other
|
8,634 | 6,517 | 13,516 | 18,864 | ||||||||||||
Total revenues
|
1,437,513 | 1,291,407 | 2,809,162 | 2,521,201 | ||||||||||||
Expenses:
|
||||||||||||||||
Health benefits
|
1,176,445 | 1,103,213 | 2,318,017 | 2,122,516 | ||||||||||||
Selling, general and administrative
|
108,189 | 96,285 | 225,612 | 206,660 | ||||||||||||
Premium tax
|
33,172 | 34,623 | 64,644 | 62,741 | ||||||||||||
Depreciation and amortization
|
8,905 | 9,680 | 17,615 | 18,006 | ||||||||||||
Interest
|
4,019 | 4,232 | 8,009 | 8,470 | ||||||||||||
Total expenses
|
1,330,730 | 1,248,033 | 2,633,897 | 2,418,393 | ||||||||||||
Income before income taxes
|
106,783 | 43,374 | 175,265 | 102,808 | ||||||||||||
Income tax expense (benefit)
|
39,570 | (6,225 | ) | 65,870 | 16,300 | |||||||||||
Net income
|
$ | 67,213 | $ | 49,599 | $ | 109,395 | $ | 86,508 | ||||||||
Net income per share:
|
||||||||||||||||
Basic net income per share
|
$ | 1.34 | $ | 0.95 | $ | 2.17 | $ | 1.65 | ||||||||
Weighted average number of common shares outstanding
|
50,296,209 | 52,308,721 | 50,422,564 | 52,488,010 | ||||||||||||
Diluted net income per share
|
$ | 1.31 | $ | 0.94 | $ | 2.14 | $ | 1.63 | ||||||||
Weighted average number of common shares and dilutive potential
common shares outstanding
|
51,318,044 | 53,029,943 | 51,235,939 | 53,224,753 | ||||||||||||
See accompanying notes to condensed consolidated financial
statements.
4
AMERIGROUP
Corporation And Subsidiaries
Condensed Consolidated Statement of Stockholders Equity
Six Months Ended June 30, 2010
(Dollars in thousands)
(Unaudited)
Condensed Consolidated Statement of Stockholders Equity
Six Months Ended June 30, 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, vesting of
restricted stock grants and purchases under the employee stock
purchase plan
|
558,761 | 6 | 9,755 | | | | | 9,761 | ||||||||||||||||||||||||
Compensation expense related to share-based payments
|
| | 9,571 | | | | | 9,571 | ||||||||||||||||||||||||
Tax expense related to share-based payments
|
| | (142 | ) | | | | | (142 | ) | ||||||||||||||||||||||
Employee stock relinquished for payment of taxes
|
(46,475 | ) | | (264 | ) | | | 46,475 | (1,450 | ) | (1,714 | ) | ||||||||||||||||||||
Common stock repurchases
|
(1,300,407 | ) | | | | | 1,300,407 | (43,676 | ) | (43,676 | ) | |||||||||||||||||||||
Unrealized gain on
available-for-sale
securities, net of tax
|
| | | 944 | | | | 944 | ||||||||||||||||||||||||
Net income
|
| | | | 109,395 | | | 109,395 | ||||||||||||||||||||||||
Balances at June 30, 2010
|
49,850,353 | $ | 552 | $ | 513,655 | $ | 2,298 | $ | 700,027 | 5,303,442 | $ | (147,949 | ) | $ | 1,068,583 | |||||||||||||||||
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)
Six Months Ended |
||||||||
June 30, | ||||||||
2010 | 2009 | |||||||
Cash flows from operating activities:
|
||||||||
Net income
|
$ | 109,395 | $ | 86,508 | ||||
Adjustments to reconcile net income to net cash provided by
operating activities:
|
||||||||
Depreciation and amortization
|
17,615 | 18,006 | ||||||
Loss on disposal or abandonment of property, equipment and
software
|
24 | 412 | ||||||
Deferred tax (benefit) expense
|
(1,972 | ) | 4,630 | |||||
Compensation expense related to share-based payments
|
9,571 | 8,022 | ||||||
Convertible debt non-cash interest
|
5,323 | 4,987 | ||||||
Gain on sale of intangible asset
|
(4,000 | ) | | |||||
Gain on sale of contract rights
|
| (5,810 | ) | |||||
Other
|
4,189 | (201 | ) | |||||
Changes in assets and liabilities (decreasing) increasing cash
flows from operations:
|
||||||||
Premium receivables
|
(10,140 | ) | (15,683 | ) | ||||
Prepaid expenses, provider and other receivables and other
current assets
|
(6,138 | ) | (35,928 | ) | ||||
Other assets
|
(55 | ) | (439 | ) | ||||
Claims payable
|
(3,433 | ) | 26,883 | |||||
Accounts payable, accrued expenses and other current liabilities
|
41,371 | (36,605 | ) | |||||
Unearned revenue
|
(50,474 | ) | (18,161 | ) | ||||
Other long-term liabilities
|
(1,714 | ) | (2,583 | ) | ||||
Net cash provided by operating activities
|
109,562 | 34,038 | ||||||
Cash flows from investing activities:
|
||||||||
Proceeds from sale of trading securities
|
8,992 | | ||||||
Proceeds from sale of
available-for-sale
securities
|
416,066 | 13,708 | ||||||
Purchase of
available-for-sale
securities
|
(575,966 | ) | (164,351 | ) | ||||
Proceeds from redemption of
held-to-maturity
securities
|
| 273,125 | ||||||
Purchase of
held-to-maturity
securities
|
| (194,851 | ) | |||||
Proceeds from redemption of investments on deposit for licensure
|
36,007 | 38,682 | ||||||
Purchase of investments on deposit for licensure
|
(48,523 | ) | (42,595 | ) | ||||
Purchase of property, equipment and software
|
(13,508 | ) | (15,865 | ) | ||||
Proceeds from sale of intangible asset
|
4,000 | | ||||||
Proceeds from sale of contract rights
|
| 5,810 | ||||||
Purchase of contract rights and related assets
|
(13,420 | ) | | |||||
Net cash used in investing activities
|
(186,352 | ) | (86,337 | ) | ||||
Cash flows from financing activities:
|
||||||||
Repayment of borrowings under credit facility
|
| (26,318 | ) | |||||
Net increase (decrease) in bank overdrafts
|
13,361 | (2,492 | ) | |||||
Customer funds administered
|
1,404 | (3,764 | ) | |||||
Proceeds from exercise of stock options and employee stock
purchases
|
9,761 | 3,729 | ||||||
Repurchase of common stock shares
|
(43,676 | ) | (28,555 | ) | ||||
Tax (expense) benefit related to share-based payments
|
(142 | ) | 918 | |||||
Net cash used in financing activities
|
(19,292 | ) | (56,482 | ) | ||||
Net decrease in cash and cash equivalents
|
(96,082 | ) | (108,781 | ) | ||||
Cash and cash equivalents at beginning of period
|
505,915 | 763,272 | ||||||
Cash and cash equivalents at end of period
|
$ | 409,833 | $ | 654,491 | ||||
Non-cash disclosures:
|
||||||||
Employee stock relinquished for payment of taxes
|
$ | (1,714 | ) | $ | (912 | ) | ||
Unrealized gain on
available-for-sale
securities, net of tax
|
$ | 944 | $ | 296 | ||||
Auction rate securities pending settlement
|
$ | 3,008 | $ | | ||||
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 June 30, 2010 and for the three and six months ended
June 30, 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 June 30, 2010 and operating results for the interim
periods ended June 30, 2010 and 2009. The December 31,
2009 Condensed Consolidated Balance Sheet was derived from the
audited consolidated financial statements as of that date.
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 and six months ended June 30, 2010
are not necessarily indicative of the results to be expected for
the entire year ending December 31, 2010.
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 |
Six Months Ended |
|||||||||||||||
June 30, | June 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Basic net income per share:
|
||||||||||||||||
Net income
|
$ | 67,213 | $ | 49,599 | $ | 109,395 | $ | 86,508 | ||||||||
Weighted average number of common shares outstanding
|
50,296,209 | 52,308,721 | 50,422,564 | 52,488,010 | ||||||||||||
Basic net income per share
|
$ | 1.34 | $ | 0.95 | $ | 2.17 | $ | 1.65 | ||||||||
Diluted net income per share:
|
||||||||||||||||
Net income
|
$ | 67,213 | $ | 49,599 | $ | 109,395 | $ | 86,508 | ||||||||
Weighted average number of common shares outstanding
|
50,296,209 | 52,308,721 | 50,422,564 | 52,488,010 | ||||||||||||
Dilutive effect of stock options and non-vested stock awards (as
determined by applying the treasury stock method)
|
1,021,835 | 721,222 | 813,375 | 736,743 | ||||||||||||
Weighted average number of common shares and dilutive potential
common shares outstanding
|
51,318,044 | 53,029,943 | 51,235,939 | 53,224,753 | ||||||||||||
Diluted net income per share
|
$ | 1.31 | $ | 0.94 | $ | 2.14 | $ | 1.63 | ||||||||
Potential common stock equivalents representing
883,010 shares and 1,525,327 shares for the three and
six months ended June 30, 2010, respectively, were not
included in the computation of diluted net income per share
7
AMERIGROUP
Corporation And Subsidiaries
Notes to
Condensed Consolidated Financial
Statements (Continued)
because to do so would have been anti-dilutive. Potential common
stock equivalents representing 2,654,800 shares and
2,460,909 shares for the three and six months ended
June 30, 2009, respectively, were not included in the
computation of diluted net income per share because to do so
would have been anti-dilutive.
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 and six months ended
June 30, 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 and six months ended
June 30, 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 and 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), deferred compensation (included in other long-term
liabilities) and the forward contract related to certain auction
rate securities (included in other long-term assets at
December 31, 2009): 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:
Tier Level | Tier Definition | |
Level 1
|
Observable inputs such as quoted prices in active markets. | |
Level 2
|
Inputs other than quoted prices in active markets that are either directly or indirectly observable. | |
Level 3
|
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 and six months ended
June 30, 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 June 30, 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 equivalents
|
$ | 392,514 | $ | 392,514 | $ | | $ | | ||||||||
Money market funds
|
25,600 | 25,600 | | | ||||||||||||
Available-for-sale
securities:
|
||||||||||||||||
Auction rate securities
|
31,044 | | | 31,044 | ||||||||||||
Certificates of deposit
|
22,151 | | 22,151 | | ||||||||||||
Commercial paper
|
11,098 | | 11,098 | | ||||||||||||
Corporate bonds
|
241,588 | | 241,588 | | ||||||||||||
Debt securities of government sponsored entities
|
452,718 | 452,718 | | | ||||||||||||
Federally insured corporate bonds
|
43,817 | 43,817 | | | ||||||||||||
Municipal bonds
|
263,570 | | 263,570 | | ||||||||||||
U.S. Treasury securities
|
18,277 | 18,277 | | | ||||||||||||
Total assets measured at fair value
|
$ | 1,502,377 | $ | 932,926 | $ | 538,407 | $ | 31,044 | ||||||||
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 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)
For the three and six months ended June 30, 2010 and 2009,
net unrealized gains recorded to accumulated other comprehensive
income as a result of changes in fair value for investments
classified as
available-for-sale
were as follows:
Three Months Ended |
Six Months Ended |
|||||||||||||||
June 30, | June 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Net unrealized gains recorded to other comprehensive income
|
$ | 972 | $ | 1,155 | $ | 1,445 | $ | 898 |
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 June 30, 2010 and December 31, 2009:
Fair Value Measurements Using Significant |
||||||||
Unobservable Inputs (Level 3) | ||||||||
Six Months Ended |
Twelve Months Ended |
|||||||
June 30, 2010 | December 31, 2009 | |||||||
Balance at beginning of period
|
$ | 58,003 | $ | 73,654 | ||||
Total net realized (losses) gains included in earnings
|
(290 | ) | 224 | |||||
Total net unrealized gains included in other comprehensive income
|
1,541 | 2,225 | ||||||
Sales and calls by issuers
|
(28,210 | ) | (18,100 | ) | ||||
Balance at end of period
|
$ | 31,044 | $ | 58,003 | ||||
At June 30, 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 issued by
student loan corporations established by various state
governments which are reflected at fair value and included in
long-term investments in the accompanying Condensed Consolidated
Balance Sheets. 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
discounted cash flow analyses as of June 30, 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, auction rate securities are classified as long-term.
During the three and six months ended June 30, 2010 and
2009, proceeds from the sale or call of certain investments in
auction rate securities, the net realized gains and the amount
of prior period net unrealized losses reclassified from other
comprehensive income on a specific-identification basis were as
follows (excludes the impact of the forward contract discussed
below):
Three Months Ended |
Six Months Ended |
|||||||||||||||
June 30, | June 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Proceeds from sale or call of auction rate securities
|
$ | 20,340 | $ | 6,850 | $ | 28,210 | $ | 6,850 | ||||||||
Net realized gains recorded in earnings
|
674 | 729 | 875 | 397 | ||||||||||||
Net unrealized losses reclassified from other comprehensive
income, included in realized gains above
|
(210 | ) | | (290 | ) | |
During the fourth quarter of 2008, the Company entered into a
forward contract with a registered broker-dealer, at no cost,
which provided the Company with the ability to sell certain
auction rate securities to the registered
10
AMERIGROUP
Corporation And Subsidiaries
Notes to
Condensed Consolidated Financial
Statements (Continued)
broker-dealer at par within a defined timeframe, beginning
June 30, 2010. These securities were classified as trading
securities because the Company did not intend to hold these
securities until final maturity. Trading securities are carried
at fair value with changes in fair value recorded in earnings.
The value of the forward contract was estimated using a
discounted cash flow analysis taking into consideration the
creditworthiness of the counterparty to the agreement. The
forward contract was included in other long-term assets. As of
June 30, 2010, all of the remaining trading securities
under the terms of this forward contract were repurchased by the
broker-dealer; therefore, the forward contract expired at the
end of the period resulting in a realized loss of $1,165 for the
six months ended June 30, 2010, which was largely offset by
recovery of the related auction rate securities at par.
Liabilities
The 2.0% Convertible Senior Notes are carried at amortized
cost. The estimated fair value of the 2.0% Convertible
Senior Notes is determined based upon a quoted market price. As
of June 30, 2010 and December 31, 2009, the fair value
of the borrowings under the 2.0% Convertible Senior Notes
was $264,241 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 June 30, 2010 and
December 31, 2009 were as follows:
Gross |
Gross |
|||||||||||||||
Amortized |
Unrealized |
Unrealized |
Fair |
|||||||||||||
Cost | Holding Gains | Holding Losses | Value | |||||||||||||
June 30, 2010:
|
||||||||||||||||
Certificates of deposit
|
$ | 11,000 | $ | 1 | $ | | $ | 11,001 | ||||||||
Commercial paper
|
11,098 | | | 11,098 | ||||||||||||
Corporate bonds
|
14,556 | 2 | 11 | 14,547 | ||||||||||||
Debt securities of government sponsored entities
|
131,641 | 36 | 1 | 131,676 | ||||||||||||
Municipal bonds
|
52,690 | 10 | 15 | 52,685 | ||||||||||||
Total short-term investments
|
$ | 220,985 | $ | 49 | $ | 27 | $ | 221,007 | ||||||||
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 June 30, 2010 and
December 31, 2009 were as follows:
Gross |
Gross |
|||||||||||||||
Amortized |
Unrealized |
Unrealized |
Fair |
|||||||||||||
Cost | Holding Gains | Holding Losses | Value | |||||||||||||
June 30, 2010:
|
||||||||||||||||
Auction rate securities, maturing in greater than ten years
|
$ | 33,650 | $ | | $ | 2,606 | $ | 31,044 | ||||||||
Corporate bonds, maturing within one year
|
92,785 | 559 | 9 | 93,335 | ||||||||||||
Corporate bonds, maturing between one year and five years
|
132,063 | 2,288 | 645 | 133,706 | ||||||||||||
Debt securities of government sponsored entities, maturing
within one year
|
84,517 | 398 | | 84,915 | ||||||||||||
Debt securities of government sponsored entities, maturing
between one year and five years
|
175,456 | 786 | 11 | 176,231 | ||||||||||||
Federally insured corporate bonds, maturing within one year
|
22,018 | 159 | | 22,177 | ||||||||||||
Federally insured corporate bonds, maturing between one year and
five years
|
21,155 | 492 | 7 | 21,640 | ||||||||||||
Municipal bonds, maturing within one year
|
16,886 | 21 | | 16,907 | ||||||||||||
Municipal bonds, maturing between one year and five years
|
47,540 | 208 | 48 | 47,700 | ||||||||||||
Municipal bonds, maturing between five years and ten years
|
45,819 | 947 | 64 | 46,702 | ||||||||||||
Municipal bonds, maturing in greater than ten years
|
98,900 | 705 | 29 | 99,576 | ||||||||||||
Total long-term investments
|
$ | 770,789 | $ | 6,563 | $ | 3,419 | $ | 773,933 | ||||||||
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 | ||||||||
As of June 30, 2010, the Company has divested all of its
trading securities, which consisted only of auction rate
securities (see Note 3). The purchase amount, realized
gains, realized losses and fair value for trading securities
held at December 31, 2009 were as follows:
Purchase |
Realized |
Realized |
Fair |
|||||||||||||
Amount | 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 June 30, 2010 and December 31, 2009
were as follows:
Gross |
Gross |
|||||||||||||||
Amortized |
Unrealized |
Unrealized |
Fair |
|||||||||||||
Cost | Holding Gains | Holding Losses | Value | |||||||||||||
June 30, 2010:
|
||||||||||||||||
Cash equivalents
|
$ | 468 | $ | | $ | | $ | 468 | ||||||||
Certificates of deposit, maturing within one year
|
5,000 | | | 5,000 | ||||||||||||
Certificates of deposit, maturing between one year and five years
|
6,150 | | | 6,150 | ||||||||||||
Money market funds
|
25,600 | | | 25,600 | ||||||||||||
Available-for-sale
securities:
|
||||||||||||||||
Debt securities of government sponsored entities, maturing
within one year
|
10,423 | 65 | 2 | 10,486 | ||||||||||||
Debt securities of government sponsored entities, maturing
between one year and five years
|
49,117 | 302 | 9 | 49,410 | ||||||||||||
U.S. Treasury securities, maturing within one year
|
17,547 | 55 | | 17,602 | ||||||||||||
U.S. Treasury securities, maturing between one year and five
years
|
601 | 74 | | 675 | ||||||||||||
Total investments on deposit
|
$ | 114,906 | $ | 496 | $ | 11 | $ | 115,391 | ||||||||
Gross |
Gross |
|||||||||||||||
Amortized |
Unrealized |
Unrealized |
Fair |
|||||||||||||
Cost | Holding Gains | Holding Losses | Value | |||||||||||||
December 31, 2009:
|
||||||||||||||||
Cash equivalents
|
$ | 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 investments on deposit
|
$ | 102,388 | $ | 444 | $ | 52 | $ | 102,780 | ||||||||
14
AMERIGROUP
Corporation And Subsidiaries
Notes to
Condensed Consolidated Financial
Statements (Continued)
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 time
that individual securities have been in a continuous unrealized
loss position, at June 30, 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 | |||||||||||||||||||
June 30, 2010:
|
||||||||||||||||||||||||
Auction rate securities
|
$ | | $ | | | $ | 31,044 | $ | 2,606 | 9 | ||||||||||||||
Corporate bonds
|
39,180 | 665 | 21 | | | | ||||||||||||||||||
Debt securities of government sponsored entities
|
48,671 | 23 | 12 | | | | ||||||||||||||||||
Federally insured corporate bond
|
| | | 4,060 | 7 | 1 | ||||||||||||||||||
Municipal bonds
|
56,842 | 156 | 19 | | | | ||||||||||||||||||
Total temporarily impaired securities
|
$ | 144,693 | $ | 844 | 52 | $ | 35,104 | $ | 2,613 | 10 | ||||||||||||||
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 June 30, 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 any of these
securities prior to maturity or recovery 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 as of June 30, 2010.
5. | Market Updates |
Medicare
Advantage
In June 2010, the Company received approval from the Centers for
Medicare and Medicaid Services (CMS) to add Tarrant
County to its Medicare Advantage service area in Texas, and to
add Rutherford County to its
15
AMERIGROUP
Corporation And Subsidiaries
Notes to
Condensed Consolidated Financial
Statements (Continued)
Medicare Advantage service area in Tennessee. In addition, CMS
approved expansion of the Companys Medicare Advantage
plans to cover traditional Medicare beneficiaries in addition to
the existing special needs beneficiaries already covered in
Texas, Tennessee and New Mexico. These approvals allow the
Company to begin serving Medicare members in the expanded areas
effective January 1, 2011. The Company can give no
assurance that its entry into these service areas will be
favorable to its results of operations, financial position or
cash flows in future periods.
Texas
In May 2010, the Texas Health and Human Services Commission
announced that the Companys Texas health plan was selected
through a competitive procurement to expand health care coverage
to seniors and people with disabilities in the six county
service area surrounding Fort Worth, Texas. Pending final
contract negotiations, the Company anticipates an operational
start date in early 2011. AMERIGROUP Texas, Inc. will be one of
two health plans serving approximately 30,000 STAR+PLUS members
in that service area. 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.
Tennessee
On March 1, 2010, the Companys Tennessee health plan
began offering long-term care (LTC) services to
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. 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.
South
Carolina
On March 1, 2009, the Companys South Carolina
subsidiary, AMERIGROUP Community Care of South Carolina, Inc.,
sold its rights to serve Medicaid members pursuant to the
contract with the State of South Carolina for $5,810, or $3,521,
net of the related tax effect, and recorded a gain, which is
included in investment income and other revenues in the
accompanying Condensed Consolidated Income Statements for the
six months ended June 30, 2009. Certain claims run-out and
transition obligations exist that continue in 2010. Additional
costs incurred to discontinue operations in South Carolina were
not material.
6. | Summary of Goodwill and Acquired Intangible Assets |
On March 1, 2010, the Companys New Jersey health plan
acquired the Medicaid contract rights and rights under certain
provider agreements of University Health Plans, Inc.
(UHP) for strategic reasons. The purchase price of
$13,420 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.
16
AMERIGROUP
Corporation And Subsidiaries
Notes to
Condensed Consolidated Financial
Statements (Continued)
The
year-to-date
change in the carrying amount of goodwill as a result of the
acquisition is as follows:
Changes in the |
||||
Carrying |
||||
Amount of |
||||
Goodwill | ||||
Balance at December 31, 2009:
|
||||
Goodwill
|
$ | 258,155 | ||
Accumulated impairment losses
|
(8,879 | ) | ||
Net goodwill balance at December 31, 2009
|
249,276 | |||
Goodwill acquired during the six months ended June 30, 2010
|
11,220 | |||
Balance at June 30, 2010:
|
||||
Goodwill
|
269,375 | |||
Accumulated impairment losses
|
(8,879 | ) | ||
Net goodwill balance at June 30, 2010
|
$ | 260,496 | ||
Other acquired intangible assets, included in other long-term
assets in the accompanying Condensed Consolidated Balance
Sheets, at June 30, 2010 and December 31, 2009 are as
follows:
June 30, 2010 | December 31, 2009 | |||||||||||||||
Gross Carrying |
Accumulated |
Gross Carrying |
Accumulated |
|||||||||||||
Amount | Amortization | Amount | Amortization | |||||||||||||
Membership rights and provider contracts
|
$ | 28,171 | $ | (25,797 | ) | $ | 25,971 | $ | (25,517 | ) | ||||||
Non-compete agreements and trademarks
|
946 | (946 | ) | 1,596 | (1,596 | ) | ||||||||||
$ | 29,117 | $ | (26,743 | ) | $ | 27,567 | $ | (27,113 | ) | |||||||
During the three months ended June 30, 2010, the Company
sold certain trademarks for $4,000. The carrying value net of
accumulated amortization of these trademarks was zero.
7. | Convertible Senior Notes |
As of June 30, 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
$240,427. The unamortized discount of $19,573 will continue to
be amortized over the remaining period until maturity.
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 and 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. The convertible note hedges and warrants
are separate transactions which do 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 1,049,827 shares of its
common stock and placed them into treasury during the three
months ended June 30, 2010 at an aggregate cost of $36,694.
During the six months ended June 30, 2010, the Company
repurchased and placed into treasury 1,300,407 shares of
its common stock at an aggregate cost of $43,676. As of
June 30, 2010, the Company had remaining authorization to
purchase up to an additional $119,171 of shares of its common
stock under this ongoing share repurchase program.
17
AMERIGROUP
Corporation And Subsidiaries
Notes to
Condensed Consolidated Financial
Statements (Continued)
9. Commitments
and Contingencies
Letter
of Credit
Effective July 1, 2009, the Company caused a collateralized
irrevocable standby letter of credit to be issued 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 Medicaid contracts with the Florida
Agency for Health Care Administration (AHCA),
managed care organizations are required to have a process to
identify members who are pregnant or the newborns of 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 in each and every instance 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, AMERIGROUP Florida, Inc. 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 AMERIGROUP Florida, Inc.s response, they had
determined that AMERIGROUP Florida, Inc. did not comply with the
Unborn Activation Process and assessed fines 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 to the Florida
Deputy Secretary of Medicaid that the failure to utilize the
Unborn Activation Process for each and every newborn could
result in fines. In February 2010, AMERIGROUP Florida, Inc.
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 fine amount which was not materially different from the
prior letters.
On May 26, 2010, the Florida Deputy Secretary of Medicaid
denied AMERIGROUP Florida, Inc.s contract interpretation
appeal. Following the denial, in June 2010, AMERIGROUP Florida,
Inc. received another series of letters from AHCA assessing
fines in the amount of two thousand, five hundred dollars per
newborn for an aggregate amount of approximately $6,000.
The Company is evaluating its appeal rights and believes that
AMERIGROUP Florida, Inc. has substantial defenses to the claims
asserted by AHCA and will defend against the imposition of the
claims vigorously. The accompanying Condensed Consolidated
Financial Statements reflect the Companys best estimate of
its liability related to this issue as of June 30, 2010.
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.
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
18
AMERIGROUP
Corporation And Subsidiaries
Notes to
Condensed Consolidated Financial
Statements (Continued)
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.
Memorial Hermann subsequently filed another Petition asserting
similar claims and seeking damages of approximately $3,000.
AMERIGROUP Texas, Inc. has denied that it is indebted to
Memorial Hermann as alleged in the petitions.
On July 29, 2010, AMERIGROUP Texas, Inc. and Memorial
Hermann reached a confidential settlement resolving and
releasing all claims related to the aforementioned cases which
has been reflected in the accompanying Condensed Consolidated
Financial Statements. The settlement was not material to our
financial position, results of operations or liquidity.
Other
Litigation
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 on the investment portfolio
as follows:
Three Months Ended |
Six Months Ended |
|||||||||||||||
June 30, | June 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Net income
|
$ | 67,213 | $ | 49,599 | $ | 109,395 | $ | 86,508 | ||||||||
Other comprehensive income:
|
||||||||||||||||
Unrealized gain on
available-for-sale
securities, net of tax
|
702 | 453 | 944 | 296 | ||||||||||||
Comprehensive income
|
$ | 67,915 | $ | 50,052 | $ | 110,339 | $ | 86,804 | ||||||||
11. | Claims Payable |
The following table presents the components of the change in
claims payable for the periods presented:
Six Months Ended |
Twelve Months Ended |
|||||||
June 30, 2010 | December 31, 2009 | |||||||
Claims payable, beginning of period
|
$ | 529,036 | $ | 536,107 | ||||
Health benefits expense incurred during the period:
|
||||||||
Related to current year
|
2,408,166 | 4,492,590 | ||||||
Related to prior years
|
(90,149 | ) | (85,317 | ) | ||||
Total incurred
|
2,318,017 | 4,407,273 | ||||||
Health benefits payments during the period:
|
||||||||
Related to current year
|
1,960,389 | 4,007,789 | ||||||
Related to prior years
|
361,061 | 406,555 | ||||||
Total payments
|
2,321,450 | 4,414,344 | ||||||
Claims payable, end of period
|
$ | 525,603 | $ | 529,036 | ||||
19
AMERIGROUP
Corporation And Subsidiaries
Notes to
Condensed Consolidated Financial
Statements (Continued)
Health benefits expense incurred during both periods was 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.
12. | Income Taxes |
Income tax expense for the three and six months ended
June 30, 2010 was $39,570 and $65,870, respectively, as
compared to an income tax benefit of $6,225 for the three months
ended June 30, 2009 and income tax expense of $16,300 for
the six months ended June 30, 2009. Income tax expense for
the three and six months ended June 30, 2009 was impacted
by the Company reaching agreement with the Internal Revenue
Service regarding the tax deductible portion of the qui tam
litigation settlement. This agreement resulted in a tax
benefit of approximately $22,400 for the three and six months
ended June 30, 2009.
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 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, as updated by Part II
Other Information Item 1A.
Risk Factors of the Companys Quarterly
Report on
Form 10-Q
for the quarter ended March 31, 2010, filed with the SEC on
May 4, 2010, and Part II Other
Information Item 1A.
Risk Factors, herein, for a discussion of
risk factors. Given these risks and uncertainties, we can give
no assurance 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 second quarter of 2010 include:
| Membership increased by 181,000 members, or 10.5%, to 1,904,000 members as of June 30, 2010 compared to 1,723,000 members as of June 30, 2009; | |
| Total revenues of $1.4 billion for the second quarter of 2010, an 11.3% increase over the second quarter of 2009; | |
| Health benefits ratio (HBR) of 82.3% of premium revenues for the second quarter of 2010 compared to 85.9% in the second quarter of 2009; | |
| Selling, general and administrative expense (SG&A) ratio of 7.5% of total revenues for the second quarter of 2010, unchanged from the second quarter of 2009; | |
| Cash provided by operations was $109.6 million for the six months ended June 30, 2010; | |
| Unregulated cash and investments of $239.5 million as of June 30, 2010; | |
| We repurchased 1,049,827 shares of common stock for approximately $36.7 million during the second quarter of 2010 under our ongoing stock repurchase program; and | |
| In May 2010, the Texas Health and Human Services Commission announced that our Texas health plan was selected through a competitive procurement to expand health care coverage to seniors and people with disabilities in the six county service area surrounding Fort Worth, Texas. Pending final contract negotiations, we anticipate an operational start date in early 2011. |
Our results for the three and six months ended June 30,
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, increases in premium
revenue reflect the impact of a benefit expansion to provide
long-term care (LTC) services to eligible members in
Tennessee, the impact of our first quarter 2010 acquisition in
New Jersey and the net effect of premium rate changes from the
prior year commensurate with annual contract renewals. Health
benefits expense for the three and six months ended
June 30, 2010 reflects moderating cost trends for current
and prior periods, the latter of which generated revisions of
estimates related to prior periods.
Health
Care Reform
On March 23, 2010, the Patient Protection and Affordable
Care Act was signed into law and on March 30, 2010, the
Health Care and Education Reconciliation Act of 2010 was signed
into law (collectively, the Acts). The Acts provide
comprehensive changes to the U.S. health care system, which will
be phased in at various stages over the next several years.
Among other things, 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
22
expansion of the Medicaid program beginning in 2014. Funding for
the expanded coverage will initially come largely from the
Federal government.
We do not expect the Acts to have a material effect on our
results of operations, liquidity or cash flows in 2010; however,
we are currently evaluating the provisions of the Acts and
believe that the Acts may provide us with significant
opportunities for growth in our existing markets and,
potentially, in new markets in the future. 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 that may affect our
business. 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. 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.
The Acts also 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
Medicare
Advantage
In June 2010, we received approval from the Centers for Medicare
and Medicaid Services (CMS) to add Tarrant County to
our Medicare Advantage service area in Texas, and to add
Rutherford County to our Tennessee Medicare Advantage service
areas. In addition, CMS approved expansion of our Medicare
Advantage plans to cover traditional Medicare beneficiaries in
addition to the existing special needs beneficiaries already
covered in Texas, Tennessee and New Mexico. These approvals
allow us to begin serving Medicare members in the expanded areas
effective January 1, 2011. We can give no assurance that
our entry into these service areas will be favorable to our
results of operations, financial position or cash flows in
future periods.
Texas
In May 2010, the Texas Health and Human Services Commission
announced that our Texas health plan was selected through a
competitive procurement to expand health care coverage to
seniors and people with disabilities in the six county service
area surrounding Fort Worth, Texas. Pending final contract
negotiations, we anticipate an operational start date in early
2011. We will be one of two health plans serving approximately
30,000 STAR+PLUS members in that service area. 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.
Tennessee
On March 1, 2010, our Tennessee health plan began offering
LTC services to 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. 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.
23
New
Jersey
On March 1, 2010, our New Jersey health plan completed the
previously announced acquisition of the Medicaid contract rights
and rights under certain provider agreements of University
Health Plans, Inc. (UHP) for $13.4 million. At
June 30, 2010, we served approximately 145,000 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.
Contingencies
Florida
Medicaid Contract Dispute
Under the terms of the Medicaid contracts with the Florida
Agency for Health Care Administration (AHCA),
managed care organizations are required to have a process to
identify members who are pregnant or the newborns of 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 in each and every instance and, as a result, AHCA had
paid approximately $10.6 million 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. It is our belief that AHCA and the IG sent similar
letters to the other Florida Medicaid managed care organizations
during this time period.
In October 2008, AMERIGROUP Florida, Inc. 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 AMERIGROUP Florida, Inc.s response, they had
determined that AMERIGROUP Florida, Inc. did not comply with the
Unborn Activation Process and assessed fines against AMERIGROUP
Florida, Inc. in the amount of two thousand, five hundred
dollars per newborn for an aggregate amount of approximately
$6.0 million. 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 to the Florida
Deputy Secretary of Medicaid that the failure to utilize the
Unborn Activation Process for each and every newborn could
result in fines. In February 2010, AMERIGROUP Florida, Inc.
received another series of letters from the IG and AHCA revising
the damages from $10.6 million to $3.2 million 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 fine amount which was not materially different from the
prior letters.
On May 26, 2010, the Florida Deputy Secretary of Medicaid
denied AMERIGROUP Florida, Inc.s contract interpretation
appeal. Following the denial, in June 2010, AMERIGROUP Florida,
Inc. received another series of letters from AHCA assessing
fines in the amount of two thousand, five hundred dollars per
newborn for an aggregate amount of approximately
$6.0 million. We are evaluating our appeal rights and
believe that AMERIGROUP Florida, Inc. has substantial defenses
to the claims asserted by AHCA and will defend against the
imposition of the claims vigorously. The accompanying Condensed
Consolidated Financial Statements reflect our best estimate of
our liability related to this issue as of June 30, 2010.
However, there can be no assurances that the ultimate outcome of
this matter will not have a material adverse effect on the our
financial position, results of operations or liquidity.
24
Results
of Operations
The following table sets forth selected operating ratios. All
ratios are shown as a percentage of total revenues with the
exception of the HBR. The HBR is being 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 |
Six Months Ended |
|||||||||||||||
June 30, | June 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Premium revenue
|
99.4 | % | 99.5 | % | 99.5 | % | 99.3 | % | ||||||||
Investment income and other
|
0.6 | 0.5 | 0.5 | 0.7 | ||||||||||||
Total revenues
|
100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||
Health benefits
|
82.3 | % | 85.9 | % | 82.9 | % | 84.8 | % | ||||||||
Selling, general and administrative expenses
|
7.5 | % | 7.5 | % | 8.0 | % | 8.2 | % | ||||||||
Income before income taxes
|
7.4 | % | 3.4 | % | 6.2 | % | 4.1 | % | ||||||||
Net income
|
4.7 | % | 3.8 | % | 3.9 | % | 3.4 | % |
Three and
Six Months Ended June 30, 2010 Compared to Three and Six
Months Ended June 30, 2009
Summarized comparative financial information for the three and
six months ended June 30, 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 |
Six Months |
|||||||||||||||||||||||
Three Months Ended |
Six Months Ended |
Ended |
Ended |
|||||||||||||||||||||
June 30, | June 30, | June 30, | June 30, | |||||||||||||||||||||
% Change |
% Change |
|||||||||||||||||||||||
2010 | 2009 | 2010 | 2009 | 2010-2009 | 2010-2009 | |||||||||||||||||||
Revenues:
|
||||||||||||||||||||||||
Premium
|
$ | 1,428.9 | $ | 1,284.9 | $ | 2,795.6 | $ | 2,502.3 | 11.2 | % | 11.7 | % | ||||||||||||
Investment income and other
|
8.6 | 6.5 | 13.5 | 18.9 | 32.5 | % | (28.4 | )% | ||||||||||||||||
Total revenues
|
1,437.5 | 1,291.4 | 2,809.2 | 2,521.2 | 11.3 | % | 11.4 | % | ||||||||||||||||
Expenses:
|
||||||||||||||||||||||||
Health benefits
|
1,176.4 | 1,103.2 | 2,318.0 | 2,122.5 | 6.6 | % | 9.2 | % | ||||||||||||||||
Selling, general and administrative
|
108.2 | 96.3 | 225.6 | 206.7 | 12.4 | % | 9.2 | % | ||||||||||||||||
Premium tax
|
33.2 | 34.6 | 64.6 | 62.7 | (4.2 | )% | 3.0 | % | ||||||||||||||||
Depreciation and amortization
|
8.9 | 9.7 | 17.6 | 18.0 | (8.0 | )% | (2.2 | )% | ||||||||||||||||
Interest
|
4.0 | 4.2 | 8.0 | 8.5 | (5.0 | )% | (5.4 | )% | ||||||||||||||||
Total expenses
|
1,330.7 | 1,248.0 | 2,633.9 | 2,418.4 | 6.6 | % | 8.9 | % | ||||||||||||||||
Income before income taxes
|
106.8 | 43.4 | 175.3 | 102.8 | 146.2 | % | 70.5 | % | ||||||||||||||||
Income tax expense (benefit)
|
39.6 | (6.2 | ) | 65.9 | 16.3 | 735.7 | % | 304.1 | % | |||||||||||||||
Net income
|
$ | 67.2 | $ | 49.6 | $ | 109.4 | $ | 86.5 | 35.5 | % | 26.5 | % | ||||||||||||
Diluted net income per share
|
$ | 1.31 | $ | 0.94 | $ | 2.14 | $ | 1.63 | 39.4 | % | 31.3 | % | ||||||||||||
Premium
Revenue
Premium revenue for the three months ended June 30, 2010
increased $144.0 million, or 11.2%, to $1.4 billion
from $1.3 billion for the three months ended June 30,
2009. For the six months ended June 30, 2010, premium
revenue increased $293.3 million, or 11.7%, to
$2.8 billion from $2.5 billion for the six months
ended June 30, 2009. The increase for the three and six
months ended June 30, 2010 compared to the three and six
months ended
25
June 30, 2009 was due in part to significant increases in
full-risk membership across the majority of our existing
products and markets. These membership increases are partially
due to high 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 our entry into the Tennessee TennCare CHOICES program in
March 2010 and our acquisition of the Medicaid contract rights
from UHP in the State of New Jersey, effective March 2010.
Premium revenue for the three and six months ended June 30,
2010 was also favorably impacted by the effect of premium rate
and mix changes compared to prior periods and negatively
impacted by our decision to exit the aged, blind and disabled
(ABD) program in the Southwest region of Ohio as
well as the States election to remove pharmacy coverage
from the benefit package, both effective February 2010.
The increase for the six months ended June 30, 2010
compared to the six months ended June 30, 2009 is further
attributable to the final phase of the statewide rollout of New
Mexicos Coordination of Long-Term Services program in
April 2009 to the Southeast and Northeast regions of New Mexico.
Membership
The following table sets forth the approximate number of members
we served in each state as of June 30, 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.
June 30, | ||||||||
2010 | 2009 | |||||||
Texas(1)
|
539,000 | 476,000 | ||||||
Florida
|
259,000 | 264,000 | ||||||
Georgia
|
259,000 | 220,000 | ||||||
Maryland
|
202,000 | 183,000 | ||||||
Tennessee
|
199,000 | 195,000 | ||||||
New Jersey
|
145,000 | 112,000 | ||||||
New York
|
111,000 | 111,000 | ||||||
Nevada
|
72,000 | 53,000 | ||||||
Ohio
|
58,000 | 60,000 | ||||||
Virginia
|
39,000 | 29,000 | ||||||
New Mexico
|
21,000 | 20,000 | ||||||
Total
|
1,904,000 | 1,723,000 | ||||||
(1) | Membership includes approximately 14,000 and 13,000 members as of June 30, 2010 and 2009, respectively, under an administrative services only (ASO) contract that began June 1, 2009. |
As of June 30, 2010, we served approximately 1,904,000
members, reflecting an increase of approximately 181,000
members, or 10.5%, compared to June 30, 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. In addition, 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.
26
The following table sets forth the approximate number of our
members who receive benefits under our products as of
June 30, 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.
June 30, | ||||||||
Product | 2010 | 2009 | ||||||
TANF
(Medicaid)(1)
|
1,337,000 | 1,189,000 | ||||||
CHIP
|
274,000 | 262,000 | ||||||
ABD
(Medicaid)(2)
|
204,000 | 205,000 | ||||||
FamilyCare (Medicaid)
|
71,000 | 54,000 | ||||||
Medicare Advantage
|
18,000 | 13,000 | ||||||
Total
|
1,904,000 | 1,723,000 | ||||||
(1) | Temporary Assistance for Needy Families. | |
(2) | Membership includes approximately 14,000 and 13,000 members as of June 30, 2010 and 2009, respectively, under an ASO contract in Texas. |
Investment
income and other revenue
Investment income and other revenue was $8.6 million and
$6.5 million for the three months ended June 30, 2010
and 2009, respectively, and was $13.5 million and
$18.9 million for the six months ended June 30, 2010
and 2009, respectively.
Our investment portfolio is comprised of
fixed-income
securities and cash and cash equivalents, which generated
investment income totaling $4.8 million and
$9.1 million for the three and six months ended
June 30, 2010, respectively, compared to $6.1 million
and $12.5 million for the three and six months ended
June 30, 2009, respectively. The decrease in investment
income is primarily a result of decreased rates of return as our
fixed-income investments mature and are reinvested in
investments with lower returns due to current market rates. We
anticipate that our effective yield will remain at or below the
current rate as of June 30, 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 can materially affect our results
of operations or liquidity in future periods.
Included in other revenue for the three and six months ended
June 30, 2010 is a $4.0 million gain on the sale of a
trademark. Included in other revenue for the six months ended
June 30, 2009 is a $5.8 million gain on the sale of
the South Carolina contract rights.
Health
benefits expenses
Expenses relating to health benefits for the three months ended
June 30, 2010 increased $73.2 million, or 6.6%, to
$1.2 billion compared to $1.1 billion for the three
months ended June 30, 2009. Our HBR decreased to 82.3% for
the three months ended June 30, 2010 compared to 85.9% for
the same period of the prior year. For the six months ended
June 30, 2010, expenses related to health benefits
increased $195.5 million, or 9.2%, to $2.3 billion
from $2.1 billion for the six months ended June 30,
2009. Our HBR decreased to 82.9% for the six months ended
June 30, 2010 compared to 84.8% for the same period of the
prior year.
Favorable reserve development due to revisions to estimates for
prior periods, net of associated accruals for experience rebate
in Texas, applicable medical loss ratio floors and other gain
sharing arrangements with our state customers, was the primary
driver of the decrease in HBR in both periods. These revisions
primarily resulted from the moderation of cost trends compared
to the trends expected when developing our estimates for prior
periods. 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. HBR was also favorably impacted by the net effect of
premium rate changes from the prior year commensurate with
annual contract renewals.
27
The following table presents the components of the change in
claims payable for the periods presented (in thousands):
Six Months Ended |
Twelve Months Ended |
|||||||
June 30, 2010 | December 31, 2009 | |||||||
Claims payable, beginning of period
|
$ | 529,036 | $ | 536,107 | ||||
Health benefits expense incurred during the period:
|
||||||||
Related to current year
|
2,408,166 | 4,492,590 | ||||||
Related to prior years
|
(90,149 | ) | (85,317 | ) | ||||
Total incurred
|
2,318,017 | 4,407,273 | ||||||
Health benefits payments during the period:
|
||||||||
Related to current year
|
1,960,389 | 4,007,789 | ||||||
Related to prior years
|
361,061 | 406,555 | ||||||
Total payments
|
2,321,450 | 4,414,344 | ||||||
Claims payable, end of period
|
$ | 525,603 | $ | 529,036 | ||||
Health benefits expense incurred during both periods was 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 June 30, 2010
increased $11.9 million, or 12.4%, to $108.2 million
from $96.3 million for the three months ended June 30,
2009. For the six months ended June 30, 2010, SG&A
increased 9.2%, to $225.6 million from $206.7 million
for the six months ended June 30, 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 and six
months ended June 30, 2010 as well as moderate wage,
benefits and workforce increases over the prior year.
Our SG&A to total revenues ratio was 7.5% for the three
months ended June 30, 2010 and 2009, respectively. Our
SG&A to total revenues ratio was 8.0% and 8.2% for the six
months ended June 30, 2010 and 2009, respectively. The
increase in SG&A expenses for the three and six months
ended June 30, 2010 compared to the three and six months
ended June 30, 2009 were primarily offset by leverage
gained through growth in total revenues.
Premium
tax expense
Premium taxes were $33.2 million and $34.6 million for
the three months ended June 30, 2010 and 2009, respectively
and $64.6 million and $62.7 million for the six months
ended June 30, 2010 and 2009, respectively. Premium tax
expense in both periods was impacted by a premium tax rate
increase in the State of Tennessee effective July 2009. This
increase was largely offset by the termination of premium tax in
the State of Georgia in October 2009. Effective July 1,
2010, premium taxes in the State of Georgia will be reinstated
as a result of recently enacted legislation. Additionally,
premium tax expense for the three months ended June 30,
2009 was elevated due to the retroactive adoption of premium tax
in the State of New York and one-time adjustments in New Mexico
not recurring in the current year. As of June 30, 2010,
premium tax rates ranged from 1.75% to 7.50% which includes
other premium related surcharges as defined in certain of our
markets.
Provision
for income taxes
Income tax expense for the three months ended June 30, 2010
was $39.6 million with an effective tax rate of 37.1%
compared to an income tax benefit of $6.2 million for the
three months ended June 30, 2009 with an effective tax rate
of (14.4)%. Income tax expense for the six months ended
June 30, 2010 and 2009 was $65.9 million and
$16.3 million, respectively, with an effective tax rate of
37.6% and 15.9%, respectively. The effective tax rates for the
three and six months ended June 30, 2009 were impacted by
our agreement reached with the Internal Revenue
28
Service regarding the tax deductible portion of the 2008 qui
tam litigation settlement. Excluding the non-recurring
benefit of the tax settlement, the effective tax rates for the
three and six months ended June 30, 2010 as compared to the
three and six months ended June 30, 2009 decreased due to a
reduction in the blended state income tax rate.
Significant
income tax uncertainties
We continue to evaluate 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 of $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.
Our primary sources of liquidity are cash and cash equivalents,
short- and long-term investments, and cash flows from
operations. As of June 30, 2010, we had cash and cash
equivalents of $409.8 million, short and long-term
investments of $994.9 million and restricted investments on
deposit for licensure of $115.4 million. Cash, cash
equivalents, and investments which are unregulated totaled
$239.5 million at June 30, 2010.
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 1,049,827 shares of our
common stock at an aggregate cost of $36.7 million and
placed them into treasury during the three months ended
June 30, 2010. During the six months ended June 30,
2010, we repurchased and placed into treasury
1,300,407 shares of our common stock at an aggregate cost
of $43.7 million. As of June 30, 2010, we had
remaining authorization to purchase up to an additional
$119.2 million of shares of our common stock under the
ongoing share repurchase program.
Cash and
Investments
Cash provided by operations was $109.6 million for the six
months ended June 30, 2010 compared to $34.0 million
for the six months ended June 30, 2009. The increase in
cash flows was primarily a result of an increase in cash flows
generated from working capital changes and an increase in net
income. Cash used in operating activities for working capital
changes was $28.8 million for the six months ended
June 30, 2010 compared to cash used in operating activities
for working capital changes of $79.5 million for the six
months ended June 30, 2009. The decrease in cash used in
operating activities for working capital changes primarily
resulted from the impact of variations in the accruals for and
payments of variable compensation, the timing of income tax
payments, changes in the experience rebate accrual under our
contract with the state of Texas and the increase in collections
of premium receivables. These impacts were offset in part by the
impact of changes in claims payable due to timing of payments
and changes in unearned revenues due to timing of receipts from
government agencies.
29
Cash used in investing activities was $186.4 million for
the six months ended June 30, 2010 compared to
$86.3 million for the six months ended June 30, 2009.
The increase in cash used in investing activities is due
primarily to an increase in the net purchases of investments of
$87.1 million during the six months ended June 30,
2010 compared to the six months ended June 30, 2009 as well
as our acquisition of the Medicaid contract rights from UHP for
$13.4 million in March 2010 to provide services to
additional members in the State of New Jersey. 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 six months ended June 30, 2010, total
capital expenditures were $13.5 million.
Our investment policies are designed to preserve capital,
provide liquidity and maximize total return on invested assets.
As of June 30, 2010, our investment portfolio consisted
primarily of fixed-income securities with a weighted average
maturity of approximately twenty months. 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, U.S. Treasury securities, money market funds and
municipal bonds. 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 June 30, 2010 was
approximately 1.19%. As of June 30, 2010, we had total cash
and investments of approximately $1.5 billion.
The following table shows the types, percentages and average
Standard and Poors (S&P) ratings of our
holdings within our investment portfolio at June 30, 2010:
Average S&P |
||||||||
% | Rating | |||||||
Auction rate securities
|
2.0 | % | AAA | |||||
Cash, bank deposits and commercial paper
|
4.8 | % | AAA | |||||
Certificates of deposit
|
7.5 | % | AAA | |||||
Corporate bonds
|
15.9 | % | A+ | |||||
Debt obligations of government sponsored entities, Federally
insured corporate bonds and U.S. Treasury securities
|
34.1 | % | AAA | |||||
Money market funds
|
18.3 | % | AAA | |||||
Municipal bonds
|
17.4 | % | AA+ | |||||
100.0 | % | AA+ | ||||||
As of June 30, 2010, $31.0 million of our investments
were comprised of securities with an auction reset feature
(auction rate securities) issued by student loan
corporations established by various state governments. Since
early 2008, auctions for these auction rate securities have
failed, significantly decreasing our ability to liquidate these
securities prior to maturity. As we cannot predict the timing of
future successful auctions, if any, our auction rate securities
are classified as
available-for-sale
and are carried at fair value within 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 believe that the $2.6 million net unrealized
loss position that remains at June 30, 2010 on our auction
rate securities portfolio is primarily due to liquidity concerns
and not the creditworthiness of the underlying issuers. 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. During the six
months ended June 30, 2010, certain investments in auction
rate securities were sold or called for net proceeds of
$28.2 million, resulting in a $0.9 million net
realized gain recorded in earnings, excluding the loss on the
forward contract expiration of $1.2 million related to
certain sales of auction rate securities.
Cash used in financing activities was $19.3 million for the
six months ended June 30, 2010, compared to
$56.5 million for the six months ended June 30, 2009.
The decrease in cash used in financing activities of
$37.2 million is primarily due to repayments during the
first six months of 2009 of $26.3 million of borrowings
under our previously maintained Credit Agreement, which was
terminated effective August 21, 2009. The decrease in cash
used in financing activities was further attributable to an
increase in the change in bank overdrafts of $15.9 million,
partially offset by an increase in treasury share repurchases of
$15.1 million.
We believe that existing cash and investment balances and cash
flows from operations will be sufficient to support continuing
operations, capital expenditures and our growth strategy for at
least 12 months. Our
debt-to-total
30
capital ratio at June 30, 2010 was 18.4%. The financial
markets have experienced periods of volatility and disruption.
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.
Convertible
Senior Notes
As of June 30, 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. 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 in
right of payment equally with all of our existing and future
senior debt and senior to all of our subordinated debt. 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, and 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 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. 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 do not affect holders rights
under the 2.0% Convertible Senior Notes.
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 access to
these markets may be limited as our results of operations cannot
be predicted. 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.
31
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 June 30,
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.
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
June 30, 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 June 30, 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-income 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. The financial
markets have experienced periods of volatility and disruption,
which have impacted liquidity and valuations of many financial
instruments. While we do not believe we have experienced
material adverse changes in the value of our cash, cash
equivalents and investments, 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 June 30, 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,
U.S. Treasury securities, money market funds and municipal
bonds.
The fair value of the fixed-income 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-income 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 June 30, 2010, an increase of 1% in interest
rates on securities with maturities greater than one year would
reduce the fair value of those securities by approximately
$19.0 million. Conversely, a reduction of 1% in interest
rates on securities with maturities greater than one year would
increase their fair value by approximately $13.0 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
32
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 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 second 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.
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. There has been no material
change in our risk factors as previously disclosed in
Part I, Item 1.A., Risk Factors, of the Companys
Annual Report on
Form 10-K
for the year ended December 31, 2009 as filed with the SEC
on February 22, 2010, as updated by Part II,
Item 1A of the Companys Quarterly Report on
Form 10-Q
for the quarter ended March 31, 2010, filed with the SEC on
May 4, 2010.
33
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 June 30,
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) | ||||||||||||
April 1 April 30,
2010(3)
|
87,940 | $ | 34.87 | 67,252 | $ | 153,549,288 | ||||||||||
May 1 May 31, 2010
|
868,312 | 34.91 | 868,312 | 123,240,410 | ||||||||||||
June 1 June 30, 2010
|
114,263 | 35.61 | 114,263 | 119,171,402 | ||||||||||||
Total
|
1,070,515 | $ | 34.98 | 1,049,827 | $ | 119,171,402 | ||||||||||
(1) | Shares purchased during the second 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, equity award 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 April 2010, certain employees elected to tender 20,688 shares 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.
34
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, Chief Executive
Officer and President
Date: August 4, 2010
By: |
/s/ James
W. Truess
|
James W. Truess
Chief Financial Officer and
Executive Vice President
Date: August 4, 2010
35
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). | ||
10 | .1 | Amendment No. 5 to the Contract Risk Agreement between the State of Tennessee and AMERIGROUP Tennessee, Inc. effective March 1, 2010, (incorporated by reference to exhibit 10.1 to our Current Report on Form 8-K filed on May 26, 2010). | ||
10 | .2 | AMERIGROUP Corporation Amended and Restated Form 2005 Executive Deferred Compensation Plan between AMERIGROUP Corporation and Executive Associates dated May 15, 2010, (incorporated by reference to exhibit 10.1 to our Current Report on Form 8-K filed on May 18, 2010). | ||
10 | .3 | AMERIGROUP Corporation Amended and Restated Form 2005 Non-Employee Director Deferred Compensation Plan between AMERIGROUP Corporation and Non-Executive Associates dated May 15, 2010, (incorporated by reference to exhibit 10.2 to our Current Report on Form 8-K filed on May 18, 2010). | ||
31 | .1 | Certification of Chief Executive Officer pursuant to Section 302 of Sarbanes-Oxley Act of 2002, dated August 4, 2010. | ||
31 | .2 | Certification of Chief Financial Officer pursuant to Section 302 of Sarbanes-Oxley Act of 2002, dated August 4, 2010. | ||
32 | Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of Sarbanes-Oxley Act of 2002, dated August 4, 2010. | |||
101 | .INS* | XBRL Instance Document. | ||
101 | .SCH* | XBRL Taxonomy Extension Schema Document. | ||
101 | .CAL* | XBRL Taxonomy Extension Calculation Linkbase Document. |
36
Exhibit |
||||
Number | Description | |||
101 | .DEF* | XBRL Taxonomy Extension Definition Linkbase Document. | ||
101 | .LAB* | XBRL Taxonomy Extension Label Linkbase Document. | ||
101 | .PRE* | XBRL Taxonomy Extension Presentation Linkbase Document. |
* | In accordance with Rule 406T of Regulation S-T, the information in these exhibits is furnished and deemed not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Exchange Act of 1934, and otherwise is not subject to liability under these sections and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended, except as expressly set forth by specific reference in such filing. |
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