Attached files
file | filename |
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EX-32 - EX-32 - AMERIGROUP CORP | w79852exv32.htm |
EX-10.1 - EX-10.1 - AMERIGROUP CORP | w79852exv10w1.htm |
EX-31.2 - EX-31.2 - AMERIGROUP CORP | w79852exv31w2.htm |
EX-31.1 - EX-31.1 - AMERIGROUP CORP | w79852exv31w1.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 September 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 Web site, if
any, every Interactive Data File required to be submitted and
posted pursuant to Rule 405 of
Regulation S-T
(§ 232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant
was required to submit and post such
files). Yes 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 October 29, 2010, there were 49,573,638 shares
outstanding of AMERIGROUP Corporations 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
(Dollars
in thousands, except per share data)
(Unaudited)
September 30, |
December 31, |
|||||||
2010 | 2009 | |||||||
ASSETS
|
||||||||
Current assets:
|
||||||||
Cash and cash equivalents
|
$ | 490,575 | $ | 505,915 | ||||
Short-term investments
|
250,474 | 137,523 | ||||||
Premium receivables
|
144,044 | 104,867 | ||||||
Deferred income taxes
|
27,624 | 26,361 | ||||||
Provider and other receivables
|
35,715 | 33,083 | ||||||
Prepaid expenses
|
13,888 | 8,959 | ||||||
Other current assets
|
6,281 | 5,274 | ||||||
Total current assets
|
968,601 | 821,982 | ||||||
Long-term investments
|
712,813 | 711,196 | ||||||
Investments on deposit for licensure
|
110,312 | 102,780 | ||||||
Property, equipment and software, net of accumulated
depreciation of $168,350 and $156,693 at September 30, 2010
and December 31, 2009, respectively
|
95,458 | 101,002 | ||||||
Other long-term assets
|
13,401 | 13,398 | ||||||
Goodwill
|
260,496 | 249,276 | ||||||
Total assets
|
$ | 2,161,081 | $ | 1,999,634 | ||||
LIABILITIES AND STOCKHOLDERS EQUITY | ||||||||
Current liabilities:
|
||||||||
Claims payable
|
$ | 521,820 | $ | 529,036 | ||||
Accounts payable
|
3,119 | 4,685 | ||||||
Unearned revenue
|
38,299 | 98,298 | ||||||
Accrued payroll and related liabilities
|
70,352 | 37,311 | ||||||
Accrued expenses and other
|
111,807 | 77,191 | ||||||
Contractual refunds payable
|
56,001 | 12,776 | ||||||
Total current liabilities
|
801,398 | 759,297 | ||||||
Long-term convertible debt
|
243,088 | 235,104 | ||||||
Deferred income taxes
|
10,011 | 8,430 | ||||||
Other long-term liabilities
|
11,826 | 12,359 | ||||||
Total liabilities
|
1,066,323 | 1,015,190 | ||||||
Stockholders equity:
|
||||||||
Common stock, $0.01 par value. Authorized
100,000,000 shares; outstanding 48,276,710 and 50,638,474
at September 30, 2010 and December 31, 2009,
respectively
|
550 | 546 | ||||||
Additional paid-in capital
|
524,110 | 494,735 | ||||||
Accumulated other comprehensive income
|
4,131 | 1,354 | ||||||
Retained earnings
|
784,375 | 590,632 | ||||||
1,313,166 | 1,087,267 | |||||||
Less treasury stock at cost (7,189,418 and 3,956,560 shares
at September 30, 2010 and December 31, 2009,
respectively)
|
(218,408 | ) | (102,823 | ) | ||||
Total stockholders equity
|
1,094,758 | 984,444 | ||||||
Total liabilities and stockholders equity
|
$ | 2,161,081 | $ | 1,999,634 | ||||
See accompanying notes to condensed consolidated financial
statements.
3
AMERIGROUP
Corporation And
Subsidiaries
(Dollars in thousands, except per share data)
(Unaudited)
Three Months Ended |
Nine Months Ended |
|||||||||||||||
September 30, | September 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Revenues:
|
||||||||||||||||
Premium
|
$ | 1,489,884 | $ | 1,298,969 | $ | 4,285,530 | $ | 3,801,306 | ||||||||
Investment income and other
|
5,020 | 5,315 | 18,536 | 24,179 | ||||||||||||
Total revenues
|
1,494,904 | 1,304,284 | 4,304,066 | 3,825,485 | ||||||||||||
Expenses:
|
||||||||||||||||
Health benefits
|
1,199,706 | 1,136,391 | 3,517,723 | 3,258,907 | ||||||||||||
Selling, general and administrative
|
106,815 | 82,238 | 332,427 | 288,898 | ||||||||||||
Premium tax
|
40,317 | 38,336 | 104,961 | 101,077 | ||||||||||||
Depreciation and amortization
|
8,737 | 8,441 | 26,352 | 26,447 | ||||||||||||
Interest
|
3,991 | 3,929 | 12,000 | 12,399 | ||||||||||||
Total expenses
|
1,359,566 | 1,269,335 | 3,993,463 | 3,687,728 | ||||||||||||
Income before income taxes
|
135,338 | 34,949 | 310,603 | 137,757 | ||||||||||||
Income tax expense
|
50,990 | 12,400 | 116,860 | 28,700 | ||||||||||||
Net income
|
$ | 84,348 | $ | 22,549 | $ | 193,743 | $ | 109,057 | ||||||||
Net income per share:
|
||||||||||||||||
Basic net income per share
|
$ | 1.72 | $ | 0.44 | $ | 3.88 | $ | 2.09 | ||||||||
Weighted average number of common shares outstanding
|
49,083,164 | 51,320,346 | 49,971,559 | 52,063,012 | ||||||||||||
Diluted net income per share
|
$ | 1.68 | $ | 0.43 | $ | 3.81 | $ | 2.07 | ||||||||
Weighted average number of common shares and dilutive potential
common shares outstanding
|
50,197,740 | 51,920,745 | 50,895,807 | 52,754,511 | ||||||||||||
See accompanying notes to condensed consolidated financial
statements.
4
AMERIGROUP
Corporation And
Subsidiaries
Nine Months Ended
September 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
|
871,094 | 4 | 15,964 | | | | | 15,968 | ||||||||||||||||||||||||
Compensation expense related to share-based payments
|
| | 14,594 | | | | | 14,594 | ||||||||||||||||||||||||
Tax expense related to share-based payments
|
| | (919 | ) | | | | | (919 | ) | ||||||||||||||||||||||
Employee stock relinquished for payment of taxes
|
(46,475 | ) | | (264 | ) | | | 46,475 | (1,450 | ) | (1,714 | ) | ||||||||||||||||||||
Common stock repurchases
|
(3,186,383 | ) | | | | | 3,186,383 | (114,135 | ) | (114,135 | ) | |||||||||||||||||||||
Unrealized gain on
available-for-sale
securities, net of tax
|
| | | 2,777 | | | | 2,777 | ||||||||||||||||||||||||
Net income
|
| | | | 193,743 | | | 193,743 | ||||||||||||||||||||||||
Balances at September 30, 2010
|
48,276,710 | $ | 550 | $ | 524,110 | $ | 4,131 | $ | 784,375 | 7,189,418 | $ | (218,408 | ) | $ | 1,094,758 | |||||||||||||||||
See accompanying notes to condensed consolidated financial
statements.
5
AMERIGROUP
Corporation And
Subsidiaries
(Dollars in thousands)
(Unaudited)
Nine Months Ended |
||||||||
September 30, | ||||||||
2010 | 2009 | |||||||
Cash flows from operating activities:
|
||||||||
Net income
|
$ | 193,743 | $ | 109,057 | ||||
Adjustments to reconcile net income to net cash provided by
operating activities:
|
||||||||
Depreciation and amortization
|
26,352 | 26,447 | ||||||
Loss on disposal or abandonment of property, equipment and
software
|
17 | 289 | ||||||
Deferred tax (benefit) expense
|
(1,222 | ) | 2,481 | |||||
Compensation expense related to share-based payments
|
14,594 | 12,034 | ||||||
Convertible debt non-cash interest
|
7,984 | 7,480 | ||||||
Gain on sale of intangible assets
|
(4,000 | ) | | |||||
Gain on sale of contract rights
|
| (5,810 | ) | |||||
Other
|
6,772 | (326 | ) | |||||
Changes in assets and liabilities (decreasing) increasing cash
flows from operations:
|
||||||||
Premium receivables
|
(39,177 | ) | (863 | ) | ||||
Prepaid expenses, provider and other receivables and other
current assets
|
(8,144 | ) | (26,534 | ) | ||||
Other assets
|
(396 | ) | (1,146 | ) | ||||
Claims payable
|
(7,216 | ) | 14,005 | |||||
Accounts payable, accrued expenses, contractual refunds payable
and other current liabilities
|
73,732 | (10,245 | ) | |||||
Unearned revenue
|
(59,999 | ) | (16,481 | ) | ||||
Other long-term liabilities
|
(533 | ) | (3,793 | ) | ||||
Net cash provided by operating activities
|
202,507 | 106,595 | ||||||
Cash flows from investing activities:
|
||||||||
Proceeds from sale of trading securities
|
12,000 | 850 | ||||||
Proceeds from sale of
available-for-sale
securities
|
690,740 | 129,629 | ||||||
Purchase of
available-for-sale
securities
|
(818,544 | ) | (430,740 | ) | ||||
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
|
58,487 | 55,454 | ||||||
Purchase of investments on deposit for licensure
|
(66,073 | ) | (65,355 | ) | ||||
Purchase of property, equipment and software
|
(19,397 | ) | (21,680 | ) | ||||
Proceeds from sale of intangible assets
|
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
|
(152,207 | ) | (247,758 | ) | ||||
Cash flows from financing activities:
|
||||||||
Repayment of borrowings under credit facility
|
| (44,318 | ) | |||||
Net increase (decrease) in bank overdrafts
|
33,870 | (2,492 | ) | |||||
Customer funds administered
|
(424 | ) | (1,561 | ) | ||||
Proceeds from exercise of stock options and employee stock
purchases
|
15,968 | 4,198 | ||||||
Repurchase of common stock shares
|
(114,135 | ) | (62,828 | ) | ||||
Tax (expense) benefit related to share-based payments
|
(919 | ) | 1,082 | |||||
Net cash used in financing activities
|
(65,640 | ) | (105,919 | ) | ||||
Net decrease in cash and cash equivalents
|
(15,340 | ) | (247,082 | ) | ||||
Cash and cash equivalents at beginning of period
|
505,915 | 763,272 | ||||||
Cash and cash equivalents at end of period
|
$ | 490,575 | $ | 516,190 | ||||
Non-cash disclosures:
|
||||||||
Employee stock relinquished for payment of taxes
|
$ | (1,714 | ) | $ | (912 | ) | ||
Unrealized gain on
held-to-maturity
portfolio at time of transfer to
available-for-sale,
net of tax
|
$ | | $ | 3,030 | ||||
Unrealized gain on
available-for-sale
securities, net of tax
|
$ | 2,777 | $ | 3,219 | ||||
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 September 30, 2010 and for the three and nine months
ended September 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 September 30, 2010 and operating results for the interim
periods ended September 30, 2010 and 2009. The
December 31, 2009 Condensed Consolidated Balance Sheet was
derived from the audited consolidated financial statements as of
that date. Certain reclassifications have been made to prior
year amounts to conform to the current year presentation.
The Condensed Consolidated Financial Statements should be read
in conjunction with the consolidated financial statements and
accompanying notes thereto and managements discussion and
analysis of financial condition and results of operations for
the year ended December 31, 2009 contained in the
Companys Annual Report on
Form 10-K
filed with the Securities and Exchange Commission on
February 22, 2010. The results of operations for the three
and nine months ended September 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 calculations of
basic and diluted net income per share:
Three Months Ended |
Nine Months Ended |
|||||||||||||||
September 30, | September 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Basic net income per share:
|
||||||||||||||||
Net income
|
$ | 84,348 | $ | 22,549 | $ | 193,743 | $ | 109,057 | ||||||||
Weighted average number of common shares outstanding
|
49,083,164 | 51,320,346 | 49,971,559 | 52,063,012 | ||||||||||||
Basic net income per share
|
$ | 1.72 | $ | 0.44 | $ | 3.88 | $ | 2.09 | ||||||||
Diluted net income per share:
|
||||||||||||||||
Net income
|
$ | 84,348 | $ | 22,549 | $ | 193,743 | $ | 109,057 | ||||||||
Weighted average number of common shares outstanding
|
49,083,164 | 51,320,346 | 49,971,559 | 52,063,012 | ||||||||||||
Dilutive effect of stock options and non-vested stock awards (as
determined by applying the treasury stock method)
|
1,114,576 | 600,399 | 924,248 | 691,499 | ||||||||||||
Weighted average number of common shares and dilutive potential
common shares outstanding
|
50,197,740 | 51,920,745 | 50,895,807 | 52,754,511 | ||||||||||||
Diluted net income per share
|
$ | 1.68 | $ | 0.43 | $ | 3.81 | $ | 2.07 | ||||||||
7
AMERIGROUP
Corporation And
Subsidiaries
Notes
to Condensed Consolidated Financial
Statements (Continued)
Potential common stock equivalents representing
818,509 shares and 1,206,596 shares for the three and
nine months ended September 30, 2010, respectively, were
not included in the computation of diluted net income per share
because to do so would have been anti-dilutive. Potential common
stock equivalents representing 3,072,128 shares and
2,627,139 shares for the three and nine months ended
September 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 8), were
not included in the computation of diluted net income per share
for the three and nine months ended September 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 8) were not included in the computation of
diluted net income per share for the three and nine months ended
September 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, other current assets,
claims payable, accounts payable, unearned revenue, accrued
payroll and related liabilities, accrued expenses and other
current liabilities, and contractual refunds payable: 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 nine months ended
September 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 September 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
|
$ | 483,426 | $ | 338,176 | $ | 145,250 | $ | | ||||||||
Money market funds
|
17,897 | 17,897 | | | ||||||||||||
Available-for-sale
securities:
|
||||||||||||||||
Auction rate securities
|
27,562 | | | 27,562 | ||||||||||||
Certificates of deposit
|
12,150 | | 12,150 | | ||||||||||||
Commercial paper
|
16,132 | | 16,132 | | ||||||||||||
Corporate bonds
|
214,946 | | 214,946 | | ||||||||||||
Debt securities of government sponsored entities
|
444,854 | 444,854 | | | ||||||||||||
Federally insured corporate bonds
|
43,638 | 43,638 | | | ||||||||||||
Municipal bonds
|
275,513 | | 275,513 | | ||||||||||||
U.S. Treasury securities
|
20,660 | 20,660 | | | ||||||||||||
Total assets measured at fair value
|
$ | 1,556,778 | $ | 865,225 | $ | 663,991 | $ | 27,562 | ||||||||
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 | $ | 471,326 | $ | 10,259 | $ | | ||||||||
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 | $ | 944,582 | $ | 431,250 | $ | 58,003 | ||||||||
9
AMERIGROUP
Corporation And
Subsidiaries
Notes
to Condensed Consolidated Financial
Statements (Continued)
For the three and nine months ended September 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 |
Nine Months Ended |
|||||||||||||||
September 30, | September 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Net unrealized gain recorded to accumulated other comprehensive
income
|
$ | 2,874 | $ | 9,373 | $ | 4,319 | $ | 10,271 |
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 September 30, 2010 and December 31, 2009:
Fair Value Measurements Using Significant |
||||||||
Unobservable Inputs (Level 3) | ||||||||
Nine Months Ended |
Twelve Months Ended |
|||||||
September 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 accumulated other
comprehensive income
|
2,459 | 2,225 | ||||||
Sales and calls by issuers
|
(32,610 | ) | (18,100 | ) | ||||
Balance at end of period
|
$ | 27,562 | $ | 58,003 | ||||
At September 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 September 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 nine months ended September 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
accumulated other comprehensive income on a
specific-identification basis were as follows (excludes the
impact of the forward contract discussed below):
Three Months Ended |
Nine Months Ended |
|||||||||||||||
September 30, | September 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Proceeds from sale or call of auction rate securities
|
$ | 4,400 | $ | 850 | $ | 32,610 | $ | 7,700 | ||||||||
Net realized (loss) gain recorded in earnings
|
| (63 | ) | 875 | 334 | |||||||||||
Net unrealized loss reclassified from accumulated other
comprehensive income, included in realized gain above
|
| | (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 and a
realized loss of $1,165 was recorded during the nine months
ended September 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 September 30, 2010 and December 31, 2009, the fair
value of the borrowings under the 2.0% Convertible Senior
Notes was $298,696 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 September 30, 2010 and
December 31, 2009 were as follows:
Gross |
Gross |
|||||||||||||||
Amortized |
Unrealized |
Unrealized |
Fair |
|||||||||||||
Cost | Holding Gains | Holding Losses | Value | |||||||||||||
September 30, 2010:
|
||||||||||||||||
Certificates of deposit
|
$ | 1,000 | $ | | $ | | $ | 1,000 | ||||||||
Commercial paper
|
16,138 | | 6 | 16,132 | ||||||||||||
Corporate bonds
|
18,316 | 21 | 8 | 18,329 | ||||||||||||
Debt securities of government sponsored entities
|
167,429 | 42 | | 167,471 | ||||||||||||
Municipal bonds
|
45,535 | 11 | 2 | 45,544 | ||||||||||||
U.S. Treasury securities
|
1,998 | | | 1,998 | ||||||||||||
Total short-term investments
|
$ | 250,416 | $ | 74 | $ | 16 | $ | 250,474 | ||||||||
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 September 30, 2010 and
December 31, 2009 were as follows:
Gross |
Gross |
|||||||||||||||
Amortized |
Unrealized |
Unrealized |
Fair |
|||||||||||||
Cost | Holding Gains | Holding Losses | Value | |||||||||||||
September 30, 2010:
|
||||||||||||||||
Auction rate securities, maturing in greater than ten years
|
$ | 29,250 | $ | | $ | 1,688 | $ | 27,562 | ||||||||
Corporate bonds, maturing within one year
|
93,648 | 663 | 5 | 94,306 | ||||||||||||
Corporate bonds, maturing between one year and five years
|
99,947 | 2,382 | 18 | 102,311 | ||||||||||||
Debt securities of government sponsored entities, maturing
within one year
|
68,416 | 292 | | 68,708 | ||||||||||||
Debt securities of government sponsored entities, maturing
between one year and five years
|
143,819 | 528 | 24 | 144,323 | ||||||||||||
Debt securities of government sponsored entities, maturing
between five years and ten years
|
2,000 | | 4 | 1,996 | ||||||||||||
Federally insured corporate bonds, maturing within one year
|
22,007 | 71 | | 22,078 | ||||||||||||
Federally insured corporate bonds, maturing between one year and
five years
|
21,123 | 443 | 6 | 21,560 | ||||||||||||
Municipal bonds, maturing within one year
|
31,308 | 40 | | 31,348 | ||||||||||||
Municipal bonds, maturing between one year and five years
|
42,101 | 381 | 85 | 42,397 | ||||||||||||
Municipal bonds, maturing between five years and ten years
|
71,067 | 2,524 | 176 | 73,415 | ||||||||||||
Municipal bonds, maturing in greater than ten years
|
81,981 | 977 | 149 | 82,809 | ||||||||||||
Total long-term investments
|
$ | 706,667 | $ | 8,301 | $ | 2,155 | $ | 712,813 | ||||||||
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 September 30, 2010, the Company had 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 | ||||||||
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
13
AMERIGROUP
Corporation And
Subsidiaries
Notes
to Condensed Consolidated Financial
Statements (Continued)
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 September 30, 2010 and December 31,
2009 were as follows:
Gross |
Gross |
|||||||||||||||
Amortized |
Unrealized |
Unrealized |
Fair |
|||||||||||||
Cost | Holding Gains | Holding Losses | Value | |||||||||||||
September 30, 2010:
|
||||||||||||||||
Cash equivalents
|
$ | 247 | $ | | $ | | $ | 247 | ||||||||
Certificates of deposit, maturing within one year
|
6,150 | | | 6,150 | ||||||||||||
Certificates of deposit, maturing between one year and five years
|
5,000 | | | 5,000 | ||||||||||||
Money market funds
|
17,897 | | | 17,897 | ||||||||||||
Available-for-sale
securities:
|
||||||||||||||||
Debt securities of government sponsored entities, maturing
within one year
|
10,013 | 46 | 3 | 10,056 | ||||||||||||
Debt securities of government sponsored entities, maturing
between one year and five years
|
51,832 | 203 | 35 | 52,000 | ||||||||||||
Debt securities of government sponsored entities, maturing
between five years and ten years
|
300 | | | 300 | ||||||||||||
U.S. Treasury securities, maturing within one year
|
17,950 | 30 | | 17,980 | ||||||||||||
U.S. Treasury securities, maturing between one year and five
years
|
602 | 80 | | 682 | ||||||||||||
Total investments on deposit
|
$ | 109,991 | $ | 359 | $ | 38 | $ | 110,312 | ||||||||
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 September 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 | |||||||||||||||||||
September 30, 2010:
|
||||||||||||||||||||||||
Auction rate securities
|
$ | | $ | | | $ | 27,562 | $ | 1,688 | 9 | ||||||||||||||
Commercial paper
|
3,484 | 6 | 2 | | | | ||||||||||||||||||
Corporate bonds
|
21,102 | 31 | 8 | | | | ||||||||||||||||||
Debt securities of government sponsored entities
|
38,590 | 66 | 11 | | | | ||||||||||||||||||
Federally insured corporate bond
|
4,043 | 6 | 1 | | | | ||||||||||||||||||
Municipal bonds
|
51,646 | 412 | 18 | | | | ||||||||||||||||||
Total temporarily impaired securities
|
$ | 118,865 | $ | 521 | 40 | $ | 27,562 | $ | 1,688 | 9 | ||||||||||||||
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 September 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 September 30, 2010.
15
AMERIGROUP
Corporation And
Subsidiaries
Notes
to Condensed Consolidated Financial
Statements (Continued)
5. | Market Updates |
Medicare
Advantage
In June 2010, the Company received approval from the Centers for
Medicare & Medicaid Services (CMS) to add
Tarrant County to its Medicare Advantage service area in Texas,
and to add Rutherford County to its 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 the first quarter of 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. 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
nine months ended September 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:
December 31, |
Disposals/ |
September 30, |
||||||||||||||
2009 | Additions | Impairment | 2010 | |||||||||||||
Goodwill
|
$ | 258,155 | $ | 11,220 | $ | | $ | 269,375 | ||||||||
Accumulated impairment losses
|
(8,879 | ) | | | (8,879 | ) | ||||||||||
Total
|
$ | 249,276 | $ | 11,220 | $ | | $ | 260,496 | ||||||||
Other acquired intangible assets, included in other long-term
assets in the accompanying Condensed Consolidated Balance
Sheets, at September 30, 2010 and December 31, 2009
are as follows:
September 30, 2010 | December 31, 2009 | |||||||||||||||
Gross Carrying |
Accumulated |
Gross Carrying |
Accumulated |
|||||||||||||
Amount | Amortization | Amount | Amortization | |||||||||||||
Membership rights and provider contracts
|
$ | 28,171 | $ | (25,959 | ) | $ | 25,971 | $ | (25,517 | ) | ||||||
Non-compete agreements and trademarks
|
946 | (946 | ) | 1,596 | (1,596 | ) | ||||||||||
$ | 29,117 | $ | (26,905 | ) | $ | 27,567 | $ | (27,113 | ) | |||||||
During the nine months ended September 30, 2010, the
Company sold certain trademarks for $4,000. The carrying value
net of accumulated amortization of these trademarks was zero.
7. | Claims Payable |
The following table presents the components of the change in
claims payable for the periods presented:
Nine Months Ended |
Twelve Months Ended |
|||||||
September 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
|
3,615,124 | 4,492,590 | ||||||
Related to prior years
|
(97,401 | ) | (85,317 | ) | ||||
Total incurred
|
3,517,723 | 4,407,273 | ||||||
Health benefits payments during the period:
|
||||||||
Related to current year
|
3,151,419 | 4,007,789 | ||||||
Related to prior years
|
373,520 | 406,555 | ||||||
Total payments
|
3,524,939 | 4,414,344 | ||||||
Claims payable, end of period
|
$ | 521,820 | $ | 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.
8. | Convertible Senior Notes |
As of September 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 $243,088. The unamortized discount
of $16,912 will continue to be amortized over the remaining
period until maturity. Concurrent with the
17
AMERIGROUP
Corporation And
Subsidiaries
Notes
to Condensed Consolidated Financial
Statements (Continued)
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.
9. | Share Repurchase Program |
On September 15, 2010, the Board of Directors authorized a
$200,000 increase to the Companys ongoing share repurchase
program, bringing the total authorization to $400,000. The
$400,000 authorization is for repurchases made from and after
August 5, 2009. Pursuant to this ongoing share repurchase
program, the Company repurchased 1,885,976 shares of its
common stock and placed them into treasury during the three
months ended September 30, 2010 at an aggregate cost of
$70,459. During the nine months ended September 30, 2010,
the Company repurchased and placed into treasury
3,186,383 shares of its common stock at an aggregate cost
of $114,135. As of September 30, 2010, the Company had
remaining authorization to purchase up to an additional $248,712
of shares of its common stock under this ongoing share
repurchase program.
10. | Commitments and Contingencies |
Letter
of Credit
Effective July 1, 2010, the Company renewed a
collateralized irrevocable standby letter of credit 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
18
AMERIGROUP
Corporation And
Subsidiaries
Notes
to Condensed Consolidated Financial
Statements (Continued)
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 September 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 July 29, 2010, AMERIGROUP Texas, Inc. and Memorial
Hermann Hospital System (Memorial Hermann) entered
into a confidential settlement agreement resolving and releasing
all claims related to various cases filed in the District Court
of Harris County, Texas by Memorial Hermann against AMERIGROUP
Texas, Inc. in 2007, 2009 and 2010 alleging breach of contract
for failure to pay claims in accordance with the contract
between the parties and quantum meriut. The cases sought
aggregate damages of approximately $41,400 plus interest,
statutory damages and legal fees. The settlement was not
material to our financial position, results of operations or
liquidity.
Other
Litigation
The Company is involved in various 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.
11. | Income Taxes |
Income tax expense for the three and nine months ended
September 30, 2010 was $50,990 and $116,860, respectively.
Income tax expense for the three and nine months ended
September 30, 2009 was $12,400 and $28,700, respectively.
Income tax expense for the nine months ended September 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 $22,400 for the nine months ended
September 30, 2009.
12. | Comprehensive Earnings |
Effective July 1, 2009, the Company began reporting all of
the debt securities in its investment portfolio as
available-for-sale,
other than certain auction rate securities that were subject to
a forward contract and continued to be classified as trading
securities (see Note 3). The change resulted in the
transfer to
available-for-sale
of $397,369 in
held-to-maturity
securities and $80,761 in
held-to-maturity
investments on deposit, with unrealized gains of $4,648 and
$464, respectively, and $26,868 in
held-to-maturity
securities and $17,697 in
held-to-maturity
investments on deposit, with unrealized losses of $193 and $54,
respectively. The unrealized gains and losses, net of the
related tax effects, were recorded to accumulated other
comprehensive income on July 1, 2009. The decision to
reclassify the securities as
available-for-sale
was intended to provide the Company with the opportunity to
improve liquidity and increase investment returns through
prudent investment management while providing financial
flexibility in determining whether to hold those securities to
maturity.
19
AMERIGROUP
Corporation And
Subsidiaries
Notes
to Condensed Consolidated Financial
Statements (Continued)
Differences between net income and total comprehensive income
resulted from net unrealized gains on the investment portfolio
as follows:
Three Months Ended |
Nine Months Ended |
|||||||||||||||
September 30, | September 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Net income
|
$ | 84,348 | $ | 22,549 | $ | 193,743 | $ | 109,057 | ||||||||
Other comprehensive income:
|
||||||||||||||||
Unrealized gains on
held-to-maturity
investment portfolio at time of transfer to
available-for-sale,
net of tax
|
| 3,030 | | 3,030 | ||||||||||||
Unrealized gains on
available-for-sale
securities, net of tax
|
1,833 | 2,923 | 2,777 | 3,219 | ||||||||||||
Total change
|
1,833 | 5,953 | 2,777 | 6,249 | ||||||||||||
Comprehensive income
|
$ | 86,181 | $ | 28,502 | $ | 196,520 | $ | 115,306 | ||||||||
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
21
any forward-looking statements will, in fact, transpire, and
therefore caution investors not to place undue reliance on them.
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 third quarter of 2010 include:
| Membership increased by 155,000 members, or 8.7%, to 1,933,000 members as of September 30, 2010 compared to 1,778,000 members as of September 30, 2009; | |
| Total revenues of $1.5 billion for the third quarter of 2010, a 14.6% increase over the third quarter of 2009; | |
| Health benefits ratio (HBR) of 80.5% of premium revenues for the third quarter of 2010 compared to 87.5% in the third quarter of 2009; | |
| Selling, general and administrative expense (SG&A) ratio of 7.1% of total revenues for the third quarter of 2010; | |
| Cash provided by operations was $202.5 million for the nine months ended September 30, 2010; | |
| Unregulated cash and investments of $251.4 million as of September 30, 2010; | |
| Claims payable as of September 30, 2010 totaled $521.8 million compared to $529.0 million as of December 31, 2009; and | |
| We repurchased 1,885,976 shares of common stock for approximately $70.5 million during the third quarter of 2010 under our ongoing share repurchase program. |
Similar to our experience in 2009, our results for the three and
nine months ended September 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. We anticipate our membership
growth in future periods to moderate as the economic environment
stabilizes. Increases in premium revenue also reflect the impact
of a benefit expansion to provide long-term care
(LTC) services to eligible members in Tennessee, the
net effect of premium rate changes from the prior year related
to annual contract renewals and the impact of our first quarter
2010 acquisition in New Jersey. Health benefits expense for the
three and nine months ended September 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
22
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 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 membership 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 effect
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
Georgia
In October 2010, the Georgia Department of Community Health
provided initial confirmation of a premium rate increase to the
Medicaid managed care contract with our Georgia health plan for
the period July 1, 2010 through June 30, 2011, subject
to Centers for Medicare & Medicaid Services
(CMS) approval. In accordance with
U.S. generally accepted accounting principles, the
increased premium related to this contract amendment will be
recognized in the period the contract is executed. We anticipate
execution of this amendment during the fourth quarter of 2010
and expect our earnings for the fourth quarter to increase by
approximately $7.7 million, or approximately $0.10 per
diluted share, related to the retroactive impact of the
increased premium for services provided to eligible members in
the third quarter of 2010. We can give no assurance that the
premium rates within the contract amendment will be approved by
CMS or that our estimates of the impact of the anticipated
premium rate increase will be realized.
Medicare
Advantage
In June 2010, we received approval from the 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 the
first quarter of 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.
23
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. 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.
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
September 30, 2010, we served approximately 138,000 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
24
best estimate of our liability related to this issue as of
September 30, 2010. However, there can be no assurances
that the ultimate outcome of this matter will not have a
material adverse effect on our financial position, results of
operations or liquidity.
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 |
Nine Months Ended |
|||||||||||||||
September 30, | September 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Premium revenue
|
99.7 | % | 99.6 | % | 99.6 | % | 99.4 | % | ||||||||
Investment income and other
|
0.3 | 0.4 | 0.4 | 0.6 | ||||||||||||
Total revenues
|
100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||
Health benefits expenses
|
80.5 | % | 87.5 | % | 82.1 | % | 85.7 | % | ||||||||
Selling, general and administrative expenses
|
7.1 | % | 6.3 | % | 7.7 | % | 7.6 | % | ||||||||
Income before income taxes
|
9.1 | % | 2.7 | % | 7.2 | % | 3.6 | % | ||||||||
Net income
|
5.6 | % | 1.7 | % | 4.5 | % | 2.9 | % |
Three and
Nine Months Ended September 30, 2010 Compared to Three and
Nine Months Ended September 30, 2009
Summarized comparative financial information for the three and
nine months ended September 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 |
Nine Months |
|||||||||||||||||||||||
Three Months Ended |
Nine Months Ended |
Ended |
Ended |
|||||||||||||||||||||
September 30, | September 30, | September 30, | September 30, | |||||||||||||||||||||
% Change |
% Change |
|||||||||||||||||||||||
2010 | 2009 | 2010 | 2009 | 2010-2009 | 2010-2009 | |||||||||||||||||||
Revenues:
|
||||||||||||||||||||||||
Premium
|
$ | 1,489.9 | $ | 1,299.0 | $ | 4,285.5 | $ | 3,801.3 | 14.7 | % | 12.7 | % | ||||||||||||
Investment income and other
|
5.0 | 5.3 | 18.5 | 24.2 | (5.6 | )% | (23.3 | )% | ||||||||||||||||
Total revenues
|
1,494.9 | 1,304.3 | 4,304.1 | 3,825.5 | 14.6 | % | 12.5 | % | ||||||||||||||||
Expenses:
|
||||||||||||||||||||||||
Health benefits
|
1,199.7 | 1,136.4 | 3,517.7 | 3,258.9 | 5.6 | % | 7.9 | % | ||||||||||||||||
Selling, general and administrative
|
106.8 | 82.2 | 332.4 | 288.9 | 29.9 | % | 15.1 | % | ||||||||||||||||
Premium tax
|
40.3 | 38.3 | 105.0 | 101.1 | 5.2 | % | 3.8 | % | ||||||||||||||||
Depreciation and amortization
|
8.7 | 8.4 | 26.4 | 26.4 | 3.5 | % | (0.4 | )% | ||||||||||||||||
Interest
|
4.0 | 3.9 | 12.0 | 12.4 | 1.6 | % | (3.2 | )% | ||||||||||||||||
Total expenses
|
1,359.6 | 1,269.3 | 3,993.5 | 3,687.7 | 7.1 | % | 8.3 | % | ||||||||||||||||
Income before income taxes
|
135.3 | 34.9 | 310.6 | 137.8 | 287.2 | % | 125.5 | % | ||||||||||||||||
Income tax expense
|
51.0 | 12.4 | 116.9 | 28.7 | 311.2 | % | 307.2 | % | ||||||||||||||||
Net income
|
$ | 84.3 | $ | 22.5 | $ | 193.7 | $ | 109.1 | 274.1 | % | 77.7 | % | ||||||||||||
Diluted net income per share
|
$ | 1.68 | $ | 0.43 | $ | 3.81 | $ | 2.07 | 290.7 | % | 84.1 | % | ||||||||||||
25
Premium
Revenue
Premium revenue for the three months ended September 30,
2010 increased $190.9 million, or 14.7%, to
$1.5 billion from $1.3 billion for the three months
ended September 30, 2009. For the nine months ended
September 30, 2010, premium revenue increased
$484.2 million, or 12.7%, to $4.3 billion from
$3.8 billion for the nine months ended September 30,
2009. The increase for the three and nine months ended
September 30, 2010 compared to the three and nine months
ended September 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 generally
adverse macroeconomic environment driving increases in the
number of people eligible for publicly sponsored health care
programs and include the impact of our acquisition of the
Medicaid contract rights from UHP in the State of New Jersey
effective March 1, 2010. Premium revenue increased also as
a result of our entry into the Tennessee TennCare CHOICES
program in March 2010 and from premium rate and mix changes
compared to prior periods. These increases were offset in part
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 nine months ended September 30, 2010
compared to the nine months ended September 30, 2009 is
further attributable to the impact of 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 September 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.
September 30, | ||||||||
2010 | 2009 | |||||||
Texas(1)
|
557,000 | 498,000 | ||||||
Georgia
|
268,000 | 236,000 | ||||||
Florida
|
263,000 | 270,000 | ||||||
Tennessee
|
204,000 | 192,000 | ||||||
Maryland
|
201,000 | 188,000 | ||||||
New Jersey
|
138,000 | 117,000 | ||||||
New York
|
109,000 | 112,000 | ||||||
Nevada
|
76,000 | 56,000 | ||||||
Ohio
|
58,000 | 59,000 | ||||||
Virginia
|
38,000 | 30,000 | ||||||
New Mexico
|
21,000 | 20,000 | ||||||
Total
|
1,933,000 | 1,778,000 | ||||||
(1) | Membership includes approximately 14,000 and 13,000 members as of September 30, 2010 and 2009, respectively, under an administrative services only (ASO) contract that began June 1, 2009. |
As of September 30, 2010, we served approximately 1,933,000
members, reflecting an increase of approximately 155,000
members, or 8.7%, compared to September 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
September 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.
September 30, | ||||||||
Product | 2010 | 2009 | ||||||
TANF
(Medicaid)(1)
|
1,373,000 | 1,240,000 | ||||||
CHIP
|
274,000 | 264,000 | ||||||
ABD
(Medicaid)(2)
|
197,000 | 202,000 | ||||||
FamilyCare (Medicaid)
|
70,000 | 58,000 | ||||||
Medicare Advantage
|
19,000 | 14,000 | ||||||
Total
|
1,933,000 | 1,778,000 | ||||||
(1) | Temporary Assistance for Needy Families. | |
(2) | Membership includes approximately 14,000 and 13,000 members as of September 30, 2010 and 2009, respectively, under an ASO contract in Texas. |
Investment
income and other revenue
Investment income and other revenue was $5.0 million and
$5.3 million for the three months ended September 30,
2010 and 2009, respectively, and was $18.5 million and
$24.2 million for the nine months ended September 30,
2010 and 2009, respectively.
Our investment portfolio is comprised of fixed-income securities
and cash and cash equivalents, which generated investment income
totaling $4.4 million and $13.5 million for the three
and nine months ended September 30, 2010, respectively,
compared to $4.7 million and $17.2 million for the
three and nine months ended September 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
September 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 nine months ended
September 30, 2010 is a $4.0 million gain on the sale
of certain trademarks. Included in other revenue for the nine
months ended September 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
September 30, 2010 increased $63.3 million, or 5.6%,
to $1.2 billion compared to $1.1 billion for the three
months ended September 30, 2009. Our HBR decreased to 80.5%
for the three months ended September 30, 2010 compared to
87.5% for the same period of the prior year. For the nine months
ended September 30, 2010, expenses related to health
benefits increased $258.8 million, or 7.9%, to
$3.5 billion from $3.3 billion for the nine months
ended September 30, 2009. Our HBR decreased to 82.1% for
the nine months ended September 30, 2010 compared to 85.7%
for the same period of the prior year.
Moderating cost trends for current and prior periods resulted in
a decrease in HBR for both the three and nine months ended
September 30, 2010 compared to the same periods in 2009. In
addition, we believe a lighter than normal winter flu season and
lower utilization of health services due to severe winter
weather in some of our markets favorably impacted the ratio. HBR
was also favorably impacted by the net effect of premium rate
changes from the prior year in connection with annual contract
renewals.
27
The following table presents the components of the change in
claims payable for the periods presented (in thousands):
Nine Months Ended |
Twelve Months Ended |
|||||||
September 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
|
3,615,124 | 4,492,590 | ||||||
Related to prior years
|
(97,401 | ) | (85,317 | ) | ||||
Total incurred
|
3,517,723 | 4,407,273 | ||||||
Health benefits payments during the period:
|
||||||||
Related to current year
|
3,151,419 | 4,007,789 | ||||||
Related to prior years
|
373,520 | 406,555 | ||||||
Total payments
|
3,524,939 | 4,414,344 | ||||||
Claims payable, end of period
|
$ | 521,820 | $ | 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 September 30, 2010
increased $24.6 million, or 29.9%, to $106.8 million
from $82.2 million for the three months ended
September 30, 2009. For the nine months ended
September 30, 2010, SG&A increased 15.1%, to
$332.4 million from $288.9 million for the nine months
ended September 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 nine months ended
September 30, 2010 as well as moderate wage, benefits and
workforce increases over the prior year.
Our SG&A to total revenues ratio was 7.1% and 6.3% for the
three months ended September 30, 2010 and 2009,
respectively. The ratio for the three months ended
September 30, 2009 was favorably impacted by a reduction in
salary and benefit expenses as a result of decreases in our
variable compensation accruals related to then-projected 2009
operating results. Our SG&A to total revenues ratio was
7.7% and 7.6% for the nine months ended September 30, 2010
and 2009, respectively. The increase in SG&A expenses for
the nine months ended September 30, 2010 compared to the
nine months ended September 30, 2009 was primarily offset
by the growth in total revenues.
Premium
tax expense
Premium taxes were $40.3 million and $38.3 million for
the three months ended September 30, 2010 and 2009,
respectively and $105.0 million and $101.1 million for
the nine months ended September 30, 2010 and 2009,
respectively. The increase in both periods was primarily
attributable to increased premium revenues in the State of
Tennessee as a result of our entry into the TennCare CHOICES
program in March 2010 as well as increased premium revenues in
the majority of other markets where premium tax is levied. The
increases in premium tax expense as a result of premium revenue
growth were largely offset by the termination of premium tax in
the State of Georgia in October 2009 which was subsequently
reinstated at a lower rate in July 2010. As of
September 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 September 30,
2010 was $51.0 million with an effective tax rate of 37.7%
compared to an income tax expense of $12.4 million for the
three months ended September 30, 2009
28
with an effective tax rate of 35.5%. Income tax expense for the
nine months ended September 30, 2010 and 2009 was
$116.9 million and $28.7 million, respectively, with
an effective tax rate of 37.6% and 20.8%, respectively. The
effective tax rate for the nine months ended September 30,
2009 was favorably impacted by our agreement reached with the
Internal Revenue 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 nine months ended September 30,
2010 as compared to the three and nine months ended
September 30, 2009 increased due to changes in expenses
that are not deductible for tax purposes and changes 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 September 30, 2010, we had cash and cash
equivalents of $490.6 million, short-and long-term
investments of $963.3 million and restricted investments on
deposit for licensure of $110.3 million. Cash, cash
equivalents and investments which are unregulated totaled
$251.4 million at September 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.
Share
Repurchase Program
On September 15, 2010, the Board of Directors authorized a
$200.0 million increase to our ongoing share repurchase
program, bringing the total authorization to
$400.0 million. The $400.0 million authorization is
for repurchases made from and after August 5, 2009.
Pursuant to this ongoing share repurchase program, we
repurchased 1,885,976 shares of our common stock at an
aggregate cost of $70.5 million and placed them into
treasury during the three months ended September 30, 2010.
During the nine months ended September 30, 2010, we
repurchased and placed into treasury 3,186,383 shares of
our common stock at an aggregate cost of $114.1 million. As
of September 30, 2010, we had remaining authorization to
purchase up to an additional $248.7 million of shares of
our common stock under the ongoing share repurchase program.
Cash and
Investments
Cash provided by operations was $202.5 million for the nine
months ended September 30, 2010 compared to
$106.6 million for the nine months ended September 30,
2009. The increase in cash flows was primarily a result of an
increase in net income due to premium revenue growth across the
majority of our existing products and markets as well as
moderating cost trends for current and prior periods. Cash used
in operating activities for working capital changes was
$40.8 million for the nine months ended September 30,
2010 compared to $40.1 million for the nine
29
months ended September 30, 2009. These changes are routine
in nature primarily relating to variability in the timing of
receipts of premium from government agencies and income tax
payments. Additionally, these changes are affected by
variability in our current estimates of claims payable which is
impacted by growth in our markets offset by increased claims
processing speeds. Lastly, changes in working capital in the
periods presented were affected by the fluctuation in variable
compensation accruals which are directly related to our
attainment of financial performance goals.
Cash used in investing activities was $152.2 million for
the nine months ended September 30, 2010 compared to
$247.8 million for the nine months ended September 30,
2009. The decrease in cash used in investing activities is due
primarily to a decrease in the net purchases of investments of
$108.5 million during the nine months ended
September 30, 2010 compared to the nine months ended
September 30, 2009, partially offset by our acquisition of
the Medicaid contract rights from UHP for $13.4 million in
March 2010. We currently anticipate total capital expenditures
for 2010 to be between approximately $30.0 million and
$33.0 million related primarily to technological
infrastructure development and enhancement of core systems to
increase scalability and efficiency. For the nine months ended
September 30, 2010, total capital expenditures were
$19.4 million.
Our investment policies are designed to preserve capital,
provide liquidity and maximize total return on invested assets.
As of September 30, 2010, our investment portfolio
consisted primarily of fixed-income securities with a weighted
average maturity of approximately twenty-eight 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 September 30, 2010
was approximately 1.1%. As of September 30, 2010, we had
total cash and investments of approximately $1.6 billion.
The following table shows the types, percentages and average
Standard and Poors (S&P) ratings of our
holdings within our investment portfolio at September 30,
2010:
Average S&P |
||||||||
% | Rating | |||||||
Auction rate securities
|
1.8 | % | AAA | |||||
Cash, bank deposits and commercial paper
|
2.9 | % | AAA | |||||
Certificates of deposit
|
8.6 | % | AAA | |||||
Corporate bonds
|
13.7 | % | A+ | |||||
Debt obligations of government sponsored entities, Federally
insured corporate bonds and U.S. Treasury securities
|
33.2 | % | AAA | |||||
Money market funds
|
22.1 | % | AAA | |||||
Municipal bonds
|
17.7 | % | AA+ | |||||
100.0 | % | AA+ | ||||||
As of September 30, 2010, $27.6 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 $1.7 million net unrealized
loss position that remains at September 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 nine
months ended September 30, 2010, certain investments in
auction rate securities were sold or called for net proceeds of
$32.6 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.
30
Cash used in financing activities was $65.6 million for the
nine months ended September 30, 2010, compared to
$105.9 million for the nine months ended September 30,
2009. The decrease in cash used in financing activities of
$40.3 million is primarily due to repayments during 2009 of
$44.3 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 $36.4 million and an increase in proceeds
from employee stock option exercises and stock purchases of
$11.8 million, partially offset by an increase in treasury
share repurchases of $51.3 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
capital ratio at September 30, 2010, defined as total debt
divided by the sum of total debt and total stockholders
equity, was 18.2%. We utilize the
debt-to-total
capital ratio as a measure, among others, of our leverage and
financial flexibility. We believe our current
debt-to-total
capital ratio allows us flexibility to access debt financing
should the need or opportunity arise; however 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 September 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.
31
Additionally, any disruptions in the credit markets similar to
that of the recent recession could further limit our flexibility
in planning for, or reacting to, changes in our business and
industry and addressing our future capital requirements.
Our access to additional financing will depend on a variety of
factors such as market conditions, the general availability of
credit, the overall availability of credit to our industry, our
credit ratings and credit capacity, as well as the possibility
that lenders could develop a negative perception of our long- or
short-term financial prospects. Similarly, our access to funds
may be impaired if regulatory authorities or rating agencies
take negative actions against us. If a combination of these
factors were to occur, our internal sources of liquidity may
prove to be insufficient, and in such case, we may not be able
to successfully obtain additional financing on favorable terms.
This could restrict our ability to: (1) acquire new
businesses or enter new markets, (2) service or refinance
our existing debt, (3) make necessary capital investments,
(4) maintain statutory net worth requirements in the states
in which we do business; and (5) make other expenditures
necessary for the ongoing conduct of our business.
Regulatory
Capital and Dividend Restrictions
Our operations are conducted through our wholly-owned
subsidiaries, which include health maintenance organizations
(HMOs), one health insuring corporation
(HIC) and one Prepaid Health Services Plan
(PHSP). HMOs, HICs and PHSPs are subject to state
regulations that, among other things, require the maintenance of
minimum levels of statutory capital, as defined by each state,
and restrict the timing, payment and amount of dividends and
other distributions that may be paid to their stockholders.
Additionally, certain state regulatory agencies may require
individual regulated entities to maintain statutory capital
levels higher than the state regulations. As of
September 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
September 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 September 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 number 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 September 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
32
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 September 30, 2010, an increase of 1.0% in
interest rates on securities with maturities greater than one
year would reduce the fair value of those securities by
approximately $15.2 million. Conversely, a reduction of
1.0% in interest rates on securities with maturities greater
than one year would increase their fair value by approximately
$10.3 million. The above changes in fair value are impacted
by securities in our portfolio that have a call provision
feature. We believe this fair value presentation is indicative
of our market risk because it evaluates each investment based on
its individual characteristics. Consequently, the fair value
presentation does not assume that each investment reacts
identically based on a 1.0% 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 third 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 10 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
September 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) | ||||||||||||
July 1 July 31, 2010
|
119,942 | $ | 32.41 | 119,942 | $ | 115,284,108 | ||||||||||
August 1 August 31, 2010
|
1,694,624 | 37.67 | 1,694,624 | 51,454,973 | ||||||||||||
September 1 September 30, 2010
|
71,410 | 38.41 | 71,410 | 248,711,837 | ||||||||||||
Total
|
1,885,976 | $ | 37.36 | 1,885,976 | $ | 248,711,837 | ||||||||||
(1) | Shares purchased during the third quarter of 2010 were purchased as part of the Companys existing authorized share repurchase program. On August 18, 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 effectively terminated the previous Rule 10b5-1 plan and became effective on November 2, 2010 and expires on July 31, 2012, unless terminated earlier in accordance with its terms. | |
(2) | On September 15, 2010, the Board of Directors authorized a $200.0 million increase to the ongoing share repurchase program, bringing the total authorization to $400.0 million. The $400.0 million authorization allows the Company to repurchase 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. |
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.
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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: November 3, 2010
AMERIGROUP Corporation
By: |
/s/ James
W. Truess
|
James W. Truess
Chief Financial Officer and
Executive Vice President
Date: November 3, 2010
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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 effective September 1, 2010, to the Health & Human Services Commission Agreement for Health Services to the STAR, STAR+PLUS, CHIP and CHIP Perinatal programs effectively extending the contract through August 31, 2013, filed herewith. | ||
31 | .1 | Certification of Chief Executive Officer pursuant to Section 302 of Sarbanes-Oxley Act of 2002, dated November 3, 2010. | ||
31 | .2 | Certification of Chief Financial Officer pursuant to Section 302 of Sarbanes-Oxley Act of 2002, dated November 3, 2010. | ||
32 | Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of Sarbanes-Oxley Act of 2002, dated November 3, 2010. | |||
**101 | .INS | XBRL Instance Document. | ||
**101 | .SCH | XBRL Taxonomy Extension Schema Document. | ||
**101 | .CAL | XBRL Taxonomy Extension Calculation Linkbase Document. | ||
**101 | .DEF | XBRL Taxonomy Extension Definition Linkbase Document. | ||
**101 | .LAB | XBRL Taxonomy Extension Label Linkbase Document. | ||
**101 | .PRE | XBRL Taxonomy Extension Presentation Linkbase Document. |
36
* | The Company has requested confidential treatment of the redacted portions of this exhibit pursuant to Rule 24b-2, under the Securities Exchange Act of 1934, as amended, and has separately filed a complete copy of this exhibit with the Securities and Exchange Commission. | |
** | 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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