##### 









UNITED STATES SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549


Form 10-K


|   |  |                                                                                             
|-- |  | --------------------------------------------------------------------------------------------
|þ  |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934    
|  
|   |  | For the fiscal year ended December 31, 2005                                                 
|  
|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                                                           |  | 54-1739323                          
|(State or Other Jurisdiction of Incorporation or
    Organization) |  | (I.R.S. Employer Identification No.)
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|4425 Corporation Lane, Virginia Beach, Virginia                    |  | 23462                               
|(Address of principal executive offices)                           |  | (Zip Code)                          

Registrants telephone number, including area code:


(757) 490-6900


Securities registered pursuant to Section 12(b) of the
Act:


|                             |  |                                          
|---------------------------- |  | -----------------------------------------
|Title of Each Class          |  | Name of Each Exchange on Which Registered
|                             |  |                                          
|                            
|                            
|                            
|                            
|Common Stock, $.01 par value |  | New York Stock Exchange                  

o þ


o þ


þ o


S-K 10-K 10-K. o


12b-2


þ o o þ o þ


12b-2 o þ






|                             |  |                                 
|---------------------------- |  | --------------------------------
|Class                        |  | Outstanding at February 27, 2006
|                             |  |                                 
|                            
|                            
|                            
|                            
|Common Stock, $.01 par value |  | 51,590,002                      

Documents Incorporated by Reference


|                                                                                                     |  |                              
|---------------------------------------------------------------------------------------------------- |  | -----------------------------
|Document                                                                                             |  | Parts Into Which Incorporated
|                                                                                                     |  |                              
|                                                                                                    
|                                                                                                    
|                                                                                                    
|                                                                                                    
|Proxy Statement for the Annual Meeting of Stockholders
    to be held May 10, 2006 (Proxy Statement) |  | Part III                     









---



##### 










TABLE OF CONTENTS


|         |  |                                                                                                                      |  |           |    |  |  | 
|-------- |  | -------------------------------------------------------------------------------------------------------------------- |  | --------- | -- |  |  | 
|         |  |                                                                                                                      |  | Page      |   
|         |  |                                                                                                                      |  |           |   
|         |  |                                                                                                                      |  | PART I.   |    |  |  | 
|        
|        
|        
|        
|Item 1.  |  | Business                                                                                                             |  |           | 3  | 
|        
|        
|        
|        
|Item 1A. |  | Risk Factors                                                                                                         |  |           | 23 | 
|        
|        
|        
|        
|Item 1B. |  | Unresolved Staff Comments                                                                                            |  |           | 34 | 
|        
|        
|        
|        
|Item 2.  |  | Properties                                                                                                           |  |           | 34 | 
|        
|        
|        
|        
|Item 3.  |  | Legal Proceedings                                                                                                    |  |           | 34 | 
|        
|        
|        
|        
|Item 4.  |  | Submission of Matters to a Vote of Security
    Holders                                                              |  |           | 36 | 
|         |  |                                                                                                                      |  | PART II.  |    |  |  | 
|        
|        
|        
|        
|Item 5.  |  | Market for Registrants Common Equity,
    Related Stockholder Matters and Issuer Purchases of Equity
    Securities |  |           | 38 | 
|        
|        
|        
|        
|Item 6.  |  | Selected Financial Data                                                                                              |  |           | 39 | 
|        
|        
|        
|        
|Item 7.  |  | Managements Discussion and Analysis
    of Financial Condition and Results of Operations                            |  |           | 40 | 
|        
|        
|        
|        
|Item 7A. |  | Quantitative and Qualitative Disclosures
    About Market Risk                                                       |  |           | 53 | 
|        
|        
|        
|        
|Item 8.  |  | Financial Statements and Supplementary
    Data                                                                      |  |           | 55 | 
|        
|        
|        
|        
|Item 9.  |  | Changes in and Disagreements with
    Accountants on Accounting and Financial Disclosure                             |  |           | 85 | 
|        
|        
|        
|        
|Item 9A. |  | Controls and Procedures                                                                                              |  |           | 85 | 
|        
|        
|        
|        
|Item 9B. |  | Other Information                                                                                                    |  |           | 86 | 
|         |  |                                                                                                                      |  | PART III. |    |  |  | 
|        
|        
|        
|        
|Item 10. |  | Directors and Executive Officers of the
    Company                                                                  |  |           | 89 | 
|        
|        
|        
|        
|Item 11. |  | Executive Compensation                                                                                               |  |           | 89 | 
|        
|        
|        
|        
|Item 12. |  | Security Ownership of Certain Beneficial
    Owners and Management and Related Stockholder Matters                   |  |           | 89 | 
|        
|        
|        
|        
|Item 13. |  | Certain Relationships and Related
    Transactions                                                                   |  |           | 89 | 
|        
|        
|        
|        
|Item 14. |  | Principal Accountant Fees and Services                                                                               |  |           | 89 | 
|         |  |                                                                                                                      |  | PART IV.  |    |  |  | 
|        
|        
|        
|        
|Item 15. |  | Exhibits and Financial Statement
    Schedules                                                                       |  |           | 90 | 

1



---



##### 



Forward-looking Statements


10-K, time-to






| |   |                                                                                                                                                                                                                                                         
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | national, state and local economic conditions, including their
    effect on the rate increase process, timing of payments, as well
    as their effect on the availability and cost of labor, utilities
    and materials;                             
|
| |  | the effect of government regulations and changes in regulations
    governing the healthcare industry, including our compliance with
    such regulations and their effect on certain of our unit costs
    and our ability to manage our medical costs;
|
| |  | changes in Medicaid payment levels and methodologies and the
    application of such methodologies by the government;                                                                                                                                   
|
| |  | liabilities and other claims asserted against us;                                                                                                                                                                                                       
|
| |  | our ability to attract and retain qualified personnel;                                                                                                                                                                                                  
|
| |  | our ability to maintain compliance with all minimum capital
    requirements;                                                                                                                                                                           
|
| |  | the availability and terms of capital to fund acquisitions and
    capital improvements;                                                                                                                                                                
|
| |  | the competitive environment in which we operate;                                                                                                                                                                                                        
|
| |  | our ability to maintain and increase membership levels;                                                                                                                                                                                                 
|
| |  | demographic changes;                                                                                                                                                                                                                                    
|
| |  | terrorism; and                                                                                                                                                                                                                                          
|
| |  | the unfavorable resolution of pending litigation.                                                                                                                                                                                                       



2



---



##### 






PART I.







|        |         
|------- | --------
|Item 1. | Business

Overview






Market Opportunity




| |                          
| | -------------------------
| | Emergence of managed care





3



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##### 









| |                                             
| | --------------------------------------------
| | Medicaid, SCHIP, FamilyCare and SNP Programs



|                                            |  |                                                
|------------------------------------------- |  | -----------------------------------------------
|Medicaid                                    |  | Medicare                                       
|                                            |  |                                                
| state administered                        |  |  federally operated                           
| state and matching federal funds          |  |  federal funds only                           
| average age of our members is 14          |  |  average age of recipients is over 70         
| 30 million people in managed care in 2004 |  |  5 million people in managed care in 2004     
| prescription drug coverage                |  |  prescription drug coverage began January 2006













4



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##### 





|                       |  |                           
|---------------------- |  | --------------------------
| obstetric services,  |  |  neonatal care,          
| respiratory illness, |  |  sickle cell disease, and
| diabetes,            |  |  HIV/AIDS.               





| |   |                                                                                             
| | - | --------------------------------------------------------------------------------------------
| |  | number of eligible individuals who enroll,                                                  
|
| |  | price of medical and long-term care services,                                               
|
| |  | use of covered services,                                                                    
|
| |  | state decisions regarding optional services and optional
    eligibility groups, and        
|
| |  | effectiveness of programs to reduce costs of providing benefits,
    including managed care.



| |                 
| | ----------------
| | Medicaid Funding



|                     |  |      |      |  
|-------------------- |  | ---- | ---- | -
|State                |  | FMAP |     
|                     |  |      |     
|District of Columbia |  |      | 70.0 | %
|                    
|                    
|                    
|                    
|Florida              |  |      | 58.9 | %
|                    
|                    
|                    
|                    
|Georgia              |  |      | 60.6 | %
|                    
|                    
|                    
|                    
|Illinois             |  |      | 50.0 | %
|                    
|                    
|                    
|                    
|Maryland             |  |      | 50.0 | %
|                    
|                    
|                    
|                    
|New Jersey           |  |      | 50.0 | %
|                    
|                    
|                    
|                    
|New York             |  |      | 50.0 | %
|                    
|                    
|                    
|                    
|Ohio                 |  |      | 59.9 | %
|                    
|                    
|                    
|                    
|Texas                |  |      | 60.7 | %
|                    
|                    
|                    
|                    
|Virginia             |  |      | 50.0 | %







5



---



##### 









| |                      
| | ---------------------
| | Medicaid Managed Care





The AMERIGROUP Approach






| |                    
| | -------------------
| | Government Partners

24-hour


6



---



##### 





| |          
| | ---------
| | Providers





| |        
| | -------
| | Members





| |            
| | -----------
| | Communities



Strategy




Increase our membership in existing and new markets through
internal growth and acquisitions.




7



---



##### 







Capitalize on our experience working in partnership with
governments.


Focus on our medical home concept to provide
quality, cost-effective healthcare.


24-hour


Utilize population-specific disease management programs and
related techniques to improve quality and reduce costs.


Products






| |   |                                                
| | - | -----------------------------------------------
| |  | primary and specialty physician care,          
|
| |  | inpatient and outpatient hospital care,        
|
| |  | emergency and urgent care,                     
|
| |  | prenatal care,                                 
|
| |  | laboratory and x-ray services,                 
|
| |  | home health and durable medical equipment,     
|
| |  | behavioral health services and substance abuse,

8



---



##### 





| |   |                                                                                    
| | - | -----------------------------------------------------------------------------------
| |  | long-term and nursing home care,                                                   
|
| |  | 24-hour on-call nurses,                                                            
|
| |  | vision care and exam allowances,                                                   
|
| |  | dental care,                                                                       
|
| |  | chiropractic care,                                                                 
|
| |  | podiatry,                                                                          
|
| |  | prescriptions and limited
    over-the-counter drugs,                              
|
| |  | assistance with obtaining transportation for office or health
    education visits,
|
| |  | memberships in the Boys and Girls Clubs, and                                       
|
| |  | welcome calls and health status calls to coordinate care.                          





|                            |  |              |           |  |      |  |         | 
|--------------------------- |  | ------------ | --------- |  | ---- |  | ------- | 
|                            |  | December 31, |          
|                            |  |              |          
|Product                     |  | 2005         |           |  | 2004 | 
|                            |  |              |           |  |      | 
|AMERICAID (Medicaid  TANF) |  |              | 800,000   |  |      |  | 662,000 | 
|                           
|                           
|                           
|                           
|AMERIKIDS (SCHIP)           |  |              | 197,000   |  |      |  | 182,000 | 
|                           
|                           
|                           
|                           
|AMERIPLUS (Medicaid  SSI)  |  |              | 88,000    |  |      |  | 79,000  | 
|                           
|                           
|                           
|                           
|AMERIFAM (FamilyCare)       |  |              | 44,000    |  |      |  | 13,000  | 
|                            |  |              |           |  |      | 
|Total                       |  |              | 1,129,000 |  |      |  | 936,000 | 
|                            |  |              |           |  |      | 









9



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##### 







Disease and Medical Management Programs




Marketing and Educational Programs




®






over-the


10



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##### 



Community Partners




Provider Network




|                  |  |            |        |  |             |  |        |           |           |  |           |  |  |  |       | 
|----------------- |  | ---------- | ------ |  | ----------- |  | ------ | --------- | --------- |  | --------- |  |  |  | ----- | 
|                  |  | Primary    |        |  |             |  |        |           |          
|                  |  | Care       |        |  |             |  |        |           | Ancillary | 
|Service Areas     |  | Physicians |        |  | Specialists |  |        | Hospitals |           |  | Providers | 
|                  |  |            |        |  |             |  |        |           |           |  |           | 
|Florida           |  |            | 1,745  |  |             |  | 7,067  |           |           |  | 97        |  |  |  | 1,825 | 
|                 
|                 
|                 
|                 
|Illinois          |  |            | 642    |  |             |  | 1,438  |           |           |  | 29        |  |  |  | 71    | 
|                 
|                 
|                 
|                 
|Maryland and D.C. |  |            | 1,723  |  |             |  | 7,655  |           |           |  | 50        |  |  |  | 479   | 
|                 
|                 
|                 
|                 
|New Jersey        |  |            | 1,875  |  |             |  | 4,575  |           |           |  | 70        |  |  |  | 642   | 
|                 
|                 
|                 
|                 
|New York          |  |            | 1,748  |  |             |  | 8,095  |           |           |  | 56        |  |  |  | 1,749 | 
|                 
|                 
|                 
|                 
|Ohio              |  |            | 416    |  |             |  | 1,869  |           |           |  | 15        |  |  |  | 31    | 
|                 
|                 
|                 
|                 
|Texas             |  |            | 1,640  |  |             |  | 6,493  |           |           |  | 105       |  |  |  | 961   | 
|                 
|                 
|                 
|                 
|Virginia          |  |            | 333    |  |             |  | 1,141  |           |           |  | 10        |  |  |  | 58    | 
|                  |  |            |        |  |             |  |        |           |           |  |           | 
|Total             |  |            | 10,122 |  |             |  | 38,333 |           |           |  | 432       |  |  |  | 5,816 | 
|                  |  |            |        |  |             |  |        |           |           |  |           | 









11



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##### 





Provider Payment Methods


Fee-for-Service.




| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Maximum Allowable Fee Schedule. Providers are paid the
    lesser of billed charges or a specified fixed payment for a
    covered service. The maximum allowable fee schedule is developed
    using, among other indicators, the state fee-for-service
    Medicaid program fee schedule, Medicare fee schedules, medical
    costs trends and market conditions.                                                                                                                  
|
| |  | Per Diem and Case Rates. Hospital facility costs are
    typically reimbursed at negotiated per diem or case rates, which
    vary by level of care within the hospital setting. Lower rates
    are paid for lower intensity services, such as a low birth
    weight newborn baby who stays in the hospital a few days longer
    than the mother, compared to higher rates for a neonatal
    intensive care unit stay for a baby born with severe
    developmental disabilities.
|
| |  | Percent of Charges. We contract with providers to pay
    them an agreed-upon percent of their standard charges for
    covered services. This is typically done where hospitals are
    reimbursed under the state fee-for-service Medicaid program on a
    percent of charges basis.                                                                                                                                                                                              

Capitation.




Our Health Plans


start-ups


12



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##### 





|                            |  |                              |  |                   
|--------------------------- |  | ---------------------------- |  | ------------------
|Market                      |  | Product                      |  | Term End Date     
|                            |  |                              |  |                   
|                           
|                           
|                           
|                           
|District of Columbia        |  | TANF, SCHIP, FamilyCare      |  | July 31, 2006     
|                           
|                           
|                           
|                           
|Florida                     |  | TANF, SSI, SCHIP             |  | June 30, 2006     
|                           
|                           
|                           
|                           
|Florida                     |  | SCHIP                        |  | September 30, 2006
|                           
|                           
|                           
|                           
|Florida                     |  | SSI (Summit Care)            |  | June 30, 2006     
|                           
|                           
|                           
|                           
|Georgia(a)                  |  | TANF, SCHIP                  |  | March 31, 2007    
|                           
|                           
|                           
|                           
|Illinois                    |  | TANF, SCHIP                  |  | July 31, 2006     
|                           
|                           
|                           
|                           
|Maryland(b)                 |  | TANF, SSI, SCHIP             |  |                  
|                           
|                           
|                           
|                           
|New Jersey                  |  | TANF, SSI, SCHIP, FamilyCare |  | June 30, 2006     
|                           
|                           
|                           
|                           
|New York  State Contract   |  | TANF, SSI, FamilyCare        |  | September 30, 2008
|                           
|                           
|                           
|                           
|New York  City of New York |  | TANF, SSI                    |  | September 30, 2007
|                           
|                           
|                           
|                           
|New York                    |  | SCHIP                        |  | December 31, 2006 
|                           
|                           
|                           
|                           
|New York                    |  | SSI (Managed Long-Term Care) |  | December 31, 2006 
|                           
|                           
|                           
|                           
|Ohio                        |  | TANF, SCHIP                  |  | June 30, 2006     
|                           
|                           
|                           
|                           
|Virginia                    |  | TANF, SSI                    |  | June 30, 2006     
|                           
|                           
|                           
|                           
|Virginia                    |  | SCHIP                        |  | June 30, 2006     
|                           
|                           
|                           
|                           
|Texas                       |  | TANF, SSI, SCHIP             |  | August 31, 2006   






|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) |  | The Company entered into a contract with the State of Georgia in
    July 2005 to offer healthcare coverage to low-income residents
    in four of six regions through its subsidiary AMGP Georgia
    Managed Care Company, Inc. (d/b/a AMERIGROUP Georgia). We
    anticipate that the contract will commence during the second
    quarter of 2006, based on the most recent communication from the
    State, and continue through June 30, 2007, with six
    one-year renewal options thereafter.
|   
|(b) |  | Our Maryland contract does not have a set term but can be
    terminated by the Company upon 90 days written notice.                                                                                                                                                                                                                                                                                                                                                                                   





| |                     
| | --------------------
| | District of Columbia





| |        
| | -------
| | Florida



13



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##### 



re-bid




| |         
| | --------
| | Illinois





| |         
| | --------
| | Maryland





| |           
| | ----------
| | New Jersey





| |         
| | --------
| | New York



14



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##### 





| |     
| | ----
| | Ohio





| |      
| | -----
| | Texas

re-procurement




| |         
| | --------
| | Virginia



Quality Management






| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Analysis of healthcare utilization data. To avoid
    duplication of services or medications, in conjunction with the
    PCPs, healthcare utilization data is analyzed and, through
    comparative provider data and periodic meetings with physicians,
    we identify areas in which a physicians utilization rate
    differs significantly from the rates of other physicians. On the
    basis of this analysis, we suggest opportunities for improvement
    and follow-up with the
    PCP to monitor utilization.
|
| |  | Medical care satisfaction studies. We evaluate the
    quality and appropriateness of care provided to our health plan
    members by reviewing healthcare utilization data and responses
    to member and physician questionnaires and grievances.                                                                                                                                                                                                                                                                        
|
| |  | Clinical care oversight. Each of our health plans has a
    medical advisory committee comprised of physician
    representatives and chaired by the plans medical director.
    This committee reviews credentialing, approves clinical
    protocols and practice guidelines and evaluates new physician
    group candidates. Based on regular reviews, the medical
    directors who head these committees develop recommendations for
    improvements in the delivery of medical care.                               
|
| |  | Quality improvement plan. A quality improvement plan is
    implemented in each of our health plans and is governed by a
    quality management committee. The quality management committee
    is comprised of                                                                                                                                                                                                                                                                                                             

15



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##### 



| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | senior management at our health plans, who review and evaluate
    the quality of our health services and are responsible for the
    development of quality improvement plans spanning both clinical
    quality and customer service quality. These plans are developed
    from provider and membership feedback, satisfaction surveys and
    results of action plans. Our corporate quality improvement
    council oversees and meets regularly with our health plan
    quality management committees to help ensure that we have a
    coordinated, quality-focused approach relating to our members,
    providers and state governments.

Management Information Systems




tm


Competition






| |   |                                                                                                                                                                                                                                                 
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Traditional Fee-for-Service  Original unmanaged
    provider payment system whereby the state governments pay
    providers directly for services provided to Medicaid members.                                                                
|
| |  | Primary Care Case Management Programs (PCCMs) 
    Programs established by the states through contracts with PCPs
    to provide primary care services to the Medicaid recipient, as
    well as provide limited oversight over other services.
|
| |  | Commercial HMOs  National and regional commercial
    managed care organizations that have Medicaid and Medicare
    members in addition to members in private commercial plans.                                                               
|
| |  | Medicaid HMOs  Managed care organizations that focus
    solely on serving people who receive healthcare benefits through
    Medicaid.                                                                                                        





16



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##### 







Regulation






| |                   
| | ------------------
| | Regulated Entities







| |                      
| | ---------------------
| | Medicaid and Medicare





| |   |                                                             
| | - | ------------------------------------------------------------
| |  | establishes its own eligibility standards,                  
|
| |  | determines the type, amount, duration and scope of services,
|
| |  | sets the rate of payment for services, and                  
|
| |  | administers its own program.                                

time-to




17



---



##### 







| |   |                                                          
| | - | ---------------------------------------------------------
| |  | mandating Medicaid enrollment into managed care,         
|
| |  | utilizing a central broker for enrollment into plans,    
|
| |  | using cost savings to provide additional services, and   
|
| |  | limiting the number of providers for additional services.











| |   |                                                       
| | - | ------------------------------------------------------
| |  | eligibility, enrollment and disenrollment processes,  
|
| |  | covered services,                                     
|
| |  | eligible providers,                                   
|
| |  | subcontractors,                                       
|
| |  | record-keeping and record retention,                  
|
| |  | periodic financial and informational reporting,       
|
| |  | quality assurance,                                    
|
| |  | marketing,                                            
|
| |  | financial standards,                                  
|
| |  | timeliness of claims payment,                        
|
| |  | health education and wellness and prevention programs,
|
| |  | safeguarding of member information,                   
|
| |  | fraud and abuse detection and reporting,              
|
| |  | grievance procedures, and                             
|
| |  | organization and administrative systems.              

18



---



##### 







Additional Federal Regulation




| |      
| | -----
| | HIPAA













| |                                  
| | ---------------------------------
| | Medicaid Managed Care Regulations





19



---



##### 









| |                
| | ---------------
| | Medicaid Reform



out-of






| |                        
| | -----------------------
| | Presidents 2007 Budget





| |                    
| | -------------------
| | Medicaid Commission

co-payment


20



---



##### 









| |                             
| | ----------------------------
| | Patients Rights Legislation





| |                           
| | --------------------------
| | Other Fraud and Abuse Laws

re-emphasized


Customers




Employees




21



---



##### 



Available Information


1-800-SEC-0330. http://www.sec.gov www.amerigroupcorp.com 10-K, 10-Q, 8-K, 10-K, 10-Q, 8-K,




22



---



##### 






Item 1A.     Risk
Factors


RISK FACTORS


Risks related to being a regulated entity




| |                                                                                                                                                                                      
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Changes in government regulations designed to protect
    providers and members rather than our stockholders could force
    us to change how we operate and could harm our business.





| |   |                                                       
| | - | ------------------------------------------------------
| |  | force us to change how we do business,                
|
| |  | restrict revenue and enrollment growth,               
|
| |  | increase our health benefits and administrative costs,
|
| |  | impose additional capital requirements, and           
|
| |  | increase or change our claims liability.              



| |                                                                                                                                                                                    
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If state regulators do not approve payments of dividends,
    distributions or administrative fees by our subsidiaries to us,
    it could negatively affect our business strategy.





| |                                                                     
| | --------------------------------------------------------------------
| | Regulations could limit our profits as a percentage of
    revenues.





23



---



##### 





| |                                                                                                                                                 
| | ------------------------------------------------------------------------------------------------------------------------------------------------
| | Our failure to comply with government regulations could
    subject us to civil and criminal penalties and limitations on
    our profitability.



time-to










| |                                                                                                                       
| | ----------------------------------------------------------------------------------------------------------------------
| | Compliance with new federal and state rules and
    regulations may require us to make unanticipated
    expenditures.



24



---



##### 













| |                                                               
| | --------------------------------------------------------------
| | Changes in healthcare laws could reduce our
    profitability.

time-to






| |                                                                          
| | -------------------------------------------------------------------------
| | Changes in federal funding mechanisms could reduce our
    profitability.



25



---



##### 



out-of








| |                                                                                               
| | ----------------------------------------------------------------------------------------------
| | Reductions in Medicaid funding by the states could
    substantially reduce our profitability.







| |                                                                                                            
| | -----------------------------------------------------------------------------------------------------------
| | If state governments do not renew our contracts with them
    on favorable terms, our business will suffer.

re-bidding


re-bidding re-application re-bid re-bidding re-bid. re-bidding


re-bid re-bid re-bid.


26



---



##### 





| |                                                                                                                                                                                                          
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If a state fails to renew its federal waiver application
    for mandated Medicaid enrollment into managed care or such
    application is denied, our membership in that state will likely
    decrease.





| |                                                                                                     
| | ----------------------------------------------------------------------------------------------------
| | Delays in program expansions, renewals or contract changes
    could negatively impact our business.

start-up, re-bid,




| |                                                                                                                                                                                                                                                                       
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We rely on the accuracy of eligibility lists provided by
    the state government, and in the case of our Special Needs Plan
    members in Houston, by the federal government. Inaccuracies in
    those lists would negatively affect our results of
    operations.

time-to




| |                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If state regulatory agencies require a statutory capital
    level higher than the state regulations we may be required to
    make additional capital contributions.



Risks related to our business




| |                                                                                                                                   
| | ----------------------------------------------------------------------------------------------------------------------------------
| | Receipt of inadequate or significantly delayed premiums
    would negatively impact our revenues, profitability and cash
    flow.



27



---



##### 









| |                                                                                      
| | -------------------------------------------------------------------------------------
| | Our inability to manage medical costs effectively would
    reduce our profitability.







| |                                                                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We have a significant relationship with Cook
    Childrens Physician Network in Fort Worth, Texas.
    Termination of this relationship could negatively affect our
    results of operations.



re-bidding


28



---



##### 





| |                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our limited ability to predict our incurred medical
    expenses accurately has in the past and could in the future
    materially impact our reported results.





| |                                                                                                                                 
| | --------------------------------------------------------------------------------------------------------------------------------
| | Difficulties in executing our acquisition strategy or
    integrating acquired business could adversely affect our
    business.













| |   |                                                                                                 
| | - | ------------------------------------------------------------------------------------------------
| |  | additional employees who are not familiar with our operations,                                  
|
| |  | existing provider networks, which may operate on different terms
    than our existing networks,
|
| |  | existing members, who may decide to switch to another healthcare
    provider, and              
|
| |  | disparate information and record keeping systems.                                               

29



---



##### 







| |                                                                                 
| | --------------------------------------------------------------------------------
| | Failure of a new business would negatively impact our
    results of operations.

Start-up start-up




| |                                                                                                                                                             
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Ineffective management of rapid growth or our inability to
    grow could negatively affect our results of operations,
    financial condition and business.







| |                                                                                                                     
| | --------------------------------------------------------------------------------------------------------------------
| | We are subject to competition that impacts our ability to
    increase our penetration of the markets that we serve.







30



---



##### 





| |                                                                                               
| | ----------------------------------------------------------------------------------------------
| | Restrictions and covenants in our credit facility could
    limit our ability to take actions.







| |                                                                                                      
| | -----------------------------------------------------------------------------------------------------
| | Our inability to maintain satisfactory relationships with
    providers would harm our profitability.





31



---



##### 







| |                                                                                                        
| | -------------------------------------------------------------------------------------------------------
| | Negative publicity regarding the managed care industry may
    harm our business and operating results.





| |                                                                                                                         
| | ------------------------------------------------------------------------------------------------------------------------
| | We may be subject to claims relating to medical
    malpractice, which could cause us to incur significant
    expenses.







| |                                                                                                                                                                                      
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Changes in the number of Medicaid eligibles, or benefits
    provided to Medicaid eligibles or a change in mix of Medicaid
    eligibles could cause our operating results to suffer.





| |                                                                                                
| | -----------------------------------------------------------------------------------------------
| | Changes in SCHIP rules restricting eligibility could cause
    our operating results to suffer.



32



---



##### 





| |                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------
| | Our inability to integrate, manage and grow our
    information systems effectively could disrupt our
    operations.





short-term,




| |                                                                                                   
| | --------------------------------------------------------------------------------------------------
| | Acts of terrorism, natural disasters and medical epidemics
    could cause our business to suffer.





| |                                                                                                                                                                                       
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We are currently involved in litigation, and may become
    involved in future litigation, which may result in substantial
    expense and may divert our attention from our business.





33



---



##### 








|         |                          
|-------- | -------------------------
|Item 1B. | Unresolved Staff Comments

None.







|        |           
|------- | ----------
|Item 2. | Properties



15-year







|        |                  
|------- | -----------------
|Item 3. | Legal Proceedings







34



---



##### 







10b-5 Illinois State Board of Investment v.
AMERIGROUP Corp., et al. 2:05-cv 10b-5


time-to


35



---



##### 








|        |                                                    
|------- | ---------------------------------------------------
|Item 4. | Submission of Matters to a Vote of Security Holders



Executive Officers of the Company




|                      |  |     |    |  |          |                                                                                     
|--------------------- |  | --- | -- |  | -------- | ------------------------------------------------------------------------------------
|Name                  |  | Age |    |  | Position
|                      |  |     |    |  |         
|                     
|                     
|                     
|                     
|Jeffrey L. McWaters   |  |     | 49 |  |          | Chairman and Chief Executive Officer                                                
|                     
|                     
|                     
|                     
|James G. Carlson*     |  |     | 53 |  |          | President and Chief Operating Officer                                               
|                     
|                     
|                     
|                     
|Sherri E. Lee**       |  |     | 54 |  |          | Executive Vice President, Chief Financial Officer and Treasurer                     
|                     
|                     
|                     
|                     
|Stanley F. Baldwin    |  |     | 57 |  |          | Executive Vice President, General Counsel and Secretary                             
|                     
|                     
|                     
|                     
|Janet M. Brashear     |  |     | 45 |  |          | Executive Vice President, Strategic Planning                                        
|                     
|                     
|                     
|                     
|Catherine S. Callahan |  |     | 48 |  |          | Executive Vice President, Associate Services                                        
|                     
|                     
|                     
|                     
|Nancy L. Grden        |  |     | 54 |  |          | Executive Vice President and Chief Marketing Officer                                
|                     
|                     
|                     
|                     
|Steven B. Larsen      |  |     | 46 |  |          | Executive Vice President, Health Plan Operations                                    
|                     
|                     
|                     
|                     
|John E. Littel        |  |     | 41 |  |          | Executive Vice President, External Affairs                                          
|                     
|                     
|                     
|                     
|Leon A. Root, Jr.     |  |     | 52 |  |          | Executive Vice President and Chief Information Officer                              
|                     
|                     
|                     
|                     
|Kathleen K. Toth      |  |     | 44 |  |          | Executive Vice President and Chief Accounting Officer                               
|                     
|                     
|                     
|                     
|Eric Yoder, M.D.      |  |     | 53 |  |          | Executive Vice President and Chief Medical Officer                                  
|                     
|                     
|                     
|                     
|Richard C. Zoretic    |  |     | 47 |  |          | Executive Vice President, Health Plan Operations and Healthcare
    Delivery Systems






|  |                                                                                                                                                                                                                                                                                                                                                                                                          
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | Effective January 31, 2006 Frederick C. Dunlap resigned
    from the position of Executive Vice President, Chief Operating
    Officer but remained on the payroll through February 28,
    2006. Upon this resignation, James G. Carlson, the
    Companys President, reassumed the duties of Chief
    Operating Officer previously held by him and transferred to
    Mr. Dunlap on October 28, 2005.



|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|** | Effective November 7, 2005 E. Paul Dunn, Jr.
    resigned from the position of Executive Vice President, Chief
    Financial Officer and Treasurer which he held from November
    2004. Sherri E. Lee replaced E. Paul Dunn, Jr., as
    Executive Vice President, Chief Financial Officer and Treasurer
    effective November 7, 2005. Mr. Dunn, who joined us in
    November 2004, did not leave as a result of any disagreement
    with the Company. From 1998 to November 2004, Mr. Dunn
    served as Vice President of Finance and Treasurer for IGM
    Global, Inc.

Jeffrey L. McWaters


James G. Carlson


Sherri E. Lee


36



---



##### 





Stanley F. Baldwin


Janet M. Brashear


Catherine S. Callahan


Nancy L. Grden


Steven B. Larsen


John E. Littel


Leon A. Root, Jr. e-commerce


Kathleen K. Toth


Eric M. Yoder, M.D.


Richard C. Zoretic


37



---



##### 






PART II.







|        |                                                                                                                     
|------- | --------------------------------------------------------------------------------------------------------------------
|Item 5. | Market for Registrants Common Equity, Related
    Stockholder Matters and Issuer Purchases of Equity
    Securities







|               |  |      |       |  |     |   |       | 
|-------------- |  | ---- | ----- |  | --- | - | ----- | 
|2004           |  | High |       |  | Low |  
|               |  |      |       |  |     |  
|First quarter  |  | $    | 23.08 |  |     | $ | 18.23 | 
|              
|              
|              
|              
|Second quarter |  |      | 24.75 |  |     |   | 19.61 | 
|              
|              
|              
|              
|Third quarter  |  |      | 28.46 |  |     |   | 22.03 | 
|              
|              
|              
|              
|Fourth quarter |  |      | 38.44 |  |     |   | 26.50 | 

|                                      |  |   |       |  |  |   |       | 
|------------------------------------- |  | - | ----- |  |  | - | ----- | 
|2005                                  |  |   |       | 
|                                      |  |   |       | 
|First quarter                         |  | $ | 43.16 |  |  | $ | 35.15 | 
|                                     
|                                     
|                                     
|                                     
|Second quarter                        |  |   | 40.46 |  |  |   | 32.20 | 
|                                     
|                                     
|                                     
|                                     
|Third quarter                         |  |   | 46.92 |  |  |   | 19.12 | 
|                                     
|                                     
|                                     
|                                     
|Fourth quarter                        |  |   | 19.73 |  |  |   | 15.45 | 
|                                     
|                                     
|                                     
|                                     
|December 31, 2005 Closing Sales Price |  | $ | 19.46 |  |  |   |       | 







38



---



##### 








|        |                        
|------- | -----------------------
|Item 6. | Selected Financial Data

10-K.


|                                                                                              |                                     |                                                |            |           |           |   |            |           |           |   |            |           |           |      |            |           |           |   |            |         |         | 
|--------------------------------------------------------------------------------------------- | ----------------------------------- | ---------------------------------------------- | ---------- | --------- | --------- | - | ---------- | --------- | --------- | - | ---------- | --------- | --------- | ---- | ---------- | --------- | --------- | - | ---------- | ------- | ------- | 
|                                                                                              |                                     | Year ended December 31,                        |           
|                                                                                              |                                     |                                                |           
|                                                                                              |                                     | 2005                                           |            |           | 2004      |   |            | 2003      |           |   | 2002       |           |           | 2001 |           
|                                                                                              |                                     |                                                |            |           |           |   |            |           |           |   |            |           |           |      |           
|                                                                                              |                                     | (Dollars in thousands, except per share data)  |           
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|Income Statement Data:                                                                        |                                     |                                                |            |           |           |   |            |           |           |   |            |           |           |      |            |           |           |   |            |        
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|Revenues:                                                                                     |                                     |                                                |            |           |           |   |            |           |           |   |            |           |           |      |            |           |           |   |            |        
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              | Premium                             |                                                | $          | 2,311,599 |           |   | $          | 1,813,391 |           |   | $          | 1,615,508 |           |      | $          | 1,152,636 |           |   | $          | 880,510 |        
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              | Investment income                   |                                                |            | 18,310    |           |   |            | 10,340    |           |   |            | 6,726     |           |      |            | 8,026     |           |   |            | 10,664  |        
|                                                                                              |                                     |                                                |            |           |           |   |            |           |           |   |            |           |           |      |           
|                                                                                              |                                     | Total revenues                                 |            |           | 2,329,909 |   |            |           | 1,823,731 |   |            |           | 1,622,234 |      |            |           | 1,160,662 |   |            |         | 891,174 | 
|                                                                                              |                                     |                                                |            |           |           |   |            |           |           |   |            |           |           |      |           
|Expenses:                                                                                     |                                     |                                                |            |           |           |   |            |           |           |   |            |           |           |      |            |           |           |   |            |        
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              | Health benefits                     |                                                |            | 1,957,196 |           |   |            | 1,469,097 |           |   |            | 1,295,900 |           |      |            | 933,591   |           |   |            | 709,034 |        
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              | Selling, general and administrative |                                                |            | 258,446   |           |   |            | 191,915   |           |   |            | 186,856   |           |      |            | 133,409   |           |   |            | 109,822 |        
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              | Depreciation and amortization       |                                                |            | 26,948    |           |   |            | 20,750    |           |   |            | 23,650    |           |      |            | 13,149    |           |   |            | 9,348   |        
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              | Interest                            |                                                |            | 608       |           |   |            | 731       |           |   |            | 1,913     |           |      |            | 791       |           |   |            | 763     |        
|                                                                                              |                                     |                                                |            |           |           |   |            |           |           |   |            |           |           |      |           
|                                                                                              |                                     | Total expenses                                 |            |           | 2,243,198 |   |            |           | 1,682,493 |   |            |           | 1,508,319 |      |            |           | 1,080,940 |   |            |         | 828,967 | 
|                                                                                              |                                     |                                                |            |           |           |   |            |           |           |   |            |           |           |      |           
|                                                                                              |                                     | Income before income taxes                     |            |           | 86,711    |   |            |           | 141,238   |   |            |           | 113,915   |      |            |           | 79,722    |   |            |         | 62,207  | 
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|Income tax expense                                                                            |                                     |                                                | 33,060     |           |           |   | 55,224     |           |           |   | 46,591     |           |           |      | 32,686     |           |           |   | 26,127     |        
|                                                                                              |                                     |                                                |            |           |           |   |            |           |           |   |            |           |           |      |           
|                                                                                              |                                     | Net income                                     |            |           | 53,651    |   |            |           | 86,014    |   |            |           | 67,324    |      |            |           | 47,036    |   |            |         | 36,080  | 
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|Accretion of redeemable preferred stock dividends                                             |                                     |                                                |           |           |           |   |           |           |           |   |           |           |           |      |           |           |           |   | (6,228     | )      
|                                                                                              |                                     |                                                |            |           |           |   |            |           |           |   |            |           |           |      |           
|                                                                                              |                                     | Net income attributable to common stockholders |            | $         | 53,651    |   |            | $         | 86,014    |   |            | $         | 67,324    |      |            | $         | 47,036    |   |            | $       | 29,852  | 
|                                                                                              |                                     |                                                |            |           |           |   |            |           |           |   |            |           |           |      |           
|Basic net income per share                                                                    |                                     | $                                              | 1.05       |           |           | $ | 1.73       |           |           | $ | 1.56       |           |           | $    | 1.17       |           |           | $ | 4.04       |        
|                                                                                              |                                     |                                                |            |           |           |   |            |           |           |   |            |           |           |      |           
|Weighted average number of shares outstanding                                                 |                                     |                                                | 51,213,589 |           |           |   | 49,721,945 |           |           |   | 43,245,408 |           |           |      | 40,355,456 |           |           |   | 7,389,688  |        
|                                                                                              |                                     |                                                |            |           |           |   |            |           |           |   |            |           |           |      |           
|Diluted net income per share                                                                  |                                     | $                                              | 1.02       |           |           | $ | 1.66       |           |           | $ | 1.48       |           |           | $    | 1.10       |           |           | $ | 1.04       |        
|                                                                                              |                                     |                                                |            |           |           |   |            |           |           |   |            |           |           |      |           
|Weighted average number of common shares and dilutive potential
    common shares outstanding |                                     |                                                | 52,857,682 |           |           |   | 51,837,579 |           |           |   | 45,603,300 |           |           |      | 42,938,844 |           |           |   | 33,299,442 |        
|                                                                                              |                                     |                                                |            |           |           |   |            |           |           |   |            |           |           |      |           

|                    |                                                               |                        |   |           |      |  |   |         |  |  |      |         |  |      |   |         |  |  |   |         | 
|------------------- | ------------------------------------------------------------- | ---------------------- | - | --------- | ---- |  | - | ------- |  |  | ---- | ------- |  | ---- | - | ------- |  |  | - | ------- | 
|                    |                                                               | December 31,           |  
|                    |                                                               |                        |  
|                    |                                                               | 2005                   |   |           | 2004 |  |   | 2003    |  |  | 2002 |         |  | 2001 |  
|                    |                                                               |                        |   |           |      |  |   |         |  |  |      |         |  |      |  
|                    |                                                               | (Dollars in thousands) |  
|                   
|                   
|                   
|                   
|Balance Sheet Data: |                                                               |                        |   |           |      |  |   |         |  |  |      |         |  |      |   |         |  |  |   |        
|                   
|                   
|                   
|                   
|                    | Cash and cash equivalents and short and long-term investments |                        | $ | 587,106   |      |  | $ | 612,059 |  |  | $    | 535,103 |  |      | $ | 306,935 |  |  | $ | 301,837 | 
|                   
|                   
|                   
|                   
|                    | Total assets                                                  |                        |   | 1,093,588 |      |  |   | 919,850 |  |  |      | 826,021 |  |      |   | 578,484 |  |  |   | 406,942 | 
|                   
|                   
|                   
|                   
|                    | Long-term debt                                                |                        |   |          |      |  |   |        |  |  |      |        |  |      |   | 50,000  |  |  |   |        | 
|                   
|                   
|                   
|                   
|                    | Total liabilities                                             |                        |   | 452,034   |      |  |   | 351,138 |  |  |      | 364,307 |  |      |   | 339,103 |  |  |   | 223,426 | 
|                   
|                   
|                   
|                   
|                    | Stockholders equity                                          |                        |   | 641,554   |      |  |   | 568,712 |  |  |      | 461,714 |  |      |   | 239,381 |  |  |   | 183,516 | 

39



---



##### 








|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 7. | Managements Discussion and Analysis of Financial
    Condition and Results of Operations

Overview








| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Organic growth  Our premium revenues for 2005 grew
    15.1% over the prior year from membership increases in existing
    service areas and new markets, including Ohio and Virginia, and
    premium rate increases received. Premium revenues benefited in
    2005 from the reversal of a Maryland premium recoupment
    previously recorded, totaling $6.1 million, offset by
    $6.4 million of anticipated premium recoupments related to
    enrollment errors by the States of Florida and Texas due to
    eligibility issues related to prior periods.                                          
|
| |  | Growth through acquisitions  Effective
    January 1, 2005, we completed our stock acquisition of
    CarePlus in New York City and Putnam County, New York, pursuant
    to the terms of the merger agreement. At the date of the
    acquisition, CarePlus served approximately 115,000 members
    covered by New York States Medicaid, Child Health Plus and
    Family Health Plus programs. CarePlus service areas
    include New York City (Brooklyn, Manhattan, Queens and Staten
    Island) and Putnam County, New York. CarePlus accounted for
    45.1% of the premium revenue growth in 2005.











40



---



##### 









co-exist




41



---



##### 











Discussion of Critical Accounting Policies






| |                    
| | -------------------
| | Revenue recognition



42



---



##### 







| |                                                          
| | ---------------------------------------------------------
| | Estimating health benefits expense and claims
    payable

24-hour


year-to








43



---



##### 









out-of




|                                                                            |                         |                |         |           |           |   |         |           |           |   |         |           |           | 
|--------------------------------------------------------------------------- | ----------------------- | -------------- | ------- | --------- | --------- | - | ------- | --------- | --------- | - | ------- | --------- | --------- | 
|                                                                            |                         | 2005           |         |           | 2004      |   |         | 2003      |          
|                                                                            |                         |                |         |           |           |   |         |           |          
|Medical claims payable as of January 1                                      |                         | $              | 241,253 |           |           | $ | 239,532 |           |           | $ | 202,430 |          
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|Medical claims payable assumed from businesses acquired during
    the year |                         |                | 27,424  |           |           |   |        |           |           |   | 20,421  |          
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|Health benefits expenses incurred during the year:                          |                         |                |         |           |           |   |         |           |           |   |         |          
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                            | Related to current year |                |         | 1,982,880 |           |   |         | 1,505,482 |           |   |         | 1,355,065 |          
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                            | Related to prior years  |                |         | (25,684   | )         |   |         | (36,385   | )         |   |         | (59,165   | )        
|                                                                            |                         |                |         |           |           |   |         |           |          
|                                                                            |                         | Total incurred |         |           | 1,957,196 |   |         |           | 1,469,097 |   |         |           | 1,295,900 | 
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|Health benefits payments during the year:                                   |                         |                |         |           |           |   |         |           |           |   |         |          
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                            | Related to current year |                |         | 1,646,664 |           |   |         | 1,274,460 |           |   |         | 1,135,082 |          
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                            | Related to prior years  |                |         | 230,530   |           |   |         | 192,916   |           |   |         | 144,137   |          
|                                                                            |                         |                |         |           |           |   |         |           |          
|                                                                            |                         | Total payments |         |           | 1,877,194 |   |         |           | 1,467,376 |   |         |           | 1,279,219 | 
|                                                                            |                         |                |         |           |           |   |         |           |          
|Medical claims payable as of December 31                                    |                         | $              | 348,679 |           |           | $ | 241,253 |           |           | $ | 239,532 |          
|                                                                            |                         |                |         |           |           |   |         |           |          





44



---



##### 



year-to








| |             
| | ------------
| | Income taxes





| |                               
| | ------------------------------
| | Goodwill and intangible assets





| |                            
| | ---------------------------
| | Recent Accounting Standards

Share-Based Payment Accounting for Stock-Based Compensation Accounting


45



---



##### 



for Stock Issued to Employees Accounting for Stock Based
Compensation Statement of Cash Flows








Results of Operations




|                                             |  |                         |       |   |      |  |       |      |  |  |       |  
|-------------------------------------------- |  | ----------------------- | ----- | - | ---- |  | ----- | ---- |  |  | ----- | -
|                                             |  | Year ended December 31, |      
|                                             |  |                         |      
|                                             |  | 2005                    |       |   | 2004 |  |       | 2003 | 
|                                             |  |                         |       |   |      |  |       |      | 
|Premium revenue                              |  |                         | 99.2  | % |      |  | 99.4  | %    |  |  | 99.6  | %
|                                            
|                                            
|                                            
|                                            
|Investment income                            |  |                         | 0.8   |   |      |  | 0.6   |      |  |  | 0.4   |  
|                                             |  |                         |       |   |      |  |       |      | 
|Total revenues                               |  |                         | 100.0 | % |      |  | 100.0 | %    |  |  | 100.0 | %
|                                             |  |                         |       |   |      |  |       |      | 
|Health benefits(1)                           |  |                         | 84.7  | % |      |  | 81.0  | %    |  |  | 80.2  | %
|                                            
|                                            
|                                            
|                                            
|Selling, general and administrative expenses |  |                         | 11.1  | % |      |  | 10.5  | %    |  |  | 11.5  | %
|                                            
|                                            
|                                            
|                                            
|Income before income taxes                   |  |                         | 3.7   | % |      |  | 7.7   | %    |  |  | 7.0   | %
|                                            
|                                            
|                                            
|                                            
|Net income                                   |  |                         | 2.3   | % |      |  | 4.7   | %    |  |  | 4.2   | %






|    |                                                                                                                                                                                    
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The health benefits ratio is shown as a percentage of premium
    revenue because there is a direct relationship between the
    premium received and the health benefits provided.

46



---



##### 





|                     |  |              |           |  |      |  |         |      |  |  |         |  |  |      |         |  |  |  |         | 
|-------------------- |  | ------------ | --------- |  | ---- |  | ------- | ---- |  |  | ------- |  |  | ---- | ------- |  |  |  | ------- | 
|                     |  | December 31, |          
|                     |  |              |          
|Market               |  | 2005         |           |  | 2004 |  |         | 2003 |  |  | 2002    |  |  | 2001 |        
|                     |  |              |           |  |      |  |         |      |  |  |         |  |  |      |        
|Texas                |  |              | 399,000   |  |      |  | 394,000 |      |  |  | 343,000 |  |  |      | 296,000 |  |  |  | 214,000 | 
|                    
|                    
|                    
|                    
|Florida              |  |              | 219,000   |  |      |  | 229,000 |      |  |  | 221,000 |  |  |      |        |  |  |  |        | 
|                    
|                    
|                    
|                    
|Maryland             |  |              | 141,000   |  |      |  | 130,000 |      |  |  | 124,000 |  |  |      | 125,000 |  |  |  | 118,000 | 
|                    
|                    
|                    
|                    
|New York             |  |              | 138,000   |  |      |  |        |      |  |  |        |  |  |      |        |  |  |  |        | 
|                    
|                    
|                    
|                    
|New Jersey           |  |              | 109,000   |  |      |  | 105,000 |      |  |  | 99,000  |  |  |      | 99,000  |  |  |  | 88,000  | 
|                    
|                    
|                    
|                    
|Illinois             |  |              | 41,000    |  |      |  | 37,000  |      |  |  | 32,000  |  |  |      | 34,000  |  |  |  | 39,000  | 
|                    
|                    
|                    
|                    
|District of Columbia |  |              | 41,000    |  |      |  | 41,000  |      |  |  | 38,000  |  |  |      | 37,000  |  |  |  | 13,000  | 
|                    
|                    
|                    
|                    
|Ohio                 |  |              | 22,000    |  |      |  |        |      |  |  |        |  |  |      |        |  |  |  |        | 
|                    
|                    
|                    
|                    
|Virginia             |  |              | 19,000    |  |      |  |        |      |  |  |        |  |  |      |        |  |  |  |        | 
|                     |  |              |           |  |      |  |         |      |  |  |         |  |  |      |        
|Total                |  |              | 1,129,000 |  |      |  | 936,000 |      |  |  | 857,000 |  |  |      | 591,000 |  |  |  | 472,000 | 
|                     |  |              |           |  |      |  |         |      |  |  |         |  |  |      |        





Year Ended December 31, 2005 Compared to Year Ended
December 31, 2004




| |         
| | --------
| | Revenues







| |                
| | ---------------
| | Health benefits



47



---



##### 







| |                                             
| | --------------------------------------------
| | Selling, general and administrative expenses





| |   |                                                                                                                                                                   
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | an increase in premium taxes that the States of Texas, New
    Jersey and Maryland began assessing in September 2003, July
    2004, and April 2005, respectively;
|
| |  | an increase in legal expenses related to the Tyson litigation
    and the securities class action complaints; and                                                 
|
| |  | an increase in experience rebate expense in our Texas market.                                                                                                     



| |                 
| | ----------------
| | Interest expense





| |                           
| | --------------------------
| | Provision for income taxes





| |           
| | ----------
| | Net income



Year Ended December 31, 2004 Compared to Year Ended
December 31, 2003




| |         
| | --------
| | Revenues





48



---



##### 





| |                
| | ---------------
| | Health benefits





| |                                             
| | --------------------------------------------
| | Selling, general and administrative expenses





| |   |                                                                                                                                                                                                  
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | an increase in premium taxes that the States of Texas and New
    Jersey began assessing in September 2003 and July 2004,
    respectively;                                                      
|
| |  | a decrease in purchased services related to strategic
    initiatives in 2003 for operational improvements, including
    expenses related to the implementation of the HIPAA
    guidelines; and
|
| |  | a decrease in experience rebate expense in our Texas market.                                                                                                                                     





| |                 
| | ----------------
| | Interest expense





| |                           
| | --------------------------
| | Provision for income taxes





| |           
| | ----------
| | Net income



Liquidity and Capital Resources




49



---



##### 







time-to












| |   |                                                                                                                                                                                     
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | an increase in claims payable primarily as a result of increased
    medical costs in 2005 and entry into new markets resulting in a
    net increase in cash flow of $78.3 million;
|
| |  | a decrease in the effect of the change in unearned revenue of
    $18.4 million;                                                                                                    





| |   |                                                                                                                                                                                                                                                                                       
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | a decrease in net income of $32.4 million;                                                                                                                                                                                                                                            
|
| |  | an increase in the effect of the change in premium receivables
    of approximately $20.4 million primarily due to the timing
    of payment in our new market, New York, where premium is billed
    by our New York subsidiary and collected approximately four
    weeks later; and

50



---



##### 





| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | a decrease in the change in accounts payable, accrued expenses
    and other liabilities of $18.3 million primarily as a
    result of the decrease in the contingent liability accrued for
    the Maryland market which was accrued 2004 and released in 2005
    ($12.2 million of the decrease); payment of 2004 incentive
    compensation in 2005, with a comparably lower corresponding
    accrual in the current period ($12.7 million of the
    decrease); payment of premium taxes net of accruals as a result
    of timing of payments ($13.6 million of the decrease);
    offset by decrease in the change in income taxes payable as a
    result of timing of payments ($7.0 million) and decrease in
    the change in accounts payable and experience rebate payable of
    ($5.8 million).













|                                |                             |                       |       |        |        |   |       |        |        |   |      |        |        |      |   |       |       |   |   |            |        |   |   |       |       |   |   |        |        | 
|------------------------------- | --------------------------- | --------------------- | ----- | ------ | ------ | - | ----- | ------ | ------ | - | ---- | ------ | ------ | ---- | - | ----- | ----- | - | - | ---------- | ------ | - | - | ----- | ----- | - | - | ------ | ------ | 
|Contractual Obligations         |                             | Total                 |       |        | 2006   |   |       | 2007   |        |   | 2008 |        |        | 2009 |   |       | 2010  |   |   | Thereafter |       
|                                |                             |                       |       |        |        |   |       |        |        |   |      |        |        |      |   |       |       |   |   |            |       
|Lease financing:                |                             |                       |       |        |        |   |       |        |        |   |      |        |        |      |   |       |       |   |   |            |        |   |   |       |       |   |   |       
|                               
|                               
|                               
|                               
|                                | Operating lease obligations |                       | $     | 93,413 |        |   | $     | 11,327 |        |   | $    | 11,666 |        |      | $ | 9,445 |       |   | $ | 11,019     |        |   | $ | 8,302 |       |   | $ | 41,654 |       
|                               
|                               
|                               
|                               
|                                | Capital lease obligations   |                       |       | 2,977  |        |   |       | 1,749  |        |   |      | 852    |        |      |   | 376   |       |   |   |           |        |   |   |      |       |   |   |       |       
|                                |                             |                       |       |        |        |   |       |        |        |   |      |        |        |      |   |       |       |   |   |            |       
|                                |                             | Total lease financing |       | $      | 96,390 |   |       | $      | 13,076 |   |      | $      | 12,518 |      |   | $     | 9,821 |   |   | $          | 11,019 |   |   | $     | 8,302 |   |   | $      | 41,654 | 
|                                |                             |                       |       |        |        |   |       |        |        |   |      |        |        |      |   |       |       |   |   |            |       
|                               
|Capital improvement obligations |                             | $                     | 2,360 |        |        | $ | 2,360 |        |        | $ |     |        |        | $    |  |       |       | $ |  |            |        | $ |  |       |       | $ |  |       
|                                |                             |                       |       |        |        |   |       |        |        |   |      |        |        |      |   |       |       |   |   |            |       

Lease Financing


Operating Lease Obligations.


Capital Lease Obligations.


51



---



##### 



Long-term Borrowings


Credit Agreement.


Commitments




Regulatory Capital and Dividend Restrictions








52



---



##### 



Inflation






Off-Balance Sheet Arrangements









|         |                                                               
|-------- | --------------------------------------------------------------
|Item 7A. | Quantitative and Qualitative Disclosures About Market
    Risk



53



---



##### 



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM












Internal Control 
Integrated Framework








54



---



##### 








|        |                                            
|------- | -------------------------------------------
|Item 8. | Financial Statements and Supplementary Data

AMERIGROUP CORPORATION AND SUBSIDIARIES


CONSOLIDATED BALANCE SHEETS


(Dollars in thousands, except per share data)


|                                                                                                                                                 |                                                                                                                                                                    |                            |           |         |         |   |         |         |         | 
|------------------------------------------------------------------------------------------------------------------------------------------------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------ | -------------------------- | --------- | ------- | ------- | - | ------- | ------- | ------- | 
|                                                                                                                                                 |                                                                                                                                                                    | 2005                       |           |         | 2004    |  
|                                                                                                                                                 |                                                                                                                                                                    |                            |           |         |         |  
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|ASSETS                                                                                                                                          
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|Current assets:                                                                                                                                  |                                                                                                                                                                    |                            |           |         |         |   |         |        
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                 | Cash and cash equivalents                                                                                                                                          |                            | $         | 272,169 |         |   | $       | 227,130 |        
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                 | Short-term investments                                                                                                                                             |                            |           | 130,054 |         |   |         | 176,364 |        
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                 | Premium receivables                                                                                                                                                |                            |           | 76,142  |         |   |         | 44,081  |        
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                 | Deferred income taxes                                                                                                                                              |                            |           | 11,972  |         |   |         | 11,019  |        
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                 | Prepaid expenses, provider receivables and other current assets                                                                                                    |                            |           | 37,792  |         |   |         | 18,737  |        
|                                                                                                                                                 |                                                                                                                                                                    |                            |           |         |         |  
|                                                                                                                                                 |                                                                                                                                                                    | Total current assets       |           |         | 528,129 |   |         |         | 477,331 | 
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|Long-term investments                                                                                                                            |                                                                                                                                                                    |                            | 184,883   |         |         |   | 208,565 |        
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|Investments on deposit for licensure                                                                                                             |                                                                                                                                                                    |                            | 56,657    |         |         |   | 38,365  |        
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|Property and equipment, net                                                                                                                      |                                                                                                                                                                    |                            | 36,967    |         |         |   | 34,030  |        
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|Software, net of accumulated amortization of $27,016 and $20,317
    at December 31, 2005 and 2004, respectively                                 |                                                                                                                                                                    |                            | 24,697    |         |         |   | 16,268  |        
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|Other long-term assets                                                                                                                           |                                                                                                                                                                    |                            | 7,140     |         |         |   | 4,909   |        
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|Goodwill and other intangible assets, net of accumulated
    amortization of $23,166 and $15,226 at December 31, 2005
    and 2004, respectively |                                                                                                                                                                    |                            | 255,115   |         |         |   | 140,382 |        
|                                                                                                                                                 |                                                                                                                                                                    |                            |           |         |         |  
|                                                                                                                                                 |                                                                                                                                                                    | $                          | 1,093,588 |         |         | $ | 919,850 |        
|                                                                                                                                                 |                                                                                                                                                                    |                            |           |         |         |  
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                            
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|Current liabilities:                                                                                                                             |                                                                                                                                                                    |                            |           |         |         |   |         |        
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                 | Claims payable                                                                                                                                                     |                            | $         | 348,679 |         |   | $       | 241,253 |        
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                 | Accounts payable                                                                                                                                                   |                            |           | 7,243   |         |   |         | 4,826   |        
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                 | Unearned revenue                                                                                                                                                   |                            |           | 32,598  |         |   |         | 34,228  |        
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                 | Accrued payroll and related liabilities                                                                                                                            |                            |           | 17,978  |         |   |         | 19,833  |        
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                 | Accrued expenses and other current liabilities                                                                                                                     |                            |           | 26,730  |         |   |         | 33,841  |        
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                 | Current portion of capital lease obligations                                                                                                                       |                            |           | 1,642   |         |   |         | 3,168   |        
|                                                                                                                                                 |                                                                                                                                                                    |                            |           |         |         |  
|                                                                                                                                                 |                                                                                                                                                                    | Total current liabilities  |           |         | 434,870 |   |         |         | 337,149 | 
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|Capital lease obligations less current portion                                                                                                   |                                                                                                                                                                    |                            | 1,175     |         |         |   | 2,878   |        
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|Deferred income taxes                                                                                                                            |                                                                                                                                                                    |                            | 10,273    |         |         |   | 4,635   |        
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|Other long-term liabilities                                                                                                                      |                                                                                                                                                                    |                            | 5,716     |         |         |   | 6,476   |        
|                                                                                                                                                 |                                                                                                                                                                    |                            |           |         |         |  
|                                                                                                                                                 |                                                                                                                                                                    | Total liabilities          |           |         | 452,034 |   |         |         | 351,138 | 
|                                                                                                                                                 |                                                                                                                                                                    |                            |           |         |         |  
|Commitments and contingencies (note 11)                                                                                                          |                                                                                                                                                                    |                            |           |         |         |   |         |        
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|Stockholders equity:                                                                                                                            |                                                                                                                                                                    |                            |           |         |         |   |         |        
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                 | Common stock, $0.01 par value. Authorized
    100,000,000 shares; issued and outstanding 51,567,340 and
    50,529,724 at December 31, 2005 and 2004, respectively |                            |           | 516     |         |   |         | 505     |        
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                 | Additional paid-in capital                                                                                                                                         |                            |           | 371,744 |         |   |         | 352,417 |        
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                 | Retained earnings                                                                                                                                                  |                            |           | 269,294 |         |   |         | 215,790 |        
|                                                                                                                                                 |                                                                                                                                                                    |                            |           |         |         |  
|                                                                                                                                                 |                                                                                                                                                                    | Total stockholders equity |           |         | 641,554 |   |         |         | 568,712 | 
|                                                                                                                                                 |                                                                                                                                                                    |                            |           |         |         |  
|                                                                                                                                                 |                                                                                                                                                                    | $                          | 1,093,588 |         |         | $ | 919,850 |        
|                                                                                                                                                 |                                                                                                                                                                    |                            |           |         |         |  



55



---



##### 



AMERIGROUP CORPORATION AND SUBSIDIARIES


CONSOLIDATED INCOME STATEMENTS


|                      |                                                                                               |                                                   |        |            |           |  |        |            |           |  |        |            |           | 
|--------------------- | --------------------------------------------------------------------------------------------- | ------------------------------------------------- | ------ | ---------- | --------- |  | ------ | ---------- | --------- |  | ------ | ---------- | --------- | 
|                      |                                                                                               | Years Ended December 31,                          |       
|                      |                                                                                               |                                                   |       
|                      |                                                                                               | 2005                                              |        |            | 2004      |  |        | 2003       |          
|                      |                                                                                               |                                                   |        |            |           |  |        |            |          
|                      |                                                                                               | (Dollars in thousands, except for per share data) |       
|                     
|                     
|                     
|                     
|Revenues:             |                                                                                               |                                                   |        |            |           |  |        |            |           |  |        |           
|                     
|                     
|                     
|                     
|                      | Premium                                                                                       |                                                   | $      | 2,311,599  |           |  | $      | 1,813,391  |           |  | $      | 1,615,508  |          
|                     
|                     
|                     
|                     
|                      | Investment income                                                                             |                                                   |        | 18,310     |           |  |        | 10,340     |           |  |        | 6,726      |          
|                      |                                                                                               |                                                   |        |            |           |  |        |            |          
|                      |                                                                                               | Total revenues                                    |        |            | 2,329,909 |  |        |            | 1,823,731 |  |        |            | 1,622,234 | 
|                      |                                                                                               |                                                   |        |            |           |  |        |            |          
|Expenses:             |                                                                                               |                                                   |        |            |           |  |        |            |           |  |        |           
|                     
|                     
|                     
|                     
|                      | Health benefits                                                                               |                                                   |        | 1,957,196  |           |  |        | 1,469,097  |           |  |        | 1,295,900  |          
|                     
|                     
|                     
|                     
|                      | Selling, general and administrative                                                           |                                                   |        | 258,446    |           |  |        | 191,915    |           |  |        | 186,856    |          
|                     
|                     
|                     
|                     
|                      | Depreciation and amortization                                                                 |                                                   |        | 26,948     |           |  |        | 20,750     |           |  |        | 23,650     |          
|                     
|                     
|                     
|                     
|                      | Interest                                                                                      |                                                   |        | 608        |           |  |        | 731        |           |  |        | 1,913      |          
|                      |                                                                                               |                                                   |        |            |           |  |        |            |          
|                      |                                                                                               | Total expenses                                    |        |            | 2,243,198 |  |        |            | 1,682,493 |  |        |            | 1,508,319 | 
|                      |                                                                                               |                                                   |        |            |           |  |        |            |          
|                      |                                                                                               | Income before income taxes                        |        |            | 86,711    |  |        |            | 141,238   |  |        |            | 113,915   | 
|                     
|                     
|                     
|                     
|Income tax expense    |                                                                                               |                                                   | 33,060 |            |           |  | 55,224 |            |           |  | 46,591 |           
|                      |                                                                                               |                                                   |        |            |           |  |        |            |          
|                      |                                                                                               | Net income                                        |        | $          | 53,651    |  |        | $          | 86,014    |  |        | $          | 67,324    | 
|                      |                                                                                               |                                                   |        |            |           |  |        |            |          
|Net income per share: |                                                                                               |                                                   |        |            |           |  |        |            |           |  |        |           
|                     
|                     
|                     
|                     
|                      | Basic net income per share                                                                    |                                                   | $      | 1.05       |           |  | $      | 1.73       |           |  | $      | 1.56       |          
|                      |                                                                                               |                                                   |        |            |           |  |        |            |          
|                      | Weighted average number of common shares outstanding                                          |                                                   |        | 51,213,589 |           |  |        | 49,721,945 |           |  |        | 43,245,409 |          
|                      |                                                                                               |                                                   |        |            |           |  |        |            |          
|                      | Diluted net income per share                                                                  |                                                   | $      | 1.02       |           |  | $      | 1.66       |           |  | $      | 1.48       |          
|                      |                                                                                               |                                                   |        |            |           |  |        |            |          
|                      | Weighted average number of common shares and dilutive potential
    common shares outstanding |                                                   |        | 52,857,682 |           |  |        | 51,837,579 |           |  |        | 45,603,300 |          
|                      |                                                                                               |                                                   |        |            |           |  |        |            |          



56



---



##### 



AMERIGROUP CORPORATION AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY


|                                                                                                            |  |                        |            |  |            |   |     |          |  |   |          |       |  |               |         |   |        |   |      |   |  |   |         |  
|----------------------------------------------------------------------------------------------------------- |  | ---------------------- | ---------- |  | ---------- | - | --- | -------- |  | - | -------- | ----- |  | ------------- | ------- | - | ------ | - | ---- | - |  | - | ------- | -
|                                                                                                            |  | Common stock           |            |  | Additional |   |     |          |  |   |          | Total | 
|                                                                                                            |  |                        |            |  | paid-in    |   |     | Retained |  |   | Deferred |       |  | stockholders |        
|                                                                                                            |  | Shares                 |            |  | Amount     |   |     | capital  |  |   | earnings |       |  | compensation  |         |   | equity |  
|                                                                                                            |  |                        |            |  |            |   |     |          |  |   |          |       |  |               |         |   |        |  
|                                                                                                            |  | (Dollars in thousands) |           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|Balances at January 1, 2003                                                                                 |  |                        | 41,103,888 |  |            | $ | 411 |          |  | $ | 176,935  |       |  | $             | 62,452  |   |        | $ | (417 | ) |  | $ | 239,381 |  
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|Common stock issued from public offering, net of expenses of
    $8,226                                     |  |                        | 6,325,000  |  |            |   | 63  |          |  |   | 138,766  |       |  |               |        |   |        |   |     |   |  |   | 138,829 |  
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|Common stock issued upon exercise of stock options and purchases
    under the employee stock purchase plan |  |                        | 1,460,356  |  |            |   | 15  |          |  |   | 11,258   |       |  |               |        |   |        |   |     |   |  |   | 11,273  |  
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|Tax benefit from exercise of options                                                                        |  |                        |           |  |            |   |    |          |  |   | 4,547    |       |  |               |        |   |        |   |     |   |  |   | 4,547   |  
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|Amortization of deferred compensation                                                                       |  |                        |           |  |            |   |    |          |  |   |         |       |  |               |        |   |        |   | 360  |   |  |   | 360     |  
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|Net income                                                                                                  |  |                        |           |  |            |   |    |          |  |   |         |       |  |               | 67,324  |   |        |   |     |   |  |   | 67,324  |  
|                                                                                                            |  |                        |            |  |            |   |     |          |  |   |          |       |  |               |         |   |        |  
|Balances at December 31, 2003                                                                               |  |                        | 48,889,244 |  |            |   | 489 |          |  |   | 331,506  |       |  |               | 129,776 |   |        |   | (57  | ) |  |   | 461,714 |  
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|Common stock issued upon exercise of stock options and purchases
    under the employee stock purchase plan |  |                        | 1,640,480  |  |            |   | 16  |          |  |   | 12,902   |       |  |               |        |   |        |   |     |   |  |   | 12,918  |  
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|Tax benefit from exercise of options                                                                        |  |                        |           |  |            |   |    |          |  |   | 8,009    |       |  |               |        |   |        |   |     |   |  |   | 8,009   |  
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|Amortization of deferred compensation                                                                       |  |                        |           |  |            |   |    |          |  |   |         |       |  |               |        |   |        |   | 57   |   |  |   | 57      |  
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|Net income                                                                                                  |  |                        |           |  |            |   |    |          |  |   |         |       |  |               | 86,014  |   |        |   |     |   |  |   | 86,014  |  
|                                                                                                            |  |                        |            |  |            |   |     |          |  |   |          |       |  |               |         |   |        |  
|Balances at December 31, 2004                                                                               |  |                        | 50,529,724 |  |            |   | 505 |          |  |   | 352,417  |       |  |               | 215,790 |   |        |   |     |   |  |   | 568,712 |  
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|Common stock issued upon exercise of stock options and purchases
    under the employee stock purchase plan |  |                        | 1,037,616  |  |            |   | 11  |          |  |   | 10,756   |       |  |               |        |   |        |   |     |   |  |   | 10,767  |  
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|Tax benefit from exercise of options                                                                        |  |                        |           |  |            |   |    |          |  |   | 8,571    |       |  |               |        |   |        |   |     |   |  |   | 8,571   |  
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|Other                                                                                                       |  |                        |           |  |            |   |    |          |  |   |         |       |  |               | (147    | ) |        |   |     |   |  |   | (147    | )
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|Net income                                                                                                  |  |                        |           |  |            |   |    |          |  |   |         |       |  |               | 53,651  |   |        |   |     |   |  |   | 53,651  |  
|                                                                                                            |  |                        |            |  |            |   |     |          |  |   |          |       |  |               |         |   |        |  
|Balances at December 31, 2005                                                                               |  |                        | 51,567,340 |  |            | $ | 516 |          |  | $ | 371,744  |       |  | $             | 269,294 |   |        | $ |     |   |  | $ | 641,554 |  
|                                                                                                            |  |                        |            |  |            |   |     |          |  |   |          |       |  |               |         |   |        |  



57



---



##### 



AMERIGROUP CORPORATION AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF CASH FLOWS


|                                                     |                                                                                             |                                                                                           |                                                                  |                                                     |        |         |         |            |        |         |         |            |        |        |          |  
|---------------------------------------------------- | ------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------- | ---------------------------------------------------------------- | --------------------------------------------------- | ------ | ------- | ------- | ---------- | ------ | ------- | ------- | ---------- | ------ | ------ | -------- | -
|                                                     |                                                                                             | Years Ended December 31,                                                                  |                                                                 
|                                                     |                                                                                             |                                                                                           |                                                                 
|                                                     |                                                                                             | 2005                                                                                      |                                                                  |                                                     | 2004   |         |         | 2003       |       
|                                                     |                                                                                             |                                                                                           |                                                                  |                                                     |        |         |         |            |       
|                                                     |                                                                                             | (Dollars in thousands)                                                                    |                                                                 
|                                                    
|                                                    
|                                                    
|                                                    
|Cash flows from operating activities:                |                                                                                             |                                                                                           |                                                                  |                                                     |        |         |         |            |        |         |         |           
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Net income                                                                                  |                                                                                           | $                                                                | 53,651                                              |        |         | $       | 86,014     |        |         | $       | 67,324     |       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Adjustments to reconcile net income to net cash provided by
    operating activities:       |                                                                                           |                                                                  |                                                     |        |         |         |            |        |         |         |            |       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                             | Depreciation and amortization                                                             |                                                                  |                                                     | 26,948 |         |         |            | 20,750 |         |         |            | 23,650 |       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                             | (Gain) loss on disposal or abandonment of property, equipment
    and software            |                                                                  |                                                     | (61    | )       |         |            | 971    |         |         |            | 74     |       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                             | Deferred tax (benefit) expense                                                            |                                                                  |                                                     | (1,247 | )       |         |            | 2,878  |         |         |            | (3,272 | )     
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                             | Amortization of deferred compensation                                                     |                                                                  |                                                     |       |         |         |            | 57     |         |         |            | 360    |       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                             | Tax benefit related to exercise of stock options                                          |                                                                  |                                                     | 8,571  |         |         |            | 8,009  |         |         |            | 4,547  |       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                             | Changes in assets and liabilities increasing
    (decreasing) cash flows from operations: |                                                                  |                                                     |        |         |         |            |        |         |         |            |        |       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                             |                                                                                           | Premium receivables                                              |                                                     |        | (26,234 | )       |            |        | (5,822  | )       |            |        | (3,026 | )       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                             |                                                                                           | Prepaid expenses, provider receivables and other current assets  |                                                     |        | (15,919 | )       |            |        | (2,742  | )       |            |        | (7,954 | )       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                             |                                                                                           | Other assets                                                     |                                                     |        | (1,074  | )       |            |        | (941    | )       |            |        | (750   | )       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                             |                                                                                           | Claims payable                                                   |                                                     |        | 80,002  |         |            |        | 1,721   |         |            |        | 16,681 |         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                             |                                                                                           | Accounts payable, accrued expenses and other current liabilities |                                                     |        | (9,049  | )       |            |        | 9,234   |         |            |        | (494   | )       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                             |                                                                                           | Unearned revenue                                                 |                                                     |        | (1,723  | )       |            |        | (20,096 | )       |            |        | 28,806 |         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                             |                                                                                           | Other long-term liabilities                                      |                                                     |        | (760    | )       |            |        | 2,027   |         |            |        | 2,548  |         
|                                                     |                                                                                             |                                                                                           |                                                                  |                                                     |        |         |         |            |       
|                                                     |                                                                                             |                                                                                           |                                                                  | Net cash provided by operating activities           |        |         | 113,105 |            |        |         | 102,060 |            |        |        | 128,494  |  
|                                                     |                                                                                             |                                                                                           |                                                                  |                                                     |        |         |         |            |       
|Cash flows from investing activities:                |                                                                                             |                                                                                           |                                                                  |                                                     |        |         |         |            |        |         |         |           
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Proceeds from sale of available-for-sale securities                                         |                                                                                           |                                                                  | 1,120,383                                           |        |         |         | 5,121,916  |        |         |         | 804,047    |       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Purchase of available-for-sale securities                                                   |                                                                                           |                                                                  | (1,027,478                                          | )      |         |         | (4,972,080 | )      |         |         | (1,034,040 | )     
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Proceeds from redemption of held-to-maturity securities                                     |                                                                                           |                                                                  | 214,333                                             |        |         |         | 74,971     |        |         |         | 190,360    |       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Purchase of held-to-maturity securities                                                     |                                                                                           |                                                                  | (237,393                                            | )      |         |         | (158,663   | )      |         |         | (207,501   | )     
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Purchase of property and equipment and software                                             |                                                                                           |                                                                  | (25,819                                             | )      |         |         | (25,727    | )      |         |         | (13,294    | )     
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Proceeds from redemption of investments on deposit for licensure                            |                                                                                           |                                                                  | 46,064                                              |        |         |         | 35,525     |        |         |         | 40,009     |       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Purchase of investments on deposit for licensure                                            |                                                                                           |                                                                  | (56,329                                             | )      |         |         | (38,544    | )      |         |         | (45,496    | )     
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Stock acquisition, net of cash acquired                                                     |                                                                                           |                                                                  | (107,645                                            | )      |         |         |           |        |         |         |           |       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Purchase of contract rights and related assets                                              |                                                                                           |                                                                  |                                                    |        |         |         |           |        |         |         | (8,581     | )     
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Purchase price adjustment received                                                          |                                                                                           |                                                                  |                                                    |        |         |         | 512        |        |         |         | 963        |       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Cash acquired through stock acquisition                                                     |                                                                                           |                                                                  |                                                    |        |         |         |           |        |         |         | 27,473     |       
|                                                     |                                                                                             |                                                                                           |                                                                  |                                                     |        |         |         |            |       
|                                                     |                                                                                             |                                                                                           |                                                                  | Net cash (used in) provided by investing activities |        |         | (73,884 | )          |        |         | 37,910  |            |        |        | (246,060 | )
|                                                     |                                                                                             |                                                                                           |                                                                  |                                                     |        |         |         |            |       
|Cash flows from financing activities:                |                                                                                             |                                                                                           |                                                                  |                                                     |        |         |         |            |        |         |         |           
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Net (decrease) increase in bank overdrafts                                                  |                                                                                           |                                                                  |                                                    |        |         |         | (5,315     | )      |         |         | 4,828      |       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Repayments of borrowings under credit facility                                              |                                                                                           |                                                                  |                                                    |        |         |         |           |        |         |         | (50,000    | )     
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Payment of debt issuance costs                                                              |                                                                                           |                                                                  | (1,626                                              | )      |         |         |           |        |         |         | (1,428     | )     
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Payment of capital lease obligations                                                        |                                                                                           |                                                                  | (3,323                                              | )      |         |         | (4,473     | )      |         |         | (4,902     | )     
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Proceeds from exercise of common stock options and employee
    stock purchases             |                                                                                           |                                                                  | 10,767                                              |        |         |         | 12,918     |        |         |         | 11,273     |       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Proceeds from issuance of common stock upon the public
    offerings, net of issuance costs |                                                                                           |                                                                  |                                                    |        |         |         |           |        |         |         | 138,829    |       
|                                                     |                                                                                             |                                                                                           |                                                                  |                                                     |        |         |         |            |       
|                                                     |                                                                                             |                                                                                           |                                                                  | Net cash provided by financing activities           |        |         | 5,818   |            |        |         | 3,130   |            |        |        | 98,600   |  
|                                                     |                                                                                             |                                                                                           |                                                                  |                                                     |        |         |         |            |       
|Net increase (decrease) in cash and cash equivalents |                                                                                             |                                                                                           | 45,039                                                           |                                                     |        |         | 143,100 |            |        |         | (18,966 | )         
|                                                    
|                                                    
|                                                    
|                                                    
|Cash and cash equivalents at beginning of year       |                                                                                             |                                                                                           | 227,130                                                          |                                                     |        |         | 84,030  |            |        |         | 102,996 |           
|                                                     |                                                                                             |                                                                                           |                                                                  |                                                     |        |         |         |            |       
|Cash and cash equivalents at end of year             |                                                                                             | $                                                                                         | 272,169                                                          |                                                     |        | $       | 227,130 |            |        | $       | 84,030  |           
|                                                     |                                                                                             |                                                                                           |                                                                  |                                                     |        |         |         |            |       
|Supplemental disclosures of cash flow information:   |                                                                                             |                                                                                           |                                                                  |                                                     |        |         |         |            |        |         |         |           
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Cash paid for interest                                                                      |                                                                                           | $                                                                | 621                                                 |        |         | $       | 717        |        |         | $       | 1,755      |       
|                                                     |                                                                                             |                                                                                           |                                                                  |                                                     |        |         |         |            |       
|                                                     | Cash paid for income taxes                                                                  |                                                                                           | $                                                                | 27,494                                              |        |         | $       | 53,628     |        |         | $       | 40,671     |       
|                                                     |                                                                                             |                                                                                           |                                                                  |                                                     |        |         |         |            |       
|Supplemental disclosures of non-cash activities:     |                                                                                             |                                                                                           |                                                                  |                                                     |        |         |         |            |        |         |         |           
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Property and equipment acquired under capital lease                                         |                                                                                           | $                                                                |                                                    |        |         | $       |           |        |         | $       | 5,977      |       
|                                                     |                                                                                             |                                                                                           |                                                                  |                                                     |        |         |         |            |       



|                                           |                     |   |         |         | 
|------------------------------------------ | ------------------- | - | ------- | ------- | 
|                                          
|                                          
|                                          
|                                          
|Assets acquired, including cash of $27,755 |                     | $ | 172,378 |        
|                                          
|                                          
|                                          
|                                          
|Liabilities assumed                        |                     |   | 36,978  |        
|                                           |                     |   |        
|                                           | Net assets acquired |   | $       | 135,400 | 
|                                           |                     |   |        



58



---



##### 



AMERIGROUP CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


December 31, 2005, 2004 and 2003


(Dollars in thousands, except for per share data)




|    |                                                       
|--- | ------------------------------------------------------
|(1) | Corporate Organization and Principles of Consolidation



|    |                       
|--- | ----------------------
|(a) | Corporate Organization











|    |                            
|--- | ---------------------------
|(b) | Principles of Consolidation



59



---



##### 



AMERIGROUP CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|    |                                                         
|--- | --------------------------------------------------------
|(2) | Summary of Significant Accounting Policies and Practices



|    |                 
|--- | ----------------
|(a) | Cash Equivalents





| |                                                                                 
| | --------------------------------------------------------------------------------
| | (b) Short and Long-Term Investments and Investments
    on Deposit for Licensure

held-to Held-to held-to held-to




Held-to held-to held-to


held-to




| |                           
| | --------------------------
| | (c) Property and Equipment



60



---



##### 



AMERIGROUP CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                       |  |  |             | 
|---------------------- |  |  | ----------- | 
|                      
|                      
|                      
|                      
|Leasehold improvements |  |  | 3-15  years | 
|                      
|                      
|                      
|                      
|Furniture and fixtures |  |  | 5-7 years   | 
|                      
|                      
|                      
|                      
|Equipment              |  |  | 3-5 years   | 



| |             
| | ------------
| | (d) Software

98-1, Accounting for the Costs of Software Developed or Obtained
for Internal Use




| |                                   
| | ----------------------------------
| | (e) Goodwill and Other Intangibles

Goodwill and Other
Intangible Assets Accounting for
Impairment or Disposal of Long-Lived Assets.




| |                 
| | ----------------
| | (f) Other Assets





| |                 
| | ----------------
| | (g) Income Taxes

Accounting for Income Taxes




| |                  
| | -----------------
| | (h) Premium Taxes





| |                             
| | ----------------------------
| | (i) Stock-Based Compensation

Accounting for Stock-Based Compensation Accounting for Stock Issued to Employees


61



---



##### 



AMERIGROUP CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Accounting for Stock-Based Compensation


|                              |                                                                                                                                                     |      |   |        |      |  |   |        |  |  |   |        | 
|----------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------- | ---- | - | ------ | ---- |  | - | ------ |  |  | - | ------ | 
|                              |                                                                                                                                                     | 2005 |   |        | 2004 |  |   | 2003   | 
|                              |                                                                                                                                                     |      |   |        |      |  |   |        | 
|Net income:                   |                                                                                                                                                     |      |   |        |      |  |   |        |  |  |   |       
|                             
|                             
|                             
|                             
|                              | Reported net income                                                                                                                                 |      | $ | 53,651 |      |  | $ | 86,014 |  |  | $ | 67,324 | 
|                             
|                             
|                             
|                             
|                              | Deduct: Total stock-based employee compensation expense
    determined under fair value based method for all awards, net of
    related tax effects |      |   | 16,563 |      |  |   | 9,321  |  |  |   | 9,577  | 
|                              |                                                                                                                                                     |      |   |        |      |  |   |        | 
|                              | Proforma net income                                                                                                                                 |      | $ | 37,088 |      |  | $ | 76,693 |  |  | $ | 57,747 | 
|                              |                                                                                                                                                     |      |   |        |      |  |   |        | 
|Basic net income per share:   |                                                                                                                                                     |      |   |        |      |  |   |        |  |  |   |       
|                             
|                             
|                             
|                             
|                              | Reported basic net income per share                                                                                                                 |      | $ | 1.05   |      |  | $ | 1.73   |  |  | $ | 1.56   | 
|                             
|                             
|                             
|                             
|                              | Proforma basic net income per share                                                                                                                 |      |   | 0.72   |      |  |   | 1.54   |  |  |   | 1.34   | 
|                             
|                             
|                             
|                             
|Diluted net income per share: |                                                                                                                                                     |      |   |        |      |  |   |        |  |  |   |       
|                             
|                             
|                             
|                             
|                              | Reported diluted net income per share                                                                                                               |      | $ | 1.02   |      |  | $ | 1.66   |  |  | $ | 1.48   | 
|                             
|                             
|                             
|                             
|                              | Proforma diluted net income per share                                                                                                               |      |   | 0.70   |      |  |   | 1.49   |  |  |   | 1.28   | 

out-of




| |                    
| | -------------------
| | (j) Premium Revenue





| |                              
| | -----------------------------
| | (k) Experience Rebate Payable



62



---



##### 



AMERIGROUP CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






| |                   
| | ------------------
| | (l) Claims Payable





| |                       
| | ----------------------
| | (m) Stop-loss Coverage





| |                                    
| | -----------------------------------
| | (n) Impairment of Long-Lived Assets



Business Combinations




| |                         
| | ------------------------
| | (o) Net Income Per Share



63



---



##### 



AMERIGROUP CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






| |                     
| | --------------------
| | (p) Use of Estimates





| |                      
| | ---------------------
| | (q) Reclassifications





| |                                
| | -------------------------------
| | (r) Recent Accounting Standards

Statement of Cash
Flows










| |                            
| | ---------------------------
| | (s) Risks and Uncertainties



64



---



##### 



AMERIGROUP CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








|    |                                                                             
|--- | ----------------------------------------------------------------------------
|(3) | Short and Long-Term Investments and Investments on Deposit
    for Licensure

held-to


|      |                                                                          |                                                  |   |            |         |  |            |         |   |  |       |   |    |  |   |         |        | 
|----- | ------------------------------------------------------------------------ | ------------------------------------------------ | - | ---------- | ------- |  | ---------- | ------- | - |  | ----- | - | -- |  | - | ------- | ------ | 
|      |                                                                          |                                                  |   | Gross      |         |  | Gross      |         |   | 
|      |                                                                          |                                                  |   | unrealized |         |  | unrealized |         |   | 
|      |                                                                          | Amortized                                        |   |            | holding |  |            | holding |   |  | Fair  |  
|      |                                                                          | Cost                                             |   |            | gains   |  |            | losses  |   |  | value |  
|      |                                                                          |                                                  |   |            |         |  |            |         |   |  |       |  
|2005: |                                                                          |                                                  |   |            |         |  |            |         |   |  |       |   |    |  |   |        
|     
|     
|     
|     
|      | Auction rate securities  available-for-sale (carried
    at fair value) |                                                  | $ | 59,500     |         |  | $          |        |   |  | $     |  |    |  | $ | 59,500  |       
|      |                                                                          |                                                  |   |            |         |  |            |         |   |  |       |  
|      | Held-to-maturity (carried at amortized cost):                            |                                                  |   |            |         |  |            |         |   |  |       |   |    |  |   |         |       
|     
|     
|     
|     
|      |                                                                          | Commercial paper                                 |   | $          | 5,382   |  |            | $       |  |  |       | $ | 5  |  |   | $       | 5,377  | 
|     
|     
|     
|     
|      |                                                                          | Certificates of deposit                          |   |            | 513     |  |            |         |  |  |       |   |   |  |   |         | 513    | 
|     
|     
|     
|     
|      |                                                                          | Corporate securities                             |   |            | 1,500   |  |            |         |  |  |       |   |   |  |   |         | 1,500  | 
|     
|     
|     
|     
|      |                                                                          | Debt securities of government sponsored entities |   |            | 52,681  |  |            |         | 1 |  |       |   | 50 |  |   |         | 52,632 | 
|     
|     
|     
|     
|      | Municipal bonds                                                          |                                                  |   | 10,478     |         |  |            |        |   |  |       | 6 |    |  |   | 10,472  |       
|      |                                                                          |                                                  |   |            |         |  |            |         |   |  |       |  
|      |                                                                          | Total                                            |   | $          | 70,554  |  |            | $       | 1 |  |       | $ | 61 |  |   | $       | 70,494 | 
|      |                                                                          |                                                  |   |            |         |  |            |         |   |  |       |  
|2004: |                                                                          |                                                  |   |            |         |  |            |         |   |  |       |   |    |  |   |        
|     
|     
|     
|     
|      | Auction rate securities  available-for-sale (carried
    at fair value) |                                                  | $ | 150,401    |         |  | $          |        |   |  | $     |  |    |  | $ | 150,401 |       
|      |                                                                          |                                                  |   |            |         |  |            |         |   |  |       |  
|      | Held-to-maturity (carried at amortized cost):                            |                                                  |   |            |         |  |            |         |   |  |       |   |    |  |   |         |       
|     
|     
|     
|     
|      |                                                                          | Commercial paper                                 |   | $          | 18,476  |  |            | $       |  |  |       | $ | 6  |  |   | $       | 18,470 | 
|     
|     
|     
|     
|      |                                                                          | Debt securities of government sponsored entities |   |            | 7,487   |  |            |         |  |  |       |   | 12 |  |   |         | 7,475  | 
|      |                                                                          |                                                  |   |            |         |  |            |         |   |  |       |  
|      |                                                                          | Total                                            |   | $          | 25,963  |  |            | $       |  |  |       | $ | 18 |  |   | $       | 25,945 | 
|      |                                                                          |                                                  |   |            |         |  |            |         |   |  |       |  

65



---



##### 



AMERIGROUP CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


held-to


|      |                                                                          |                                                                                                |   |            |         |  |            |         |   |  |       |     |       |  |   |        |         | 
|----- | ------------------------------------------------------------------------ | ---------------------------------------------------------------------------------------------- | - | ---------- | ------- |  | ---------- | ------- | - |  | ----- | --- | ----- |  | - | ------ | ------- | 
|      |                                                                          |                                                                                                |   | Gross      |         |  | Gross      |         |   | 
|      |                                                                          |                                                                                                |   | unrealized |         |  | unrealized |         |   | 
|      |                                                                          | Amortized                                                                                      |   |            | holding |  |            | holding |   |  | Fair  |    
|      |                                                                          | Cost                                                                                           |   |            | gains   |  |            | losses  |   |  | value |    
|      |                                                                          |                                                                                                |   |            |         |  |            |         |   |  |       |    
|2005: |                                                                          |                                                                                                |   |            |         |  |            |         |   |  |       |     |       |  |   |       
|     
|     
|     
|     
|      | Auction rate securities  available-for-sale (carried
    at fair value) |                                                                                                | $ | 34,752     |         |  | $          |        |   |  | $     | 147 |       |  | $ | 34,605 |        
|      |                                                                          |                                                                                                |   |            |         |  |            |         |   |  |       |    
|      | Held-to-maturity (carried at amortized cost):                            |                                                                                                |   |            |         |  |            |         |   |  |       |     |       |  |   |        |        
|     
|     
|     
|     
|      |                                                                          | Municipal bonds, maturing within one year                                                      |   | $          | 6,400   |  |            | $       |  |  |       | $   | 29    |  |   | $      | 6,371   | 
|     
|     
|     
|     
|      |                                                                          | Corporate securities, maturing within one year                                                 |   |            | 2,000   |  |            |         |  |  |       |     | 10    |  |   |        | 1,990   | 
|     
|     
|     
|     
|      |                                                                          | Debt securities of government sponsored entities, maturing
    within one year                 |   |            | 114,384 |  |            |         |  |  |       |     | 645   |  |   |        | 113,739 | 
|     
|     
|     
|     
|      |                                                                          | Debt securities of government sponsored entities, maturing
    between one year and five years |   |            | 27,494  |  |            |         | 1 |  |       |     | 32    |  |   |        | 27,463  | 
|      |                                                                          |                                                                                                |   |            |         |  |            |         |   |  |       |    
|      |                                                                          | Total                                                                                          |   | $          | 150,278 |  |            | $       | 1 |  |       | $   | 716   |  |   | $      | 149,563 | 
|      |                                                                          |                                                                                                |   |            |         |  |            |         |   |  |       |    
|2004: |                                                                          |                                                                                                |   |            |         |  |            |         |   |  |       |     |       |  |   |       
|     
|     
|     
|     
|      | Auction rate securities  available-for-sale (carried
    at fair value) |                                                                                                | $ | 36,756     |         |  | $          |        |   |  | $     |    |       |  | $ | 36,756 |        
|      |                                                                          |                                                                                                |   |            |         |  |            |         |   |  |       |    
|      | Held-to-maturity (carried at amortized cost):                            |                                                                                                |   |            |         |  |            |         |   |  |       |     |       |  |   |        |        
|     
|     
|     
|     
|      |                                                                          | Municipal bonds, maturing within one year                                                      |   | $          | 9,908   |  |            | $       |  |  |       | $   | 39    |  |   | $      | 9,869   | 
|     
|     
|     
|     
|      |                                                                          | Municipal bonds, maturing between one and five years                                           |   |            | 6,528   |  |            |         |  |  |       |     | 21    |  |   |        | 6,507   | 
|     
|     
|     
|     
|      |                                                                          | Debt securities of government sponsored entities, maturing
    within one year                 |   |            | 46,993  |  |            |         |  |  |       |     | 313   |  |   |        | 46,680  | 
|     
|     
|     
|     
|      |                                                                          | Debt securities of government sponsored entities, maturing
    between one year and five years |   |            | 108,380 |  |            |         |  |  |       |     | 1,074 |  |   |        | 107,306 | 
|      |                                                                          |                                                                                                |   |            |         |  |            |         |   |  |       |    
|      |                                                                          | Total                                                                                          |   | $          | 171,809 |  |            | $       |  |  |       | $   | 1,447 |  |   | $      | 170,362 | 
|      |                                                                          |                                                                                                |   |            |         |  |            |         |   |  |       |    

66



---



##### 



AMERIGROUP CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


held-to


|      |                                                                                                |           |   |            |         |  |            |         |    |  |            |     |     |  |   |        |        | 
|----- | ---------------------------------------------------------------------------------------------- | --------- | - | ---------- | ------- |  | ---------- | ------- | -- |  | ---------- | --- | --- |  | - | ------ | ------ | 
|      |                                                                                                |           |   | Gross      |         |  | Gross      |         |    | 
|      |                                                                                                |           |   | unrealized |         |  | unrealized |         |    | 
|      |                                                                                                | Amortized |   |            | holding |  |            | holding |    |  |           
|      |                                                                                                | Cost      |   |            | gains   |  |            | losses  |    |  | Fair value |    
|      |                                                                                                |           |   |            |         |  |            |         |    |  |            |    
|2005: |                                                                                                |           |   |            |         |  |            |         |    |  |            |     |     |  |   |       
|     
|     
|     
|     
|      | Money market funds                                                                             |           | $ | 4,984      |         |  | $          |        |    |  | $          |    |     |  | $ | 4,984  |       
|     
|     
|     
|     
|      | Commercial paper                                                                               |           |   | 422        |         |  |            |        |    |  |            | 15  |     |  |   | 407    |       
|     
|     
|     
|     
|      | Certificates of deposit                                                                        |           |   | 303        |         |  |            |        |    |  |            | 3   |     |  |   | 300    |       
|     
|     
|     
|     
|      | U.S. Treasury securities, maturing within one year                                             |           |   | 13,791     |         |  |            |        |    |  |            | 53  |     |  |   | 13,738 |       
|     
|     
|     
|     
|      | U.S. Treasury securities, maturing between one year and
    five years                         |           |   | 503        |         |  |            |        |    |  |            | 11  |     |  |   | 492    |       
|     
|     
|     
|     
|      | U.S. Treasury securities, maturing between five years and
    ten years                        |           |   | 2,456      |         |  |            | 50      |    |  |            | 45  |     |  |   | 2,461  |       
|     
|     
|     
|     
|      | Debt securities of government sponsored entities, maturing
    within one year                 |           |   | 23,415     |         |  |            | 1       |    |  |            | 213 |     |  |   | 23,203 |       
|     
|     
|     
|     
|      | Debt securities of government sponsored entities, maturing
    between one year and five years |           |   | 10,368     |         |  |            |        |    |  |            | 24  |     |  |   | 10,344 |       
|     
|     
|     
|     
|      | Debt securities of government sponsored entities, maturing
    between five and ten years      |           |   | 415        |         |  |            |        |    |  |            | 74  |     |  |   | 341    |       
|      |                                                                                                |           |   |            |         |  |            |         |    |  |            |    
|      |                                                                                                | Total     |   | $          | 56,657  |  |            | $       | 51 |  |            | $   | 438 |  |   | $      | 56,270 | 
|      |                                                                                                |           |   |            |         |  |            |         |    |  |            |    
|2004: |                                                                                                |           |   |            |         |  |            |         |    |  |            |     |     |  |   |       
|     
|     
|     
|     
|      | Money market funds                                                                             |           | $ | 3,452      |         |  | $          |        |    |  | $          |    |     |  | $ | 3,452  |       
|     
|     
|     
|     
|      | U.S. Treasury securities, maturing within one year                                             |           |   | 5,933      |         |  |            |        |    |  |            | 7   |     |  |   | 5,926  |       
|     
|     
|     
|     
|      | Debt securities of government sponsored entities, maturing
    within one year                 |           |   | 11,373     |         |  |            |        |    |  |            | 69  |     |  |   | 11,304 |       
|     
|     
|     
|     
|      | Debt securities of government sponsored entities, maturing
    between one year and five years |           |   | 17,607     |         |  |            |        |    |  |            | 137 |     |  |   | 17,470 |       
|      |                                                                                                |           |   |            |         |  |            |         |    |  |            |    
|      |                                                                                                | Total     |   | $          | 38,365  |  |            | $       |   |  |            | $   | 213 |  |   | $      | 38,152 | 
|      |                                                                                                |           |   |            |         |  |            |         |    |  |            |    



67



---



##### 



AMERIGROUP CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


held-to


|                                                 |                                       |                     |        |            |                      |   |       |            |  |  |       |            |  |         |         |         |            |   |     |     |  |  |    |    | 
|------------------------------------------------ | ------------------------------------- | ------------------- | ------ | ---------- | -------------------- | - | ----- | ---------- |  |  | ----- | ---------- |  | ------- | ------- | ------- | ---------- | - | --- | --- |  |  | -- | -- | 
|                                                 |                                       | 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 |  
|                                                 |                                       |                     |        |            |                      |   |       |            |  |  |       |            |  |         |         |         |            |  
|2005:                                            |                                       |                     |        |            |                      |   |       |            |  |  |       |            |  |         |         |         |            |   |     |     |  |  |    |   
|                                                
|                                                
|                                                
|                                                
|Commercial paper                                 |                                       | $                   | 4,383  |            |                      | $ | 20    |            |  |  | 3     |            |  | $       |        |         |            | $ |    |     |  |  |   |   
|                                                
|                                                
|                                                
|                                                
|Certificates of deposit                          |                                       |                     | 300    |            |                      |   | 3     |            |  |  | 1     |            |  |         |        |         |            |   |    |     |  |  |   |   
|                                                
|                                                
|                                                
|                                                
|Corporate securities                             |                                       |                     | 1,990  |            |                      |   | 10    |            |  |  | 1     |            |  |         |        |         |            |   |    |     |  |  |   |   
|                                                
|                                                
|                                                
|                                                
|Debt securities of government sponsored entities |                                       |                     | 94,801 |            |                      |   | 260   |            |  |  | 66    |            |  |         | 118,899 |         |            |   | 778 |     |  |  | 60 |   
|                                                
|                                                
|                                                
|                                                
|Municipal bonds                                  |                                       |                     | 5,972  |            |                      |   | 6     |            |  |  | 3     |            |  |         | 6,371   |         |            |   | 29  |     |  |  | 5  |   
|                                                
|                                                
|                                                
|                                                
|U.S. Treasury securities                         |                                       |                     | 9,082  |            |                      |   | 109   |            |  |  | 15    |            |  |         |        |         |            |   |    |     |  |  |   |   
|                                                 |                                       |                     |        |            |                      |   |       |            |  |  |       |            |  |         |         |         |            |  
|                                                 | Total temporarily impaired securities |                     | $      | 116,528    |                      |   | $     | 408        |  |  |       | 89         |  |         | $       | 125,270 |            |   | $   | 807 |  |  |    | 65 | 
|                                                 |                                       |                     |        |            |                      |   |       |            |  |  |       |            |  |         |         |         |            |  

held-to


|                                                 |                                       |                     |         |            |                      |   |       |            |  |  |       |            |  |         |       |       |            |   |    |    |  |  |   |   | 
|------------------------------------------------ | ------------------------------------- | ------------------- | ------- | ---------- | -------------------- | - | ----- | ---------- |  |  | ----- | ---------- |  | ------- | ----- | ----- | ---------- | - | -- | -- |  |  | - | - | 
|                                                 |                                       | 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 |  
|                                                 |                                       |                     |         |            |                      |   |       |            |  |  |       |            |  |         |       |       |            |  
|2004:                                            |                                       |                     |         |            |                      |   |       |            |  |  |       |            |  |         |       |       |            |   |    |    |  |  |   |  
|                                                
|                                                
|                                                
|                                                
|Commercial paper                                 |                                       | $                   | 14,970  |            |                      | $ | 6     |            |  |  | 10    |            |  | $       |      |       |            | $ |   |    |  |  |  |  
|                                                
|                                                
|                                                
|                                                
|Debt securities of government sponsored entities |                                       |                     | 179,771 |            |                      |   | 1,567 |            |  |  | 91    |            |  |         | 5,962 |       |            |   | 38 |    |  |  | 3 |  
|                                                
|                                                
|                                                
|                                                
|Municipal bonds                                  |                                       |                     | 16,376  |            |                      |   | 60    |            |  |  | 8     |            |  |         |      |       |            |   |   |    |  |  |  |  
|                                                
|                                                
|                                                
|                                                
|U.S. Treasury securities                         |                                       |                     | 5,926   |            |                      |   | 7     |            |  |  | 7     |            |  |         |      |       |            |   |   |    |  |  |  |  
|                                                 |                                       |                     |         |            |                      |   |       |            |  |  |       |            |  |         |       |       |            |  
|                                                 | Total temporarily impaired securities |                     | $       | 217,043    |                      |   | $     | 1,640      |  |  |       | 116        |  |         | $     | 5,962 |            |   | $  | 38 |  |  |   | 3 | 
|                                                 |                                       |                     |         |            |                      |   |       |            |  |  |       |            |  |         |       |       |            |  



68



---



##### 



AMERIGROUP CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|    |                            
|--- | ---------------------------
|(4) | Property and Equipment, Net



|                                               |  |      |         |   |      |   |         |  
|---------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | -
|                                               |  | 2005 |         |   | 2004 |  
|                                               |  |      |         |   |      |  
|Leasehold improvements                         |  | $    | 20,110  |   |      | $ | 17,506  |  
|                                              
|                                              
|                                              
|                                              
|Furniture and fixtures                         |  |      | 14,683  |   |      |   | 11,918  |  
|                                              
|                                              
|                                              
|                                              
|Equipment                                      |  |      | 57,583  |   |      |   | 43,551  |  
|                                               |  |      |         |   |      |  
|                                               |  |      | 92,376  |   |      |   | 72,975  |  
|                                              
|                                              
|                                              
|                                              
|Less accumulated depreciation and amortization |  |      | (55,409 | ) |      |   | (38,945 | )
|                                               |  |      |         |   |      |  
|                                               |  | $    | 36,967  |   |      | $ | 34,030  |  
|                                               |  |      |         |   |      |  



|    |             
|--- | ------------
|(5) | Acquisitions



|    |         
|--- | --------
|(a) | CarePlus







69



---



##### 



AMERIGROUP CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                     |                           |   |         |         | 
|------------------------------------ | ------------------------- | - | ------- | ------- | 
|                                    
|                                    
|                                    
|                                    
|Cash and cash equivalents            |                           | $ | 27,755  |        
|                                    
|                                    
|                                    
|                                    
|Investments on deposit for licensure |                           |   | 8,027   |        
|                                    
|                                    
|                                    
|                                    
|Goodwill and other intangible assets |                           |   | 122,673 |        
|                                    
|                                    
|                                    
|                                    
|Property, equipment and software     |                           |   | 3,941   |        
|                                    
|                                    
|                                    
|                                    
|Other assets                         |                           |   | 9,982   |        
|                                     |                           |   |        
|                                     | Total assets acquired     |   |         | 172,378 | 
|                                     |                           |   |        
|Claims payable                       |                           |   | 27,424  |        
|                                    
|                                    
|                                    
|                                    
|Other liabilities                    |                           |   | 9,554   |        
|                                     |                           |   |        
|                                     | Total liabilities assumed |   |         | 36,978  | 
|                                     |                           |   |        
|                                     | Net assets acquired       |   | $       | 135,400 | 
|                                     |                           |   |        



|                                       |  |   |        |                     |  |  |           | 
|-------------------------------------- |  | - | ------ | ------------------- |  |  | --------- | 
|                                       |  |   |        | Amortization period | 
|                                       |  |   |        |                     | 
|Membership rights and provider network |  | $ | 12,900 |                     |  |  | 10 years  | 
|                                      
|                                      
|                                      
|                                      
|Non-compete agreement and trademarks   |  |   | 1,080  |                     |  |  | 1-3 years | 
|                                       |  |   |        |                     |  | 
|                                       |  | $ | 13,980 |                     |  |  |           | 
|                                       |  |   |        |                     |  | 



|                                             |                              |   |           |           | 
|-------------------------------------------- | ---------------------------- | - | --------- | --------- | 
|                                            
|                                            
|                                            
|                                            
|Premium revenue                              |                              | $ | 2,008,319 |          
|                                            
|                                            
|                                            
|                                            
|Investment income and other                  |                              |   | 9,030     |          
|                                             |                              |   |          
|                                             | Total revenues               |   |           | 2,017,349 | 
|                                             |                              |   |          
|Health benefits expenses                     |                              |   | 1,608,656 |          
|                                            
|                                            
|                                            
|                                            
|Selling, general and administrative expenses |                              |   | 229,812   |          
|                                            
|                                            
|                                            
|                                            
|Depreciation and amortization expenses       |                              |   | 28,734    |          
|                                            
|                                            
|                                            
|                                            
|Interest expense                             |                              |   | 731       |          
|                                             |                              |   |          
|                                             | Income before income taxes   |   |           | 149,416   | 
|                                            
|                                            
|                                            
|                                            
|Provision for income taxes                   |                              |   | 59,093    |          
|                                             |                              |   |          
|                                             | Net income                   |   | $         | 90,323    | 
|                                             |                              |   |          
|                                             | Diluted net income per share |   | $         | 1.74      | 
|                                             |                              |   |          



|    |              
|--- | -------------
|(b) | St. Augustine



70



---



##### 



AMERIGROUP CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                      |  |   |       |              |  |  |         | 
|--------------------- |  | - | ----- | ------------ |  |  | ------- | 
|                      |  |   |       | Amortization | 
|                      |  |   |       | period       | 
|                      |  |   |       |              | 
|Membership rights     |  | $ | 2,143 |              |  |  | 8 years | 
|                     
|                     
|                     
|                     
|Non-compete agreement |  |   | 8     |              |  |  | 3 years | 
|                      |  |   |       |              |  | 
|                      |  | $ | 2,151 |              |  |  |         | 
|                      |  |   |       |              |  | 



|    |    
|--- | ---
|(c) | PHP









|                                                    |                           |   |         |         | 
|--------------------------------------------------- | ------------------------- | - | ------- | ------- | 
|                                                   
|                                                   
|                                                   
|                                                   
|Current assets, including cash and cash equivalents |                           | $ | 31,668  |        
|                                                   
|                                                   
|                                                   
|                                                   
|Intangible assets                                   |                           |   | 8,990   |        
|                                                   
|                                                   
|                                                   
|                                                   
|Goodwill                                            |                           |   | 107,085 |        
|                                                   
|                                                   
|                                                   
|                                                   
|Other assets                                        |                           |   | 2,482   |        
|                                                    |                           |   |        
|                                                    | Total assets acquired     |   |         | 150,225 | 
|                                                    |                           |   |        
|Claims payable                                      |                           |   | 20,574  |        
|                                                   
|                                                   
|                                                   
|                                                   
|Other liabilities                                   |                           |   | 6,030   |        
|                                                    |                           |   |        
|                                                    | Total liabilities assumed |   |         | 26,604  | 
|                                                    |                           |   |        
|                                                    | Net assets acquired       |   | $       | 123,621 | 
|                                                    |                           |   |        

71



---



##### 



AMERIGROUP CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                      |  |   |       |              |  |  |          | 
|--------------------- |  | - | ----- | ------------ |  |  | -------- | 
|                      |  |   |       | Amortization | 
|                      |  |   |       | period       | 
|                      |  |   |       |              | 
|Membership rights     |  | $ | 8,650 |              |  |  | 10 years | 
|                     
|                     
|                     
|                     
|Non-compete agreement |  |   | 340   |              |  |  | 5 years  | 
|                      |  |   |       |              |  | 
|                      |  | $ | 8,990 |              |  |  |          | 
|                      |  |   |       |              |  | 





|    |                                                   
|--- | --------------------------------------------------
|(d) | Summary of Goodwill and Acquired Intangible Assets



|                                         |  |                |         |  |              |   |         |         |  |  |                |  |  |              |         |  |              |   |         |   |  |  |     | 
|---------------------------------------- |  | -------------- | ------- |  | ------------ | - | ------- | ------- |  |  | -------------- |  |  | ------------ | ------- |  | ------------ | - | ------- | - |  |  | --- | 
|                                         |  | 2005           |         |  |              |   | 2004    |         |  | 
|                                         |  |                |         |  | Weighted     |   |         |         |  |  |               
|                                         |  | Gross carrying |         |  | Accumulated  |   |         | average |  |  | Gross carrying |  |  | Accumulated  |         |  | Weighted     |  
|                                         |  | amount         |         |  | amortization |   |         | life    |  |  | amount         |  |  | amortization |         |  | average life |  
|                                         |  |                |         |  |              |   |         |         |  |  |                |  |  |              |         |  |              |  
|Goodwill                                 |  | $              | 252,637 |  |              | $ | (5,773  | )       |  |  | n/a            |  |  | $            | 143,944 |  |              | $ | (5,773  | ) |  |  | n/a | 
|                                        
|                                        
|                                        
|                                        
|Membership rights and provider contracts |  |                | 24,116  |  |              |   | (16,252 | )       |  |  | 10             |  |  |              | 11,216  |  |              |   | (9,213  | ) |  |  | 10  | 
|                                        
|                                        
|                                        
|                                        
|Non-compete agreements and trademarks    |  |                | 1,528   |  |              |   | (1,141  | )       |  |  | 2              |  |  |              | 448     |  |              |   | (240    | ) |  |  | 4   | 
|                                         |  |                |         |  |              |   |         |         |  |  |                |  |  |              |         |  |              |  
|                                         |  | $              | 278,281 |  |              | $ | (23,166 | )       |  |  |                |  |  | $            | 155,608 |  |              | $ | (15,226 | ) |  |  |     | 
|                                         |  |                |         |  |              |   |         |         |  |  |                |  |  |              |         |  |              |  



|     |  |              |       | 
|---- |  | ------------ | ----- | 
|     |  | Estimated    |      
|     |  | amortization |      
|     |  | expense      |      
|     |  |              |      
|2006 |  | $            | 4,541 | 
|    
|    
|    
|    
|2007 |  |              | 2,047 | 
|    
|    
|    
|    
|2008 |  |              | 804   | 
|    
|    
|    
|    
|2009 |  |              | 404   | 
|    
|    
|    
|    
|2010 |  |              | 197   | 



|    |             
|--- | ------------
|(6) | Income Taxes



|                                                                   |  |                          |        |   |      |   |        |      |  |   |        |  
|------------------------------------------------------------------ |  | ------------------------ | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|                                                                   |  | Years Ended December 31, |       
|                                                                   |  |                          |       
|                                                                   |  | 2005                     |        |   | 2004 |   |        | 2003 | 
|                                                                   |  |                          |        |   |      |   |        |      | 
|Income taxes from continuing operations                            |  | $                        | 33,060 |   |      | $ | 55,224 |      |  | $ | 46,591 |  
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Stockholders equity, tax benefit on exercise of stock
    options |  |                          | (8,571 | ) |      |   | (8,009 | )    |  |   | (4,547 | )
|                                                                   |  |                          |        |   |      |   |        |      | 
|                                                                   |  | $                        | 24,489 |   |      | $ | 47,215 |      |  | $ | 42,044 |  
|                                                                   |  |                          |        |   |      |   |        |      | 

72



---



##### 



AMERIGROUP CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                              |                 |         |        |        |          |   |        |        |   |   |        |        | 
|----------------------------- | --------------- | ------- | ------ | ------ | -------- | - | ------ | ------ | - | - | ------ | ------ | 
|                              |                 | Current |        |        | Deferred |   |        | Total  |  
|                              |                 |         |        |        |          |   |        |        |  
|Year ended December 31, 2005: |                 |         |        |        |          |   |        |        |   |   |        |       
|                             
|                             
|                             
|                             
|                              | U.S. federal    |         | $      | 29,911 |          |   | $      | 292    |   |   | $      | 30,203 | 
|                             
|                             
|                             
|                             
|                              | State and local |         |        | 4,396  |          |   |        | (1,539 | ) |   |        | 2,857  | 
|                              |                 |         |        |        |          |   |        |        |  
|                              |                 | $       | 34,307 |        |          | $ | (1,247 | )      |   | $ | 33,060 |       
|                              |                 |         |        |        |          |   |        |        |  
|Year ended December 31, 2004: |                 |         |        |        |          |   |        |        |   |   |        |       
|                             
|                             
|                             
|                             
|                              | U.S. federal    |         | $      | 44,235 |          |   | $      | 2,335  |   |   | $      | 46,570 | 
|                             
|                             
|                             
|                             
|                              | State and local |         |        | 8,111  |          |   |        | 543    |   |   |        | 8,654  | 
|                              |                 |         |        |        |          |   |        |        |  
|                              |                 | $       | 52,346 |        |          | $ | 2,878  |        |   | $ | 55,224 |       
|                              |                 |         |        |        |          |   |        |        |  
|Year ended December 31, 2003: |                 |         |        |        |          |   |        |        |   |   |        |       
|                             
|                             
|                             
|                             
|                              | U.S. federal    |         | $      | 42,238 |          |   | $      | (2,409 | ) |   | $      | 39,829 | 
|                             
|                             
|                             
|                             
|                              | State and local |         |        | 7,625  |          |   |        | (863   | ) |   |        | 6,762  | 
|                              |                 |         |        |        |          |   |        |        |  
|                              |                 | $       | 49,863 |        |          | $ | (3,272 | )      |   | $ | 46,591 |       
|                              |                 |         |        |        |          |   |        |        |  



|                                         |                                                                |                          |        |       |        |  |      |        |      |   |        |       |        |        |      |     |      |   |        |       |        |  |      |     |      | 
|---------------------------------------- | -------------------------------------------------------------- | ------------------------ | ------ | ----- | ------ |  | ---- | ------ | ---- | - | ------ | ----- | ------ | ------ | ---- | --- | ---- | - | ------ | ----- | ------ |  | ---- | --- | ---- | 
|                                         |                                                                | Years Ended December 31, |       
|                                         |                                                                |                          |       
|                                         |                                                                | 2005                     |        |       | 2004   |  |      | 2003   |     
|                                         |                                                                |                          |        |       |        |  |      |        |     
|                                         |                                                                | Amount                   |        |       | %      |  |      | Amount |      |   | %      |       |        | Amount |      |     | %    |  
|                                         |                                                                |                          |        |       |        |  |      |        |      |   |        |       |        |        |      |     |      |  
|Tax expense at statutory rate            |                                                                | $                        | 30,349 |       |        |  | 35.0 |        |      | $ | 49,434 |       |        |        | 35.0 |     |      | $ | 39,870 |       |        |  | 35.0 |    
|                                        
|                                        
|                                        
|                                        
|Increase in income taxes resulting from: |                                                                |                          |        |       |        |  |      |        |      |   |        |       |        |        |      |     |      |   |        |       |        |  |      |    
|                                        
|                                        
|                                        
|                                        
|                                         | State and local income taxes, net of federal income tax effect |                          |        | 1,857 |        |  |      | 2.1    |      |   |        | 5,625 |        |        |      | 4.0 |      |   |        | 4,395 |        |  |      | 3.9 |     
|                                        
|                                        
|                                        
|                                        
|                                         | Effect of nondeductible expenses and other, net                |                          |        | 854   |        |  |      | 1.0    |      |   |        | 165   |        |        |      | 0.1 |      |   |        | 2,326 |        |  |      | 2.0 |     
|                                         |                                                                |                          |        |       |        |  |      |        |      |   |        |       |        |        |      |     |      |  
|                                         |                                                                | Total income tax expense |        | $     | 33,060 |  |      |        | 38.1 |   |        | $     | 55,224 |        |      |     | 39.1 |   |        | $     | 46,591 |  |      |     | 40.9 | 
|                                         |                                                                |                          |        |       |        |  |      |        |      |   |        |       |        |        |      |     |      |  



73



---



##### 



AMERIGROUP CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                          |                                                                                                           |                                |   |         |         |   |   |        |         |  
|------------------------- | --------------------------------------------------------------------------------------------------------- | ------------------------------ | - | ------- | ------- | - | - | ------ | ------- | -
|                          |                                                                                                           | December 31,                   |  
|                          |                                                                                                           |                                |  
|                          |                                                                                                           | 2005                           |   |         | 2004    |  
|                          |                                                                                                           |                                |   |         |         |  
|Deferred tax assets:      |                                                                                                           |                                |   |         |         |   |   |       
|                         
|                         
|                         
|                         
|                          | Estimated claims incurred but not reported, a portion of which
    is deductible as paid for tax purposes |                                | $ | 3,034   |         |   | $ | 2,160  |        
|                         
|                         
|                         
|                         
|                          | Vacation, bonus and other accruals, deductible as paid for tax
    purposes                               |                                |   | 9,272   |         |   |   | 10,343 |        
|                         
|                         
|                         
|                         
|                          | Accounts receivable allowances, deductible as written off for
    tax purposes                            |                                |   | 1,846   |         |   |   | 590    |        
|                         
|                         
|                         
|                         
|                          | Start-up costs, deductible in future periods for tax purposes                                             |                                |   | 284     |         |   |   | 552    |        
|                         
|                         
|                         
|                         
|                          | Unearned revenue, a portion of which is includible in income as
    received for tax purposes             |                                |   | 2,570   |         |   |   | 2,636  |        
|                         
|                         
|                         
|                         
|                          | State net operating loss/credit carryforwards, deductible in
    future periods for tax purposes          |                                |   | 2,066   |         |   |   | 1,616  |        
|                          |                                                                                                           |                                |   |         |         |  
|                          |                                                                                                           | Gross deferred tax asset       |   |         | 19,072  |   |   |        | 17,897  |  
|                         
|                         
|                         
|                         
|Deferred tax liabilities: |                                                                                                           |                                |   |         |         |   |   |       
|                         
|                         
|                         
|                         
|                          | Goodwill, due to timing differences in book and tax amortization                                          |                                |   | (4,449  | )       |   |   | (474   | )      
|                         
|                         
|                         
|                         
|                          | Property and equipment, due to timing differences in book and
    tax depreciation                        |                                |   | (10,387 | )       |   |   | (8,822 | )      
|                         
|                         
|                         
|                         
|                          | Deductible prepaid expenses and other                                                                     |                                |   | (2,537  | )       |   |   | (2,217 | )      
|                          |                                                                                                           |                                |   |         |         |  
|                          |                                                                                                           | Gross deferred tax liabilities |   |         | (17,373 | ) |   |        | (11,513 | )
|                          |                                                                                                           |                                |   |         |         |  
|                          |                                                                                                           | Net deferred tax asset         |   | $       | 1,699   |   |   | $      | 6,384   |  
|                          |                                                                                                           |                                |   |         |         |  







|    |               
|--- | --------------
|(7) | Long-Term Debt



74



---



##### 



AMERIGROUP CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








|    |                  
|--- | -----------------
|(8) | Stock Option Plan











|                                 |  |        |           |           |                |   |       |        |           |  |                |  |  |           |       |  |                |  |           |  |  |   |       | 
|-------------------------------- |  | ------ | --------- | --------- | -------------- | - | ----- | ------ | --------- |  | -------------- |  |  | --------- | ----- |  | -------------- |  | --------- |  |  | - | ----- | 
|                                 |  | 2005   |           |           | 2004           |   |       | 2003   |          
|                                 |  |        |           |           |                |   |       |        |          
|                                 |  |        |           | Weighted- |                |   |       |        | Weighted- |  |                |  |  | Weighted- |      
|                                 |  |        |           | average   |                |   |       |        | average   |  |                |  |  | average   |      
|                                 |  | Shares |           |           | exercise price |   |       | Shares |           |  | exercise price |  |  | Shares    |       |  | exercise price | 
|                                 |  |        |           |           |                |   |       |        |           |  |                |  |  |           |       |  |                | 
|Outstanding at beginning of year |  |        | 4,808,872 |           |                | $ | 14.73 |        |           |  | 5,365,464      |  |  | $         | 10.50 |  |                |  | 4,829,868 |  |  | $ | 7.20  | 
|                                
|                                
|                                
|                                
|Granted                          |  |        | 2,035,748 |           |                |   | 39.74 |        |           |  | 1,534,076      |  |  |           | 21.71 |  |                |  | 2,297,346 |  |  |   | 15.43 | 
|                                
|                                
|                                
|                                
|Exercised                        |  |        | 957,276   |           |                |   | 9.34  |        |           |  | 1,578,796      |  |  |           | 7.46  |  |                |  | 1,390,278 |  |  |   | 7.39  | 
|                                
|                                
|                                
|                                
|Forfeited                        |  |        | 620,267   |           |                |   | 29.27 |        |           |  | 511,872        |  |  |           | 15.84 |  |                |  | 371,472   |  |  |   | 10.26 | 
|                                 |  |        |           |           |                |   |       |        |           |  |                |  |  |           |       |  |                | 
|Outstanding at end of year       |  |        | 5,267,077 |           |                |   | 23.67 |        |           |  | 4,808,872      |  |  |           | 14.73 |  |                |  | 5,365,464 |  |  |   | 10.50 | 
|                                 |  |        |           |           |                |   |       |        |           |  |                |  |  |           |       |  |                | 

75



---



##### 



AMERIGROUP CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                         |  |             |           |           |              |  |           |                |  |   |             |           |  |                |           |  |  |   |       | 
|------------------------ |  | ----------- | --------- | --------- | ------------ |  | --------- | -------------- |  | - | ----------- | --------- |  | -------------- | --------- |  |  | - | ----- | 
|                         |  |             |           | Weighted- |              |  |           |                |  |   |            
|                         |  |             |           | average   |              |  |           |                |  |   |            
|                         |  |             |           | remaining |              |  | Weighted- |                |  |   |             | Weighted- | 
|                         |  | Options     |           |           | contractual  |  |           | average        |  |   | Options     |           |  | average        |          
|Range of exercise prices |  | outstanding |           |           | life (years) |  |           | exercise price |  |   | exercisable |           |  | exercise price |          
|                         |  |             |           |           |              |  |           |                |  |   |             |           |  |                |          
|$0.01   $4.16           |  |             | 45,806    |           |              |  | 2.9       |                |  | $ | 1.36        |           |  |                | 45,806    |  |  | $ | 1.36  | 
|                        
|                        
|                        
|                        
|$4.17   $8.32           |  |             | 258,042   |           |              |  | 4.7       |                |  |   | 7.17        |           |  |                | 258,042   |  |  |   | 7.17  | 
|                        
|                        
|                        
|                        
|$8.33   $12.48          |  |             | 839,586   |           |              |  | 6.1       |                |  |   | 10.75       |           |  |                | 714,391   |  |  |   | 10.77 | 
|                        
|                        
|                        
|                        
|$12.49  $16.64          |  |             | 1,120,085 |           |              |  | 7.3       |                |  |   | 14.71       |           |  |                | 915,880   |  |  |   | 14.61 | 
|                        
|                        
|                        
|                        
|$16.65  $20.80          |  |             | 933,397   |           |              |  | 7.9       |                |  |   | 18.78       |           |  |                | 590,752   |  |  |   | 18.84 | 
|                        
|                        
|                        
|                        
|$20.81  $24.96          |  |             | 210,876   |           |              |  | 7.8       |                |  |   | 22.11       |           |  |                | 129,459   |  |  |   | 21.99 | 
|                        
|                        
|                        
|                        
|$24.97  $33.28          |  |             | 85,000    |           |              |  | 0.1       |                |  |   | 30.51       |           |  |                | 85,000    |  |  |   | 30.51 | 
|                        
|                        
|                        
|                        
|$33.29  $37.44          |  |             | 30,000    |           |              |  | 9.7       |                |  |   | 33.74       |           |  |                |          |  |  |   |      | 
|                        
|                        
|                        
|                        
|$37.45  $41.60          |  |             | 1,744,285 |           |              |  | 8.2       |                |  |   | 40.98       |           |  |                | 1,395,285 |  |  |   | 41.60 | 
|                         |  |             |           |           |              |  |           |                |  |   |             |           |  |                |          
|                         |  |             | 5,267,077 |           |              |  | 7.3       |                |  | $ | 23.67       |           |  |                | 4,134,615 |  |  | $ | 23.61 | 
|                         |  |             |           |           |              |  |           |                |  |   |             |           |  |                |          





out-of


76



---



##### 



AMERIGROUP CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|    |                   
|--- | ------------------
|(9) | Earnings Per Share



|                              |                                                                                               |                          |   |            |      |  |   |            |  |  |   |            | 
|----------------------------- | --------------------------------------------------------------------------------------------- | ------------------------ | - | ---------- | ---- |  | - | ---------- |  |  | - | ---------- | 
|                              |                                                                                               | Years Ended December 31, |  
|                              |                                                                                               |                          |  
|                              |                                                                                               | 2005                     |   |            | 2004 |  |   | 2003       | 
|                              |                                                                                               |                          |   |            |      |  |   |            | 
|Basic net income per share:   |                                                                                               |                          |   |            |      |  |   |            |  |  |   |           
|                             
|                             
|                             
|                             
|                              | Net income                                                                                    |                          | $ | 53,651     |      |  | $ | 86,014     |  |  | $ | 67,324     | 
|                              |                                                                                               |                          |   |            |      |  |   |            | 
|                              | Weighted average number of common shares outstanding                                          |                          |   | 51,213,589 |      |  |   | 49,721,945 |  |  |   | 43,245,409 | 
|                              |                                                                                               |                          |   |            |      |  |   |            | 
|                              | Basic net income per share                                                                    |                          | $ | 1.05       |      |  | $ | 1.73       |  |  | $ | 1.56       | 
|                              |                                                                                               |                          |   |            |      |  |   |            | 
|Diluted net income per share: |                                                                                               |                          |   |            |      |  |   |            |  |  |   |           
|                             
|                             
|                             
|                             
|                              | Net income                                                                                    |                          | $ | 53,651     |      |  | $ | 86,014     |  |  | $ | 67,324     | 
|                              |                                                                                               |                          |   |            |      |  |   |            | 
|                              | Weighted average number of common shares outstanding                                          |                          |   | 51,213,589 |      |  |   | 49,721,945 |  |  |   | 43,245,409 | 
|                             
|                             
|                             
|                             
|                              | Dilutive effect of stock options (as determined by applying the
    treasury stock method)    |                          |   | 1,644,093  |      |  |   | 2,115,634  |  |  |   | 2,357,891  | 
|                              |                                                                                               |                          |   |            |      |  |   |            | 
|                              | Weighted average number of common shares and dilutive potential
    common shares outstanding |                          |   | 52,857,682 |      |  |   | 51,837,579 |  |  |   | 45,603,300 | 
|                              |                                                                                               |                          |   |            |      |  |   |            | 
|                              | Diluted net income per share                                                                  |                          | $ | 1.02       |      |  | $ | 1.66       |  |  | $ | 1.48       | 
|                              |                                                                                               |                          |   |            |      |  |   |            | 





|     |                                    
|---- | -----------------------------------
|(10) | Fair Value of Financial Instruments











|     |                              
|---- | -----------------------------
|(11) | Commitments and Contingencies



|    |                             
|--- | ----------------------------
|(a) | Minimum Reserve Requirements



77



---



##### 



AMERIGROUP CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|    |            
|--- | -----------
|(b) | Malpractice





|    |                 
|--- | ----------------
|(c) | Lease Agreements



|                         |  |      |         |   |      |   |         |  
|------------------------ |  | ---- | ------- | - | ---- | - | ------- | -
|                         |  | 2005 |         |   | 2004 |  
|                         |  |      |         |   |      |  
|Equipment                |  | $    | 17,247  |   |      | $ | 17,247  |  
|                        
|                        
|                        
|                        
|Accumulated amortization |  |      | (14,561 | ) |      |   | (11,781 | )
|                         |  |      |         |   |      |  
|                         |  | $    | 2,686   |   |      | $ | 5,466   |  
|                         |  |      |         |   |      |  





|                                                         |                                                                  |         |        |       |           |   |        |        | 
|-------------------------------------------------------- | ---------------------------------------------------------------- | ------- | ------ | ----- | --------- | - | ------ | ------ | 
|                                                         |                                                                  | Capital |        |       | Operating |  
|                                                         |                                                                  | Leases  |        |       | Leases    |  
|                                                         |                                                                  |         |        |       |           |  
|2006                                                     |                                                                  | $       | 1,749  |       |           | $ | 11,327 |       
|                                                        
|                                                        
|                                                        
|                                                        
|2007                                                     |                                                                  |         | 852    |       |           |   | 11,666 |       
|                                                        
|                                                        
|                                                        
|                                                        
|2008                                                     |                                                                  |         | 376    |       |           |   | 9,445  |       
|                                                        
|                                                        
|                                                        
|                                                        
|2009                                                     |                                                                  |         |       |       |           |   | 11,019 |       
|                                                        
|                                                        
|                                                        
|                                                        
|2010                                                     |                                                                  |         |       |       |           |   | 8,302  |       
|                                                        
|                                                        
|                                                        
|                                                        
|Thereafter                                               |                                                                  |         |       |       |           |   | 41,654 |       
|                                                         |                                                                  |         |        |       |           |  
|                                                         | Total minimum lease payments                                     |         |        | 2,977 |           |   | $      | 93,413 | 
|                                                         |                                                                  |         |        |       |           |  
|Amount representing interest                             |                                                                  |         | (160   | )     |           |   |        |       
|                                                         |                                                                  |         |        |       |           |  
|                                                         | Present value of minimum lease payments                          |         |        | 2,817 |           |   |        |        | 
|                                                        
|                                                        
|                                                        
|                                                        
|Current installments of obligations under capital leases |                                                                  |         | (1,642 | )     |           |   |        |       
|                                                         |                                                                  |         |        |       |           |  
|                                                         | Obligations under capital leases, excluding current installments |         | $      | 1,175 |           |   |        |        | 
|                                                         |                                                                  |         |        |       |           |  





78



---



##### 



AMERIGROUP CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|    |                            
|--- | ---------------------------
|(d) | Deferred Compensation Plans







|    |                  
|--- | -----------------
|(e) | Legal Proceedings





79



---



##### 



AMERIGROUP CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






Illinois
State Board of Investment v. AMERIGROUP Corp., et al.




|    |                    
|--- | -------------------
|(f) | Other Contingencies



80



---



##### 



AMERIGROUP CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)










|     |                             
|---- | ----------------------------
|(12) | Employee Stock Purchase Plan





|     |                                     
|---- | ------------------------------------
|(13) | Quarterly Financial Data (unaudited)

|                                                                                       |  |                    |            |  |         |   |            |              |  |   |             |   |  |   |            | 
|-------------------------------------------------------------------------------------- |  | ------------------ | ---------- |  | ------- | - | ---------- | ------------ |  | - | ----------- | - |  | - | ---------- | 
|                                                                                       |  | Three months ended |           
|                                                                                       |  |                    |           
|2005                                                                                   |  | March 31           |            |  | June 30 |   |            | September 30 |  |   | December 31 |  
|                                                                                       |  |                    |            |  |         |   |            |              |  |   |             |  
|Premium revenues                                                                       |  | $                  | 553,888    |  |         | $ | 560,731    |              |  | $ | 582,784     |   |  | $ | 614,196    | 
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|Health benefits expenses                                                               |  |                    | 454,404    |  |         |   | 463,071    |              |  |   | 520,243     |   |  |   | 519,478    | 
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|Selling, general and administrative expenses                                           |  |                    | 62,041     |  |         |   | 57,745     |              |  |   | 63,596      |   |  |   | 75,064     | 
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|Income (loss) before income taxes                                                      |  |                    | 33,816     |  |         |   | 37,085     |              |  |   | (3,110      | ) |  |   | 18,920     | 
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|Net income (loss)                                                                      |  |                    | 20,443     |  |         |   | 22,548     |              |  |   | (2,260      | ) |  |   | 12,920     | 
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|Diluted net income (loss) per share                                                    |  |                    | 0.39       |  |         |   | 0.43       |              |  |   | (0.04       | ) |  |   | 0.25       | 
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|Weighted average number of common shares and dilutive potential
    shares outstanding |  |                    | 52,961,652 |  |         |   | 53,053,949 |              |  |   | 51,420,856  |   |  |   | 52,148,265 | 

81



---



##### 



AMERIGROUP CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


|                                                                                       |  |                    |            |  |         |   |            |              |  |   |             |  |  |   |            | 
|-------------------------------------------------------------------------------------- |  | ------------------ | ---------- |  | ------- | - | ---------- | ------------ |  | - | ----------- |  |  | - | ---------- | 
|                                                                                       |  | Three months ended |           
|                                                                                       |  |                    |           
|2004                                                                                   |  | March 31           |            |  | June 30 |   |            | September 30 |  |   | December 31 | 
|                                                                                       |  |                    |            |  |         |   |            |              |  |   |             | 
|Premium revenues                                                                       |  | $                  | 422,335    |  |         | $ | 435,918    |              |  | $ | 468,156     |  |  | $ | 486,982    | 
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|Health benefits expenses                                                               |  |                    | 342,247    |  |         |   | 354,415    |              |  |   | 374,085     |  |  |   | 398,350    | 
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|Selling, general and administrative expenses                                           |  |                    | 45,487     |  |         |   | 43,728     |              |  |   | 52,124      |  |  |   | 50,576     | 
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|Income before income taxes                                                             |  |                    | 30,756     |  |         |   | 34,532     |              |  |   | 39,669      |  |  |   | 36,281     | 
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|Net income                                                                             |  |                    | 18,438     |  |         |   | 20,846     |              |  |   | 24,333      |  |  |   | 22,397     | 
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|Diluted net income per share                                                           |  |                    | 0.36       |  |         |   | 0.40       |              |  |   | 0.47        |  |  |   | 0.43       | 
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|Weighted average number of common shares and dilutive potential
    shares outstanding |  |                    | 51,258,930 |  |         |   | 51,582,960 |              |  |   | 51,955,940  |  |  |   | 52,552,486 | 

82



---



##### 



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
















83



---



##### 



SCHEDULE OF VALUATION AND QUALIFYING ACCOUNTS


|                                           |  |           |     |            |            |             |             |  |  |             |     |  |  |   |   | 
|------------------------------------------ |  | --------- | --- | ---------- | ---------- | ----------- | ----------- |  |  | ----------- | --- |  |  | - | - | 
|                                           |  |           |     | Additions- |            | Deductions- |             |  | 
|                                           |  | Balance   |     |            | Amounts    |             | Amounts     |  |  |            
|                                           |  | Beginning |     |            | Charged to |             | Credited to |  |  | Balance End
|Valuation Allowance on Deferred Tax Assets |  | of Year   |     |            | Expense    |             | Expense     |  |  | of Year    
|                                           |  |           |     |            |            |             |             |  |  |            
|Year Ended December 31, 2005               |  | $         |    |            |            | $           |            |  |  | $           |    |  |  | $ |  | 
|                                          
|                                          
|                                          
|                                          
|Year Ended December 31, 2004               |  |           |    |            |            |             |            |  |  |             |    |  |  |   |  | 
|                                          
|                                          
|                                          
|                                          
|Year Ended December 31, 2003               |  |           | 785 |            |            |             |            |  |  |             | 785 |  |  |   |  | 

84



---



##### 








|        |                                                                                         
|------- | ----------------------------------------------------------------------------------------
|Item 9. | Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure






Item 9A. Controls and Procedures




| |     |                                                  
| | --- | -------------------------------------------------
| | (a) | Evaluation of Disclosure Controls and Procedures.

13a-15(e) 15d-15(e)




| |     |                                           
| | --- | ------------------------------------------
| | (b) | Internal Control over Financial Reporting.

MANAGEMENTS REPORT ON INTERNAL CONTROL OVER FINANCIAL
REPORTING


13a-15(f) 15d-15(f)


Internal
ControlIntegrated Framework






| |     |                              
| | --- | -----------------------------
| | (c) | Changes in Internal Controls.





| |     |      
| | --- | -----
| | (d) | Other



85



---



##### 









| |   |                                                                                                                                                                                                                                                                                                                                                                     
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | pertain to the maintenance of records that in reasonable detail
    accurately and fairly reflect the transactions and dispositions
    of the assets of the Company;                                                                                                                                                                                               
|
| |  | provide reasonable assurance that transactions are recorded as
    necessary to permit preparation of financial statements in
    accordance with U.S. generally accepted accounting
    principles, and that receipts and expenditures of the Company
    are being made only in accordance with authorizations of
    management and directors of the Company; and
|
| |  | provide reasonable assurance regarding prevention or timely
    detection of unauthorized acquisition, use, or disposition of
    the Companys assets that could have a material effect on
    the consolidated financial statements.                                                                                                                              








|         |                  
|-------- | -----------------
|Item 9B. | Other Information













86



---



##### 







87



---



##### 



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM






Internal Control  Integrated Framework,








Internal
Control  Integrated Framework, Internal Control 
Integrated Framework,










88



---



##### 






PART III.







|         |                                                
|-------- | -----------------------------------------------
|Item 10. | Directors and Executive Officers of the Company














|         |                       
|-------- | ----------------------
|Item 11. | Executive Compensation








|         |                                                                                                   
|-------- | --------------------------------------------------------------------------------------------------
|Item 12. | Security Ownership of Certain Beneficial Owners and
    Management and Related Stockholder Matters

|                                                           |  |                   |           |  |                  |                      |       |                        |  |  |           | 
|---------------------------------------------------------- |  | ----------------- | --------- |  | ---------------- | -------------------- | ----- | ---------------------- |  |  | --------- | 
|                                                           |  |                   |           |  |                  | Number of Securities |      
|                                                           |  | Number of         |           |  | Weighted-        |                      |       | Remaining Available    | 
|                                                           |  | Securities to be  |           |  | average Exercise |                      |       | for Future Issuance    | 
|                                                           |  | Issued Upon       |           |  | Price of         |                      |       | Under Equity           | 
|                                                           |  | Exercise of       |           |  | Outstanding      |                      |       | Compensation Plans     | 
|                                                           |  | Outstanding       |           |  | Options,         |                      |       | (excluding securities  | 
|                                                           |  | Options, Warrants |           |  | Warrants and     |                      |       | reflected in the first | 
|                                                           |  | and Rights        |           |  | Rights           |                      |       | column)(1)             | 
|                                                           |  |                   |           |  |                  |                      |       |                        | 
|Equity compensation plans approved by security holders     |  |                   | 5,267,077 |  |                  | $                    | 23.67 |                        |  |  | 4,817,557 | 
|                                                          
|                                                          
|                                                          
|                                                          
|Equity compensation plans not approved by security holders |  |                   |          |  |                  |                      |      |                        |  |  |          | 
|                                                           |  |                   |           |  |                  |                      |       |                        | 
|Total                                                      |  |                   | 5,267,077 |  |                  | $                    | 23.67 |                        |  |  | 4,817,557 | 
|                                                           |  |                   |           |  |                  |                      |       |                        | 






|    |                                                                                                                                                                                                                                                
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes a total of 3,936,071 shares not yet issued as of
    December 31, 2005 under the 1994 Stock Plan and the 2000,
    2003, and 2005 Equity Incentive Plans and 882,486 shares
    not yet issued under the Employee Stock Purchase Plan.








|         |                                               
|-------- | ----------------------------------------------
|Item 13. | Certain Relationships and Related Transactions








|         |                                       
|-------- | --------------------------------------
|Item 14. | Principal Accountant Fees and Services



89



---



##### 






PART IV.







|         |                                           
|-------- | ------------------------------------------
|Item 15. | Exhibits and Financial Statement Schedules



| |        |                      
| | ------ | ---------------------
| | (a)(1) | Financial Statements.





| |        |                               
| | ------ | ------------------------------
| | (a)(2) | Financial Statement Schedules.





| |     |          
| | --- | ---------
| | (b) | Exhibits.



|        |    |       |             |                                                                                                                                                                                                                                                                                                                      
|------- | -- | ----- | ----------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|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    |             | By-Laws of the Company (incorporated by reference to exhibit 3.2
    to our Registration Statement on Form S-3 (No. 333-108831)).                                                                                                                                                                                    
|        | 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    |             | AMERIGROUP Corporation Second Restated Investor Rights
    Agreement, dated July 28, 1998 (incorporated by reference to
    exhibit 4.2 to our Registration Statement on Form S-1 (No.
    333-37410)).                                                                                                              
|        | 10 | .6.9  |             | Amendment to Amended and Restated Contract between State of New
    Jersey, Department of Human Services, Division of Medical
    Assistance and Health Services and AMERIGROUP New Jersey, Inc.
    dated July 1, 2005 (incorporated by reference to our Quarterly
    Report on Form 10-Q filed on August 3, 2005).
|        | 10 | .6.10 |             | Amendment to Amended and Restated Contract between State of New
    Jersey, Department of Human Services, Division of Medical
    Assistance and Health Services and AMERIGROUP New Jersey, Inc.
    dated July 1, 2005 (incorporated by reference to our Quarterly
    Report on Form 10-Q filed on August 3, 2005).
|        | 10 | .7.8  |             | Amendment 2, dated August 1, 2005, to the State of Illinois
    Department of Healthcare and Family Services Contract for
    Furnishing Health Services by a Health Maintenance Organization
    (incorporated by reference to our Quarterly Report on Form 10-Q
    filed on August 3, 2005).                      
|        | 10 | .8    |             | Form 2003 Cash Incentive Plan of the Company (incorporated by
    reference to exhibit 10.38 to our Quarterly Report of Form 10-Q
    for the last quarter ended June 30, 2003, filed on August 11,
    2003).                                                                                                       
|        | 10 | .9    |             | Form 2005 Equity Incentive Plan (incorporated by reference to
    our Definitive Proxy Statement Pursuant to Schedule 14a of the
    Securities Exchange Act of 1934, filed on April 4, 2005).                                                                                                                       
|        | 10 | .10   |             | Definitive Agreement dated October 26, 2004, between CarePlus,
    LLC and AMERIGROUP Corporation (incorporated by reference to our
    Current Report on Form 8-K, filed on November 1, 2004).                                                                                                                      
|        | 10 | .11   |             | Closing Agreement dated January 3, 2005, between CarePlus, LLC
    and AMERIGROUP Corporation (incorporated by reference to exhibit
    10.47 to our Current Report on Form 8-K, filed on January 6,
    2005).                                                                                                      
|        | 10 | .12   |             | Separation Agreement and General Release with E. Paul Dunn, Jr.
    former Executive Vice President and Chief Financial Officer
    effective December 2, 2005 (incorporated by reference to our
    Current Report on Form 8-K, filed on December 6, 2005).                                                         
|        | 10 | .13   |             | Form the Officer and Director Indemnification Agreement
    (incorporated by reference to exhibit 10.16 to our Registration
    Statement on Form S-1 (No. 333-37410).                                                                                                                                               

90



---



##### 



|        |    |       |             |                                                                                                                                                                                                                                                                                                                                        
|------- | -- | ----- | ----------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |       |            
|Number  |    |       | Description
|        |    |       |            
|        | 10 | .14   |             | Form of Employee Noncompete, Nondisclosure and Developments
    Agreement (incorporated by reference to exhibit 10.1 to our
    Current Report on Form 8-K, filed on February 23, 2005).                                                                                                                                               
|        | 10 | .15   |             | Form of Incentive Stock Option Agreement (incorporated by
    reference to exhibit 10.1 to our Current Report of Form 8-K,
    filed on May 13, 2005).                                                                                                                                                                                 
|        | 10 | .16   |             | Form of Nonqualified Stock Option Agreement (incorporated by
    reference to exhibit 10.2 to our Current Report on Form 8-K
    filed on May 13, 2005).                                                                                                                                                                               
|        | 10 | .17   |             | Form of Stock Appreciation Rights Agreement (incorporated by
    reference to exhibit 10.3 to our Current Form 8-K filed on May
    13, 2005).                                                                                                                                                                                         
|        | 10 | .18   |             | Form of AMERIGROUP Corporation Nonqualified Stock Option
    Agreement (incorporated by reference to exhibit 10.1 to our
    Current Form 8-K filed on November 3, 2005).                                                                                                                                                              
|        | 10 | .19   |             | The Board of Directors approved and adopted a resolution for
    director compensation practices on February 10, 2005
    (incorporated by reference to our Current Report on Form 8-K,
    filed on February 15, 2005).                                                                                                               
|        | 10 | .20   |             | Form of Separation Agreement between AMERIGROUP Corporation and
    Lorenzo Childress, Jr., M.D. (incorporated by reference to
    exhibit 10.1 to our Current Report on Form 8-K filed March 4,
    2005).                                                                                                                            
|        | 10 | .21   |             | Form of 2005 Executive Deferred Compensation Plan between
    AMERIGROUP Corporation and Executive Associates (incorporated by
    reference to exhibit 10.2 to our Current Report on Form 8-K
    filed March 4, 2005).                                                                                                               
|        | 10 | .22   |             | Form of 2005 Executive Deferred Compensation Plan between
    AMERIGROUP Corporation and Executive Associates (incorporated by
    reference to exhibit 10.2 to our Current Report on Form 8-K
    filed March 4, 2005).                                                                                                               
|        | 10 | .23   |             | Amendment No. 00017, dated March 1, 2005, to the District of
    Columbia Healthy Families Programs, Department of Health Medical
    Assistance Administration, Prepaid, Capital Risk Contract
    (POHC-2002-D-2003) (incorporated by reference to our Current
    Report on Form 8-K, filed on May 5, 2005).                        
|        | 10 | .25.2 |             | Amendment No. 2, dated November 19, 2004, to the June 28, 2002
    Medical Contract between the State of Florida, Agency for Health
    Care Administration and AMERIGROUP Florida Inc. (AHCA Contract
    No. FA523) (incorporated by reference to Exhibit 10.25 to our
    Quarterly Report on Form 10-Q, filed on November 5, 2004).
|        | 10 | .25.3 |             | Amendment No. 4, dated February 28, 2005, to the June 28, 2002
    Medical Contract between the State of Florida, Agency for Health
    Care Administration and AMERIGROUP Florida Inc. (AHCA Contract
    No. FA523) (incorporated by reference to Exhibit 25.3 to our
    Current Report on Form 8-K, filed on May 5, 2005).         
|        | 10 | .25.4 |             | Amendment No. 5, dated March 31, 2005, to the June 28, 2002
    Medical Contract between the State of Florida, Agency for Health
    Care Administration and AMERIGROUP Florida Inc. (AHCA Contract
    No. FA523) (incorporated by reference to Exhibit 25.4 to our
    Current Report on Form 8-K, filed on May 5, 2005).            
|        | 10 | .25.5 |             | Amendment No. 6, dated May 1, 2005, to the June 28, 2002 Medical
    Contract between the State of Florida, Agency for Health Care
    Administration and AMERIGROUP Florida Inc. (AHCA Contract No.
    FA523) (incorporated by reference to Exhibit 10.1 to our Current
    Report on Form 8-K, filed on May 5, 2005).               
|        | 10 | .25.6 |             | Amendment No. 7, dated June 1, 2005, to the June 28, 2002
    Medical Contract between the State of Florida, Agency for Health
    Care Administration and AMERIGROUP Florida Inc. (AHCA Contract
    No. FA523) (incorporated by reference to Exhibit 10.1 to our
    Current Report on Form 8-K, filed on June 15, 2005).            
|        | 10 | .25.7 |             | Amendment No. 8, dated July 1, 2005, to the June 28, 2002
    Medical Contract between the State of Florida, Agency for Health
    Care Administration and AMERIGROUP Florida Inc. (AHCA Contract
    No. FA523) (incorporated by reference to Exhibit 10.2 to our
    Current Report on Form 8-K, filed on July 26, 2005).            

91



---



##### 



|        |    |       |             |                                                                                                                                                                                                                                                                                                                                                                                                
|------- | -- | ----- | ----------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |       |            
|Number  |    |       | Description
|        |    |       |            
|        | 10 | .25.8 |             | Amendment No. 9, dated July 1, 2005, to the June 28, 2002
    Medical Contract between the State of Florida, Agency for Health
    Care Administration and AMERIGROUP Florida Inc. (AHCA Contract
    No. FA523) (incorporated by reference to Exhibit 10.3 to our
    Current Report on Form 8-K, filed on July 26, 2005).                                                                    
|        | 10 | .25.9 |             | Medical Services Contract by and between Florida Healthy Kids
    Corporation and AMERIGROUP Florida, Inc., dated October 1, 2005
    (incorporated by reference to exhibit 10.5 to our Quarterly
    Report on Form 10-Q filed on November 4, 2005).                                                                                                                                          
|        | 10 | .26   |             | Medicaid Contract between New York City Department of Health and
    Mental Hygiene and CarePlus, L.L.C. date October 1, 2004
    (incorporated by reference to Exhibit 10.48 to our Current
    Report on Form 8-K, filed on May 5, 2005).                                                                                                                                                    
|        | 10 | .26.1 |             | Contract Amendment, dated January 1, 2005, to the Medicaid
    Managed Care Model Contract between New York City Department of
    Health and Mental Hygiene and CarePlus LLC. Dated October 1,
    2004 (incorporated by reference to Exhibit 10.48.1 to our
    Current Report on Form 8-K, filed on May 5, 2005.)                                                                           
|        | 10 | .27   |             | Child Health Plus by and between The State of New York
    Department of Health and Care Plus Health Plan is effective for
    the period July 1, 1998 through June 30, 2005 (Contract No.
    C-015473) (incorporated by reference to Exhibit 10.49 to our
    Current Report on Form 8-K, filed on May 5, 2005).                                                                             
|        | 10 | .27.1 |             | Contract Amendment - Appendix X, dated September 10, 2005, to
    the Child Health Plus Contract by and between The State of New
    York Department of Health and Care Plus Health Plan is effective
    for the period June 30, 2005 through December 31, 2005
    ((Contract No. C-015473) (incorporated by reference to our
    Quarterly Report on Form 10-Q, filed on November 4, 2005)).
|        | 10 | .27.2 |             | Contract Amendment - Appendix X, dated September 10, 2005, to
    the Child Health Plus by and between The State of New York
    Department of Health and Care Plus Health Plan is effective for
    the period January 1, 2006 through December 31, 2006 ((Contract
    No. C-015473) (incorporated by reference to our Quarterly Report
    on Form 10-Q, filed on November 4, 2005)).       
|        | 10 | .28   |             | Family Health Plus Model Contract by and between The City of New
    York through the State Department of Health and CarePlus LLC is
    effective for the period October 1, 2005 through September 30,
    2007 (incorporate by reference to our Quarterly Report filed on
    Form 10-Q, filed on November 4, 2005).                                                                         
|        | 10 | .29   |             | Medicaid Managed Care Model Contract by The State of New York
    Department of Health and CarePlus LLC effective for the period
    October 1, 2005 through September 30, 2007 (incorporated by
    reference to our Quarterly Report on Form 10-Q, filed on
    November 4, 2005).                                                                                                           
|        | 10 | .30   |             | Contract dated July 19, 2005 between Georgia Department of
    Community Health and AMGP Georgia Managed Care Company, Inc. for
    the period from July 1, 2005 through June 30, 2006 with six
    optional renewal periods (incorporated by reference to Exhibit
    10.1 to our Current Report on Form 8-K, filed on July 26, 2005).                                                        
|        | 10 | .30.1 |             | Contract rates to contract dated July 19, 2005 between Georgia
    Department of Community Health and AMGP Georgia Managed Care
    Company, Inc. for the period from July 1, 2005 through June 30,
    2006 with six optional renewal periods (incorporated by
    reference to Exhibit 10.1.1 to our Current Report on Form 8-K,
    filed on July 26, 2005).                                
|        | 10 | .31   |             | Contract with Eligible Medicare Advantage (MA) Organization
    Pursuant to Sections 1851 through 1859 of the Social Security
    Act for the Operation of a Medicare Advantage Coordinated Care
    Plan(s) (incorporated by reference to Exhibit 10.1 to our
    Current Report on Form 8-K, filed September 29, 2005).                                                                      
|        | 10 | .31.1 |             | Addendum To Medicare Managed Care Contract Pursuant To Sections
    1860D-1 Through 1860D-42 Of The Social Security Act For The
    Operation of a Voluntary Medicare Prescription Drug Plan
    (incorporated by reference to Exhibit 10.2 to our Current Report
    on Form 8-K, filed September 29, 2005).                                                                                  

92



---



##### 



|        |    |       |             |                                                                                                                                                                                                                                                              
|------- | -- | ----- | ----------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |       |            
|Number  |    |       | Description
|        |    |       |            
|        | 10 | .32.1 |             | Amendment, effective September 1, 2005, to the Health &
    Human Services Commission Agreement for Health Services to the
    Medicaid STAR program in the Dallas Service Delivery Area
    effectively extending the contract through August 31, 2006.     
|        | 10 | .32.2 |             | Amendment, effective September 1, 2005, to the Health &
    Human Services Commission Agreement for Health Services to the
    Medicaid STAR program in the Harris Service Delivery Area
    effectively extending the contract through August 31, 2006.     
|        | 10 | .32.3 |             | Amendment, effective September 1, 2005, to the Health &
    Human Services Commission Agreement for Health Services to the
    Medicaid STAR program in the Tarrant Service Delivery Area
    effectively extending the contract through August 31, 2006.    
|        | 10 | .32.4 |             | Amendment, effective September 1, 2005, to the Health &
    Human Services Commission Agreement for Health Services to the
    Medicaid STAR program in the Travis Service Delivery Area
    effectively extending the contract through August 31, 2006.     
|        | 10 | .32.5 |             | Amendment, effective September 1, 2005, to the Health &
    Human Services Commission Agreement for Health Services to the
    Medicaid STAR+PLUS program in the Harris Service Delivery Area
    effectively extending the contract through August 31, 2006.
|        | 10 | .32.6 |             | Amendment, effective January 1, 2006, to the Health &
    Human Services Commission Agreement for Health Services to the
    Medicaid STAR+PLUS program in the Harris County Service Delivery
    Area.                                                      
|        | 10 | .32.8 |             | Amendment, effective September 1, 2005, to the Health &
    Human Services Commission Agreement for Health Services to the
    Childrens Health Insurance Program effectively extending
    the contract through August 31, 2006.                           
|        | 10 | .32.9 |             | Health & Human Services Commission Uniform Managed Care
    Contract covering all service areas and products in which the
    subsidiary has agreed to participate, effective
    September 1, 2006.                                                         
|        | 21 | .1    |             | List of Subsidiaries                                                                                                                                                                                                                                         
|        | 23 | .1    |             | Consent of KPMG LLP, Independent Registered Public Accounting
    Firm, with respect to financial statements of the registrant.                                                                                                                              
|        | 31 | .1    |             | Certification of Chief Executive Officer pursuant to Section 302
    of Sarbanes-Oxley Act of 2002, dated March 1, 2006.                                                                                                                                     
|        | 31 | .2    |             | Certification of Chief Financial Officer pursuant to Section 302
    of Sarbanes-Oxley Act of 2002, dated March 1, 2006.                                                                                                                                     
|        | 32 |       |             | Certification of Chief Executive Officer and Chief Financial
    Officer pursuant to Section 906 of Sarbanes-Oxley Act of 2002,
    dated March 1, 2006.                                                                                                     

93



---



##### 



SIGNATURES






| |                       
| | ----------------------
| | AMERIGROUP Corporation



| |     |                  
| | --- | -----------------
| | By: | /s/ Sherri E. Lee

| |                                                                            
| | ---------------------------------------------------------------------------
| |                                                                            
| | Name: Sherri E. Lee                                                        
| | Title:  Executive Vice President, Chief Financial
    Officer and Treasurer



|                                                       |  |                                                                 |  |               |  | 
|------------------------------------------------------ |  | --------------------------------------------------------------- |  | ------------- |  | 
|Signatures                                             |  | Title                                                           |  | Date         
|                                                       |  |                                                                 |  |              
|                                                      
|/s/ Jeffrey L. McWatersJeffrey L. McWaters             |  | Chairman and Chief Executive Officer                            |  | March 1, 2006
|                                                      
|/s/ Sherri E. LeeSherri E. Lee                         |  | Executive Vice President, Chief Financial Officer and Treasurer |  | March 1, 2006
|                                                      
|/s/ Kathleen K. TothKathleen K. Toth                   |  | Executive Vice President and Chief Accounting Officer           |  | March 1, 2006
|                                                      
|/s/ Thomas E. CappsThomas E. Capps                     |  | Director                                                        |  | March 1, 2006
|                                                      
|/s/ Jeffrey B. ChildJeffrey B. Child                   |  | Director                                                        |  | March 1, 2006
|                                                      
|/s/ Kay Coles JamesKay Coles James                     |  | Director                                                        |  | March 1, 2006
|                                                      
|/s/ William J. McbrideWilliam J. McBride               |  | Director                                                        |  | March 1, 2006
|                                                      
|/s/ Uwe E.
    Reinhardt, Ph.D.Uwe E. Reinhardt, Ph.D. |  | Director                                                        |  | March 1, 2006
|                                                      
|/s/ Richard D. ShirkRichard D. Shirk                   |  | Director                                                        |  | March 1, 2006

94



---



##### 



EXHIBIT INDEX


|        |    |       |             |                                                                                                                                                                                                                                                                                                                      
|------- | -- | ----- | ----------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|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    |             | By-Laws of the Company (incorporated by reference to exhibit 3.2
    to our Registration Statement on Form S-3 (No. 333-108831)).                                                                                                                                                                                    
|        | 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    |             | AMERIGROUP Corporation Second Restated Investor Rights
    Agreement, dated July 28, 1998 (incorporated by reference to
    exhibit 4.2 to our Registration Statement on Form S-1 (No.
    333-37410)).                                                                                                              
|        | 10 | .6.9  |             | Amendment to Amended and Restated Contract between State of New
    Jersey, Department of Human Services, Division of Medical
    Assistance and Health Services and AMERIGROUP New Jersey, Inc.
    dated July 1, 2005 (incorporated by reference to our Quarterly
    Report on Form 10-Q filed on August 3, 2005).
|        | 10 | .6.10 |             | Amendment to Amended and Restated Contract between State of New
    Jersey, Department of Human Services, Division of Medical
    Assistance and Health Services and AMERIGROUP New Jersey, Inc.
    dated July 1, 2005 (incorporated by reference to our Quarterly
    Report on Form 10-Q filed on August 3, 2005).
|        | 10 | .7.8  |             | Amendment 2, dated August 1, 2005, to the State of Illinois
    Department of Healthcare and Family Services Contract for
    Furnishing Health Services by a Health Maintenance Organization
    (incorporated by reference to our Quarterly Report on Form 10-Q
    filed on August 3, 2005).                      
|        | 10 | .8    |             | Form 2003 Cash Incentive Plan of the Company (incorporated by
    reference to exhibit 10.38 to our Quarterly Report of Form 10-Q
    for the last quarter ended June 30, 2003, filed on August 11,
    2003).                                                                                                       
|        | 10 | .9    |             | Form 2005 Equity Incentive Plan (incorporated by reference to
    our Definitive Proxy Statement Pursuant to Schedule 14a of the
    Securities Exchange Act of 1934, filed on April 4, 2005).                                                                                                                       
|        | 10 | .10   |             | Definitive Agreement dated October 26, 2004, between CarePlus,
    LLC and AMERIGROUP Corporation (incorporated by reference to our
    Current Report on Form 8-K, filed on November 1, 2004).                                                                                                                      
|        | 10 | .11   |             | Closing Agreement dated January 3, 2005, between CarePlus, LLC
    and AMERIGROUP Corporation (incorporated by reference to exhibit
    10.47 to our Current Report on Form 8-K, filed on January 6,
    2005).                                                                                                      
|        | 10 | .12   |             | Separation Agreement and General Release with E. Paul Dunn, Jr.
    former Executive Vice President and Chief Financial Officer
    effective December 2, 2005 (incorporated by reference to our
    Current Report on Form 8-K, filed on December 6, 2005).                                                         
|        | 10 | .13   |             | Form the Officer and Director Indemnification Agreement
    (incorporated by reference to exhibit 10.16 to our Registration
    Statement on Form S-1 (No. 333-37410).                                                                                                                                               
|        | 10 | .14   |             | Form of Employee Noncompete, Nondisclosure and Developments
    Agreement (incorporated by reference to exhibit 10.1 to our
    Current Report on Form 8-K, filed on February 23, 2005).                                                                                                                             
|        | 10 | .15   |             | Form of Incentive Stock Option Agreement (incorporated by
    reference to exhibit 10.1 to our Current Report of Form 8-K,
    filed on May 13, 2005).                                                                                                                                                               
|        | 10 | .16   |             | Form of Nonqualified Stock Option Agreement (incorporated by
    reference to exhibit 10.2 to our Current Report on Form 8-K
    filed on May 13, 2005).                                                                                                                                                             
|        | 10 | .17   |             | Form of Stock Appreciation Rights Agreement (incorporated by
    reference to exhibit 10.3 to our Current Form 8-K filed on May
    13, 2005).                                                                                                                                                                       
|        | 10 | .18   |             | Form of AMERIGROUP Corporation Nonqualified Stock Option
    Agreement (incorporated by reference to exhibit 10.1 to our
    Current Form 8-K filed on November 3, 2005).                                                                                                                                            
|        | 10 | .19   |             | The Board of Directors approved and adopted a resolution for
    director compensation practices on February 10, 2005
    (incorporated by reference to our Current Report on Form 8-K,
    filed on February 15, 2005).                                                                                             
|        | 10 | .20   |             | Form of Separation Agreement between AMERIGROUP Corporation and
    Lorenzo Childress, Jr., M.D. (incorporated by reference to
    exhibit 10.1 to our Current Report on Form 8-K filed March 4,
    2005).                                                                                                          



---



##### 



|        |    |       |             |                                                                                                                                                                                                                                                                                                                                        
|------- | -- | ----- | ----------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |       |            
|Number  |    |       | Description
|        |    |       |            
|        | 10 | .21   |             | Form of 2005 Executive Deferred Compensation Plan between
    AMERIGROUP Corporation and Executive Associates (incorporated by
    reference to exhibit 10.2 to our Current Report on Form 8-K
    filed March 4, 2005).                                                                                                               
|        | 10 | .22   |             | Form of 2005 Executive Deferred Compensation Plan between
    AMERIGROUP Corporation and Executive Associates (incorporated by
    reference to exhibit 10.2 to our Current Report on Form 8-K
    filed March 4, 2005).                                                                                                               
|        | 10 | .23   |             | Amendment No. 00017, dated March 1, 2005, to the District of
    Columbia Healthy Families Programs, Department of Health Medical
    Assistance Administration, Prepaid, Capital Risk Contract
    (POHC-2002-D-2003) (incorporated by reference to our Current
    Report on Form 8-K, filed on May 5, 2005).                        
|        | 10 | .25.2 |             | Amendment No. 2, dated November 19, 2004, to the June 28, 2002
    Medical Contract between the State of Florida, Agency for Health
    Care Administration and AMERIGROUP Florida Inc. (AHCA Contract
    No. FA523) (incorporated by reference to Exhibit 10.25 to our
    Quarterly Report on Form 10-Q, filed on November 5, 2004).
|        | 10 | .25.3 |             | Amendment No. 4, dated February 28, 2005, to the June 28, 2002
    Medical Contract between the State of Florida, Agency for Health
    Care Administration and AMERIGROUP Florida Inc. (AHCA Contract
    No. FA523) (incorporated by reference to Exhibit 25.3 to our
    Current Report on Form 8-K, filed on May 5, 2005).         
|        | 10 | .25.4 |             | Amendment No. 5, dated March 31, 2005, to the June 28, 2002
    Medical Contract between the State of Florida, Agency for Health
    Care Administration and AMERIGROUP Florida Inc. (AHCA Contract
    No. FA523) (incorporated by reference to Exhibit 25.4 to our
    Current Report on Form 8-K, filed on May 5, 2005).            
|        | 10 | .25.5 |             | Amendment No. 6, dated May 1, 2005, to the June 28, 2002 Medical
    Contract between the State of Florida, Agency for Health Care
    Administration and AMERIGROUP Florida Inc. (AHCA Contract No.
    FA523) (incorporated by reference to Exhibit 10.1 to our Current
    Report on Form 8-K, filed on May 5, 2005).               
|        | 10 | .25.6 |             | Amendment No. 7, dated June 1, 2005, to the June 28, 2002
    Medical Contract between the State of Florida, Agency for Health
    Care Administration and AMERIGROUP Florida Inc. (AHCA Contract
    No. FA523) (incorporated by reference to Exhibit 10.1 to our
    Current Report on Form 8-K, filed on June 15, 2005).            
|        | 10 | .25.7 |             | Amendment No. 8, dated July 1, 2005, to the June 28, 2002
    Medical Contract between the State of Florida, Agency for Health
    Care Administration and AMERIGROUP Florida Inc. (AHCA Contract
    No. FA523) (incorporated by reference to Exhibit 10.2 to our
    Current Report on Form 8-K, filed on July 26, 2005).            
|        | 10 | .25.8 |             | Amendment No. 9, dated July 1, 2005, to the June 28, 2002
    Medical Contract between the State of Florida, Agency for Health
    Care Administration and AMERIGROUP Florida Inc. (AHCA Contract
    No. FA523) (incorporated by reference to Exhibit 10.3 to our
    Current Report on Form 8-K, filed on July 26, 2005).            
|        | 10 | .25.9 |             | Medical Services Contract by and between Florida Healthy Kids
    Corporation and AMERIGROUP Florida, Inc., dated October 1, 2005
    (incorporated by reference to exhibit 10.5 to our Quarterly
    Report on Form 10-Q filed on November 4, 2005).                                                                                  
|        | 10 | .26   |             | Medicaid Contract between New York City Department of Health and
    Mental Hygiene and CarePlus, L.L.C. date October 1, 2004
    (incorporated by reference to Exhibit 10.48 to our Current
    Report on Form 8-K, filed on May 5, 2005).                                                                                            
|        | 10 | .26.1 |             | Contract Amendment, dated January 1, 2005, to the Medicaid
    Managed Care Model Contract between New York City Department of
    Health and Mental Hygiene and CarePlus LLC. Dated October 1,
    2004 (incorporated by reference to Exhibit 10.48.1 to our
    Current Report on Form 8-K, filed on May 5, 2005.)                   
|        | 10 | .27   |             | Child Health Plus by and between The State of New York
    Department of Health and Care Plus Health Plan is effective for
    the period July 1, 1998 through June 30, 2005 (Contract No.
    C-015473) (incorporated by reference to Exhibit 10.49 to our
    Current Report on Form 8-K, filed on May 5, 2005).                     



---



##### 



|        |    |       |             |                                                                                                                                                                                                                                                                                                                                                                                                
|------- | -- | ----- | ----------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |       |            
|Number  |    |       | Description
|        |    |       |            
|        | 10 | .27.1 |             | Contract Amendment - Appendix X, dated September 10, 2005, to
    the Child Health Plus Contract by and between The State of New
    York Department of Health and Care Plus Health Plan is effective
    for the period June 30, 2005 through December 31, 2005
    ((Contract No. C-015473) (incorporated by reference to our
    Quarterly Report on Form 10-Q, filed on November 4, 2005)).
|        | 10 | .27.2 |             | Contract Amendment - Appendix X, dated September 10, 2005, to
    the Child Health Plus by and between The State of New York
    Department of Health and Care Plus Health Plan is effective for
    the period January 1, 2006 through December 31, 2006 ((Contract
    No. C-015473) (incorporated by reference to our Quarterly Report
    on Form 10-Q, filed on November 4, 2005)).       
|        | 10 | .28   |             | Family Health Plus Model Contract by and between The City of New
    York through the State Department of Health and CarePlus LLC is
    effective for the period October 1, 2005 through September 30,
    2007 (incorporate by reference to our Quarterly Report filed on
    Form 10-Q, filed on November 4, 2005).                                                                         
|        | 10 | .29   |             | Medicaid Managed Care Model Contract by The State of New York
    Department of Health and CarePlus LLC effective for the period
    October 1, 2005 through September 30, 2007 (incorporated by
    reference to our Quarterly Report on Form 10-Q, filed on
    November 4, 2005).                                                                                                           
|        | 10 | .30   |             | Contract dated July 19, 2005 between Georgia Department of
    Community Health and AMGP Georgia Managed Care Company, Inc. for
    the period from July 1, 2005 through June 30, 2006 with six
    optional renewal periods (incorporated by reference to Exhibit
    10.1 to our Current Report on Form 8-K, filed on July 26, 2005).                                                        
|        | 10 | .30.1 |             | Contract rates to contract dated July 19, 2005 between Georgia
    Department of Community Health and AMGP Georgia Managed Care
    Company, Inc. for the period from July 1, 2005 through June 30,
    2006 with six optional renewal periods (incorporated by
    reference to Exhibit 10.1.1 to our Current Report on Form 8-K,
    filed on July 26, 2005).                                
|        | 10 | .31   |             | Contract with Eligible Medicare Advantage (MA) Organization
    Pursuant to Sections 1851 through 1859 of the Social Security
    Act for the Operation of a Medicare Advantage Coordinated Care
    Plan(s) (incorporated by reference to Exhibit 10.1 to our
    Current Report on Form 8-K, filed September 29, 2005).                                                                      
|        | 10 | .31.1 |             | Addendum To Medicare Mangaged Care Contract Pursuant To Sections
    1860D-1 Through 1860D-42 Of The Social Security Act For The
    Operation of a Voluntary Medicare Prescription Drug Plan
    (incorporated by reference to Exhibit 10.2 to our Current Report
    on Form 8-K, filed September 29, 2005).                                                                                 
|        | 10 | .32.1 |             | Amendment, effective September 1, 2005, to the Health &
    Human Services Commission Agreement for Health Services to the
    Medicaid STAR program in the Dallas Service Delivery Area
    effectively extending the contract through August 31, 2006.                                                                                                                                       
|        | 10 | .32.2 |             | Amendment, effective September 1, 2005, to the Health &
    Human Services Commission Agreement for Health Services to the
    Medicaid STAR program in the Harris Service Delivery Area
    effectively extending the contract through August 31, 2006.                                                                                                                                       
|        | 10 | .32.3 |             | Amendment, effective September 1, 2005, to the Health &
    Human Services Commission Agreement for Health Services to the
    Medicaid STAR program in the Tarrant Service Delivery Area
    effectively extending the contract through August 31, 2006.                                                                                                                                      
|        | 10 | .32.4 |             | Amendment, effective September 1, 2005, to the Health &
    Human Services Commission Agreement for Health Services to the
    Medicaid STAR program in the Travis Service Delivery Area
    effectively extending the contract through August 31, 2006.                                                                                                                                       
|        | 10 | .32.5 |             | Amendment, effective September 1, 2005, to the Health &
    Human Services Commission Agreement for Health Services to the
    Medicaid STAR+PLUS program in the Harris Service Delivery Area
    effectively extending the contract through August 31, 2006.                                                                                                                                  



---



##### 



|        |    |       |             |                                                                                                                                                                                                                                   
|------- | -- | ----- | ----------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |       |            
|Number  |    |       | Description
|        |    |       |            
|        | 10 | .32.6 |             | Amendment, effective January 1, 2006, to the Health &
    Human Services Commission Agreement for Health Services to the
    Medicaid STAR+PLUS program in the Harris County Service Delivery
    Area.                           
|        | 10 | .32.8 |             | Amendment, effective September 1, 2005, to the Health &
    Human Services Commission Agreement for Health Services to the
    Childrens Health Insurance Program effectively extending
    the contract through August 31, 2006.
|        | 10 | .32.9 |             | Health & Human Services Commission Uniform Managed Care
    Contract covering all service areas and products in which the
    subsidiary has agreed to participate, effective
    September 1, 2006.                              
|        | 21 | .1    |             | List of Subsidiaries                                                                                                                                                                                                              
|        | 23 | .1    |             | Consent of KPMG LLP, Independent Registered Public Accounting
    Firm, with respect to financial statements of the registrant.                                                                                                   
|        | 31 | .1    |             | Certification of Chief Executive Officer pursuant to Section 302
    of Sarbanes-Oxley Act of 2002, dated March 1 , 2006.                                                                                                         
|        | 31 | .2    |             | Certification of Chief Financial Officer pursuant to Section 302
    of Sarbanes-Oxley Act of 2002, dated March 1 , 2006.                                                                                                         
|        | 32 |       |             | Certification of Chief Executive Officer and Chief Financial
    Officer pursuant to Section 906 of Sarbanes-Oxley Act of 2002,
    dated March 1, 2006.