##### 









UNITED STATES SECURITIES AND EXCHANGE
COMMISSION

Washington, D.C. 20549


FORM 10-Q

|   |  |                                                                                             
|-- |  | --------------------------------------------------------------------------------------------
|þ  |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR
    15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
|  
|   |  | For the quarterly period ended March 31,
    2004                                           
|  
|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 registrants 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,
    VA                      |  | 23462                                   
|(Address of principal executive
    offices)                       |  | (Zip Code)                              

Registrants telephone number, including
area code: (757) 490-6900

Indicate by check mark whether the registrant:
(1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the
past
90 days.     Yes þ     No o

Indicate by check mark whether the registrant is
an accelerated filer (as defined in Rule 12b-2 of the
Exchange
Act).     Yes þ     No o

As of April 30, 2004, there were 24,742,985
shares outstanding of AMERIGROUPs common stock, par value
$0.01.











---



##### 



AMERIGROUP CORPORATION AND
SUBSIDIARIES

TABLE OF CONTENTS

|                              |  |                                                                                                               |  |  |    | 
|----------------------------- |  | ------------------------------------------------------------------------------------------------------------- |  |  | -- | 
|PART I. FINANCIAL INFORMATION
|Item 1.                       |  | Financial Statements                                                                                          |  |  |    | 
|                              |  | Condensed Consolidated Balance Sheets as of
    March 31, 2004 and December 31, 2003                          |  |  | 3  | 
|                              |  | Condensed Consolidated Income Statements for the
    three month periods ended March 31, 2004 and 2003        |  |  | 4  | 
|                              |  | Condensed Consolidated Statements of Cash Flows
    for the three month periods ended March 31, 2004 and 2003 |  |  | 5  | 
|                              |  | Notes to Condensed Consolidated Financial
    Statements                                                      |  |  | 6  | 
|Item 2.                       |  | Managements Discussion and Analysis of
    Financial Condition and Results of Operations                     |  |  | 9  | 
|Item 3.                       |  | Quantitative and Qualitative Disclosures about
    Market Risk                                                |  |  | 14 | 
|Item 4.                       |  | Controls and Procedures                                                                                       |  |  | 14 | 
|PART II. OTHER INFORMATION   
|Item 1.                       |  | Legal Proceedings                                                                                             |  |  | 15 | 
|Item 2.                       |  | Changes in Securities, Use of Proceeds and Issuer
    Purchases of Equity Securities                          |  |  | 16 | 
|Item 3.                       |  | Defaults Upon Senior Securities                                                                               |  |  | 16 | 
|Item 4.                       |  | Submission of Matters to a Vote of Security
    Holders                                                       |  |  | 16 | 
|Item 5.                       |  | Other Information                                                                                             |  |  | 16 | 
|Item 6.                       |  | Exhibits and Reports on Form 8-K                                                                              |  |  | 17 | 

2



---



##### 



PART I. FINANCIAL INFORMATION

Item 1.     Financial
Statements

AMERIGROUP CORPORATION AND
SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE
SHEETS

(Dollars in thousands)


|                                                                          |                                                                                                                                                                                 |                            |         |              |         |   |         |         |         | 
|------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------- | ------- | ------------ | ------- | - | ------- | ------- | ------- | 
|                                                                          |                                                                                                                                                                                 | March 31,                  |         | December 31,
|                                                                          |                                                                                                                                                                                 | 2004                       |         | 2003        
|                                                                          |                                                                                                                                                                                 |                            |         |             
|                                                                          |                                                                                                                                                                                 | (unaudited)                |         |             
|ASSETS                                                                   
|Current assets:                                                           |                                                                                                                                                                                 |                            |         |              |         |   |         |        
|                                                                          | Cash and cash equivalents                                                                                                                                                       |                            | $       | 388,112      |         |   | $       | 407,220 |        
|                                                                          | Short-term investments                                                                                                                                                          |                            |         | 29,499       |         |   |         | 8,750   |        
|                                                                          | Premium receivables                                                                                                                                                             |                            |         | 34,416       |         |   |         | 38,259  |        
|                                                                          | Deferred income taxes                                                                                                                                                           |                            |         | 8,144        |         |   |         | 10,164  |        
|                                                                          | Prepaid expenses and other current assets                                                                                                                                       |                            |         | 15,873       |         |   |         | 15,995  |        
|                                                                          |                                                                                                                                                                                 |                            |         |              |         |   |         |        
|                                                                          |                                                                                                                                                                                 | Total current assets       |         |              | 476,044 |   |         |         | 480,388 | 
|Property and equipment, net                                               |                                                                                                                                                                                 |                            | 30,097  |              |         |   | 31,103  |        
|Software, net                                                             |                                                                                                                                                                                 |                            | 10,639  |              |         |   | 11,055  |        
|Goodwill and other intangible assets, net                                 |                                                                                                                                                                                 |                            | 143,192 |              |         |   | 144,398 |        
|Long-term investments                                                     |                                                                                                                                                                                 |                            | 112,956 |              |         |   | 119,133 |        
|Investments on deposit for licensure                                      |                                                                                                                                                                                 |                            | 35,457  |              |         |   | 35,346  |        
|Other long-term assets                                                    |                                                                                                                                                                                 |                            | 5,443   |              |         |   | 4,598   |        
|                                                                          |                                                                                                                                                                                 |                            |         |              |         |   |         |        
|                                                                          |                                                                                                                                                                                 | $                          | 813,828 |              |         | $ | 826,021 |        
|                                                                          |                                                                                                                                                                                 |                            |         |              |         |   |         |        
|LIABILITIES AND STOCKHOLDERS
    EQUITY                                 
|Current liabilities:                                                      |                                                                                                                                                                                 |                            |         |              |         |   |         |        
|                                                                          | Claims payable                                                                                                                                                                  |                            | $       | 240,124      |         |   | $       | 239,532 |        
|                                                                          | Unearned revenue                                                                                                                                                                |                            |         | 26,749       |         |   |         | 54,324  |        
|                                                                          | Accounts payable                                                                                                                                                                |                            |         | 4,174        |         |   |         | 5,523   |        
|                                                                          | Accrued expenses, capital leases and other
    current liabilities                                                                                                              |                            |         | 45,621       |         |   |         | 53,431  |        
|                                                                          |                                                                                                                                                                                 |                            |         |              |         |   |         |        
|                                                                          |                                                                                                                                                                                 | Total current liabilities  |         |              | 316,668 |   |         |         | 352,810 | 
|Deferred income taxes, capital leases and other
    long-term liabilities |                                                                                                                                                                                 |                            | 10,100  |              |         |   | 11,497  |        
|                                                                          |                                                                                                                                                                                 |                            |         |              |         |   |         |        
|                                                                          |                                                                                                                                                                                 | Total liabilities          |         |              | 326,768 |   |         |         | 364,307 | 
|                                                                          |                                                                                                                                                                                 |                            |         |              |         |   |         |        
|Stockholders equity:                                                     |                                                                                                                                                                                 |                            |         |              |         |   |         |        
|                                                                          | Common stock, $.01 par value. Authorized
    100,000,000 shares; issued and outstanding 24,742,448 and
    24,444,622 at March 31, 2004 and December 31, 2003,
    respectively |                            |         | 247          |         |   |         | 244     |        
|                                                                          | Additional paid-in capital                                                                                                                                                      |                            |         | 338,599      |         |   |         | 331,751 |        
|                                                                          | Retained earnings                                                                                                                                                               |                            |         | 148,214      |         |   |         | 129,776 |        
|                                                                          | Deferred compensation                                                                                                                                                           |                            |         |             |         |   |         | (57     | )      
|                                                                          |                                                                                                                                                                                 |                            |         |              |         |   |         |        
|                                                                          |                                                                                                                                                                                 | Total stockholders equity |         |              | 487,060 |   |         |         | 461,714 | 
|                                                                          |                                                                                                                                                                                 |                            |         |              |         |   |         |        
|                                                                          |                                                                                                                                                                                 | $                          | 813,828 |              |         | $ | 826,021 |        
|                                                                          |                                                                                                                                                                                 |                            |         |              |         |   |         |        

See accompanying notes to condensed consolidated
financial statements.

3



---



##### 



AMERIGROUP CORPORATION AND
SUBSIDIARIES

CONDENSED CONSOLIDATED INCOME
STATEMENTS

(Unaudited, dollars in thousands, except for
per share data)


|                      |                                                                                               |                              |        |            |         |  |       |            |         | 
|--------------------- | --------------------------------------------------------------------------------------------- | ---------------------------- | ------ | ---------- | ------- |  | ----- | ---------- | ------- | 
|                      |                                                                                               |                             
|                      |                                                                                               | Three months ended March 31,
|                      |                                                                                               |                             
|                      |                                                                                               | 2004                         |        | 2003      
|                      |                                                                                               |                              |        |           
|Revenues:             |                                                                                               |                              |        |            |         |  |       |           
|                      | Premium                                                                                       |                              | $      | 422,335    |         |  | $     | 389,562    |        
|                      | Investment income                                                                             |                              |        | 1,960      |         |  |       | 1,688      |        
|                      |                                                                                               |                              |        |            |         |  |       |           
|                      |                                                                                               | Total revenues               |        |            | 424,295 |  |       |            | 391,250 | 
|                      |                                                                                               |                              |        |            |         |  |       |           
|Expenses:             |                                                                                               |                              |        |            |         |  |       |           
|                      | Health benefits                                                                               |                              |        | 342,247    |         |  |       | 317,298    |        
|                      | Selling, general and administrative                                                           |                              |        | 45,487     |         |  |       | 44,070     |        
|                      | Depreciation and amortization                                                                 |                              |        | 5,624      |         |  |       | 5,762      |        
|                      | Interest                                                                                      |                              |        | 181        |         |  |       | 550        |        
|                      |                                                                                               |                              |        |            |         |  |       |           
|                      |                                                                                               | Total expenses               |        |            | 393,539 |  |       |            | 367,680 | 
|                      |                                                                                               |                              |        |            |         |  |       |           
|                      |                                                                                               | Income before income taxes   |        |            | 30,756  |  |       |            | 23,570  | 
|Income tax expense    |                                                                                               |                              | 12,318 |            |         |  | 9,876 |           
|                      |                                                                                               |                              |        |            |         |  |       |           
|                      |                                                                                               | Net income                   |        | $          | 18,438  |  |       | $          | 13,694  | 
|                      |                                                                                               |                              |        |            |         |  |       |           
|Net income per share: |                                                                                               |                              |        |            |         |  |       |           
|                      | Basic net income per share                                                                    |                              | $      | 0.75       |         |  | $     | 0.66       |        
|                      |                                                                                               |                              |        |            |         |  |       |           
|                      | Weighted average number of common shares
    outstanding                                      |                              |        | 24,562,414 |         |  |       | 20,613,772 |        
|                      |                                                                                               |                              |        |            |         |  |       |           
|                      | Diluted net income per share                                                                  |                              | $      | 0.72       |         |  | $     | 0.63       |        
|                      |                                                                                               |                              |        |            |         |  |       |           
|                      | Weighted average number of common shares and
    dilutive potential common shares outstanding |                              |        | 25,629,465 |         |  |       | 21,631,779 |        
|                      |                                                                                               |                              |        |            |         |  |       |           

See accompanying notes to condensed consolidated
financial statements.

4



---



##### 



AMERIGROUP CORPORATION AND
SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS

(Unaudited, dollars in thousands)


|                                                         |                                                                                       |                                                                                           |                                                              |                                           |       |         |         |         |       |        |         |  
|-------------------------------------------------------- | ------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------- | ------------------------------------------------------------ | ----------------------------------------- | ----- | ------- | ------- | ------- | ----- | ------ | ------- | -
|                                                         |                                                                                       |                                                                                          
|                                                         |                                                                                       | Three months                                                                             
|                                                         |                                                                                       | ended March 31,                                                                          
|                                                         |                                                                                       |                                                                                          
|                                                         |                                                                                       | 2004                                                                                      |                                                              | 2003                                     
|                                                         |                                                                                       |                                                                                           |                                                              |                                          
|Cash flows from operating activities:                    |                                                                                       |                                                                                           |                                                              |                                           |       |         |         |        
|                                                         | Net income                                                                            |                                                                                           | $                                                            | 18,438                                    |       |         | $       | 13,694  |      
|                                                         | Adjustments to reconcile net income to net cash
    provided by operating activities: |                                                                                           |                                                              |                                           |       |         |         |         |      
|                                                         |                                                                                       | Depreciation and amortization                                                             |                                                              |                                           | 5,624 |         |         |         | 5,762 |       
|                                                         |                                                                                       | Loss on disposal or abandonment of property,
    equipment and software                   |                                                              |                                           | 1,112 |         |         |         | 3     |       
|                                                         |                                                                                       | Deferred tax expense (benefit)                                                            |                                                              |                                           | 931   |         |         |         | (662  | )     
|                                                         |                                                                                       | Amortization of deferred compensation                                                     |                                                              |                                           | 57    |         |         |         | 90    |       
|                                                         |                                                                                       | Tax benefit related to exercise of stock options                                          |                                                              |                                           | 2,397 |         |         |         | 89    |       
|                                                         |                                                                                       | Changes in assets and liabilities increasing
    (decreasing) cash flows from operations: |                                                              |                                           |       |         |         |         |       |       
|                                                         |                                                                                       |                                                                                           | Premium receivables                                          |                                           |       | 3,843   |         |         |       | 2,455  |        
|                                                         |                                                                                       |                                                                                           | Prepaid expenses and other current assets                    |                                           |       | 122     |         |         |       | 753    |        
|                                                         |                                                                                       |                                                                                           | Other assets                                                 |                                           |       | (816    | )       |         |       | (721   | )      
|                                                         |                                                                                       |                                                                                           | Claims payable                                               |                                           |       | 592     |         |         |       | 24,682 |        
|                                                         |                                                                                       |                                                                                           | Accounts payable, accrued expenses and other
    liabilities |                                           |       | (4,984  | )       |         |       | (7,092 | )      
|                                                         |                                                                                       |                                                                                           | Unearned revenue                                             |                                           |       | (27,575 | )       |         |       | (783   | )      
|                                                         |                                                                                       |                                                                                           | Other long-term liabilities                                  |                                           |       | 338     |         |         |       | 838    |        
|                                                         |                                                                                       |                                                                                           |                                                              |                                           |       |         |         |        
|                                                         |                                                                                       |                                                                                           |                                                              | Net cash provided by operating activities |       |         | 79      |         |       |        | 39,108  |  
|                                                         |                                                                                       |                                                                                           |                                                              |                                           |       |         |         |        
|Cash flows from investing activities:                    |                                                                                       |                                                                                           |                                                              |                                           |       |         |         |        
|                                                         | Proceeds from redemption of held-to-maturity
    investments                          |                                                                                           |                                                              | 79,459                                    |       |         |         | 47,080  |      
|                                                         | Purchase of held-to-maturity investments                                              |                                                                                           |                                                              | (94,031                                   | )     |         |         | (97,252 | )    
|                                                         | Purchase of property, equipment and software                                          |                                                                                           |                                                              | (3,999                                    | )     |         |         | (3,307  | )    
|                                                         | Proceeds from redemption of investments on
    deposit for licensure                  |                                                                                           |                                                              | 30,083                                    |       |         |         | 3,404   |      
|                                                         | Purchase of investments on deposit for licensure                                      |                                                                                           |                                                              | (30,194                                   | )     |         |         | (4,075  | )    
|                                                         | Purchase of contract rights and related assets                                        |                                                                                           |                                                              | 48                                        |       |         |         |        |      
|                                                         | Cash acquired through stock acquisition                                               |                                                                                           |                                                              |                                          |       |         |         | 27,483  |      
|                                                         |                                                                                       |                                                                                           |                                                              |                                           |       |         |         |        
|                                                         |                                                                                       |                                                                                           |                                                              | Net cash used in investing activities     |       |         | (18,634 | )       |       |        | (26,667 | )
|                                                         |                                                                                       |                                                                                           |                                                              |                                           |       |         |         |        
|Cash flows from financing activities:                    |                                                                                       |                                                                                           |                                                              |                                           |       |         |         |        
|                                                         | Net increase (decrease) in bank overdrafts                                            |                                                                                           |                                                              | (3,876                                    | )     |         |         | 52      |      
|                                                         | Repayments of borrowings under credit facility                                        |                                                                                           |                                                              |                                          |       |         |         | (2,000  | )    
|                                                         | Payment of capital lease obligations                                                  |                                                                                           |                                                              | (1,131                                    | )     |         |         | (852    | )    
|                                                         | Proceeds from exercise of common stock options                                        |                                                                                           |                                                              | 4,454                                     |       |         |         | 866     |      
|                                                         |                                                                                       |                                                                                           |                                                              |                                           |       |         |         |        
|                                                         |                                                                                       |                                                                                           |                                                              | Net cash used in financing activities     |       |         | (553    | )       |       |        | (1,934  | )
|                                                         |                                                                                       |                                                                                           |                                                              |                                           |       |         |         |        
|Net increase (decrease) in cash and cash
    equivalents |                                                                                       |                                                                                           | (19,108                                                      | )                                         |       |         | 10,507  |        
|Cash and cash equivalents at beginning of period         |                                                                                       |                                                                                           | 407,220                                                      |                                           |       |         | 207,996 |        
|                                                         |                                                                                       |                                                                                           |                                                              |                                           |       |         |         |        
|Cash and cash equivalents at end of period               |                                                                                       | $                                                                                         | 388,112                                                      |                                           |       | $       | 218,503 |        
|                                                         |                                                                                       |                                                                                           |                                                              |                                           |       |         |         |        
|Supplemental disclosures of cash flow information:       |                                                                                       |                                                                                           |                                                              |                                           |       |         |         |        
|                                                         | Cash paid for interest                                                                |                                                                                           | $                                                            | 92                                        |       |         | $       | 556     |      
|                                                         |                                                                                       |                                                                                           |                                                              |                                           |       |         |         |        
|                                                         | Cash paid for income taxes                                                            |                                                                                           | $                                                            | 2,591                                     |       |         | $       | 2,329   |      
|                                                         |                                                                                       |                                                                                           |                                                              |                                           |       |         |         |        

On January 1, 2003, we completed our
acquisition of PHP Holdings, Inc. and its subsidiary Physicians
Health Plans, Inc., or PHP. The purchase price was deposited in
a restricted escrow account on December 31, 2002. The
following summarizes the cash paid for this acquisition:

|                                           |                      |   |         |         | 
|------------------------------------------ | -------------------- | - | ------- | ------- | 
|Assets acquired, including cash of $27,483 |                      | $ | 150,731 |        
|Liabilities assumed                        |                      |   | 26,471  |        
|                                           |                      |   |         |        
|                                           | Total purchase price |   | $       | 124,260 | 
|                                           |                      |   |         |        

See accompanying notes to condensed consolidated
financial statements.

5



---



##### 



AMERIGROUP CORPORATION AND
SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS

(Unaudited, dollars in thousands, except per
share data)


1. The accompanying condensed consolidated
financial statements as of March 31, 2004 and for the three
month periods ended March 31, 2004 and 2003 are unaudited
and reflect all adjustments (consisting only of normal recurring
adjustments) which are, in the opinion of management, necessary
for a fair presentation of the financial position at
March 31, 2004 and operating results for the interim
periods. The December 31, 2003 balance sheet information
was derived from the audited consolidated financial statements
as of that date.

The condensed consolidated financial statements
should be read in conjunction with the consolidated financial
statements and notes thereto and managements discussion
and analysis of financial condition and results of operations
for the year ended December 31, 2003 contained in our
Annual Report on Form 10-K filed March 9, 2004. The
results of operations for the three month period ended
March 31, 2004 are not necessarily indicative of the
results to be expected for the entire fiscal year ending
December 31, 2004.

Certain 2003 amounts have been reclassified to
conform to the current period financial statement presentation.

2. Basic net income per common share is
computed by dividing net income by the weighted average number
of shares of common stock outstanding. Diluted net income per
common share is computed by dividing net income by the weighted
average number of shares of common stock outstanding plus other
dilutive potential securities. The following table sets forth
the calculation of basic and diluted net income per share:

|                              |                                                                                               |                 |   |            |  |  |   |            | 
|----------------------------- | --------------------------------------------------------------------------------------------- | --------------- | - | ---------- |  |  | - | ---------- | 
|                              |                                                                                               |                
|                              |                                                                                               | Three months   
|                              |                                                                                               | ended March 31,
|                              |                                                                                               |                
|                              |                                                                                               | 2004            |   | 2003      
|                              |                                                                                               |                 |   |           
|Basic net income per share:   |                                                                                               |                 |   |            |  |  |   |           
|                              | Net income                                                                                    |                 | $ | 18,438     |  |  | $ | 13,694     | 
|                              |                                                                                               |                 |   |            |  |  |   |           
|                              | Weighted average number of common shares
    outstanding                                      |                 |   | 24,562,414 |  |  |   | 20,613,772 | 
|                              |                                                                                               |                 |   |            |  |  |   |           
|                              | Basic net income per share                                                                    |                 | $ | 0.75       |  |  | $ | 0.66       | 
|                              |                                                                                               |                 |   |            |  |  |   |           
|Diluted net income per share: |                                                                                               |                 |   |            |  |  |   |           
|                              | Net income                                                                                    |                 | $ | 18,438     |  |  | $ | 13,694     | 
|                              |                                                                                               |                 |   |            |  |  |   |           
|                              | Weighted average number of common shares
    outstanding                                      |                 |   | 24,562,414 |  |  |   | 20,613,772 | 
|                              | Dilutive effect of stock options (as determined
    by applying the treasury stock method)    |                 |   | 1,067,051  |  |  |   | 1,018,007  | 
|                              |                                                                                               |                 |   |            |  |  |   |           
|                              | Weighted average number of common shares and
    dilutive potential common shares outstanding |                 |   | 25,629,465 |  |  |   | 21,631,779 | 
|                              |                                                                                               |                 |   |            |  |  |   |           
|                              | Diluted net income per share                                                                  |                 | $ | 0.72       |  |  | $ | 0.63       | 
|                              |                                                                                               |                 |   |            |  |  |   |           

3. As permitted under Statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based
Compensation,as amended (SFAS No. 123), we have chosen
to account for stock-based compensation using the intrinsic
value method prescribed in Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to Employees(APB Opinion No. 25), and related interpretations.
Accordingly, compensation cost for stock options is measured as
the excess, if any, of the estimated fair value of our stock at
the date of grant over the amount an employee must pay to
acquire the stock. Statement of Financial Accounting Standards
No. 148, Stock-Based Compensation(SFAS
No. 148), requires that we illustrate the effect on net
income and net income per share if we had applied the fair value
principles included in SFAS No. 123 for both annual and
interim financial statements.

6



---



##### 



AMERIGROUP CORPORATION AND
SUBSIDIARIES


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                              |                                                                                                                                                     |                 |   |        |  |  |   |        | 
|----------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------- | --------------- | - | ------ |  |  | - | ------ | 
|                              |                                                                                                                                                     |                
|                              |                                                                                                                                                     | Three months   
|                              |                                                                                                                                                     | ended March 31,
|                              |                                                                                                                                                     |                
|                              |                                                                                                                                                     | 2004            |   | 2003  
|                              |                                                                                                                                                     |                 |   |       
|Net income:                   |                                                                                                                                                     |                 |   |        |  |  |   |       
|                              | Reported net income                                                                                                                                 |                 | $ | 18,438 |  |  | $ | 13,694 | 
|                              | Deduct: Total stock-based employee compensation
    expense determined under fair value based method for all awards,
    net of related tax effects |                 |   | 2,104  |  |  |   | 2,029  | 
|                              |                                                                                                                                                     |                 |   |        |  |  |   |       
|                              | Pro forma net income                                                                                                                                |                 | $ | 16,334 |  |  | $ | 11,665 | 
|                              |                                                                                                                                                     |                 |   |        |  |  |   |       
|Basic net income per share:   |                                                                                                                                                     |                 |   |        |  |  |   |       
|                              | Reported basic net income per share                                                                                                                 |                 | $ | 0.75   |  |  | $ | 0.66   | 
|                              | Pro forma basic net income per share                                                                                                                |                 |   | 0.66   |  |  |   | 0.57   | 
|Diluted net income per share: |                                                                                                                                                     |                 |   |        |  |  |   |       
|                              | Reported diluted net income per share                                                                                                               |                 | $ | 0.72   |  |  | $ | 0.63   | 
|                              | Pro forma diluted net income per share                                                                                                              |                 |   | 0.65   |  |  |   | 0.54   | 

As of March 31, 2004, we had 2,750,490
options outstanding with a weighted average exercise price of
$24.54. For the three months ended March 31, 2004, we
granted 539,438 options with a weighted average exercise price
of $37.13 and an average fair value of $11.97.

The fair value of each 2004 option grant is
estimated on the date of grant using an option pricing model
with the following assumptions for the three months ended
March 31, 2004: no dividend yield, risk-free interest rate
of 2.80%, expected life of 5.28 years and volatility of
29.65%.

4. In April 2004, the Maryland Legislature
enacted a budget for the fiscal year beginning July 1, 2004
that included a provision that would reduce the premium paid to
managed care organizations which did not meet certain medical
quality outcomes and whose medical loss ratio was below 84% for
the calendar year ended December 31, 2002. The budget
provided that the adjustment would take the form of premium
reductions starting July 1, 2004 through June 30,
2005. The details surrounding the implementation of this
provision are not finalized. Therefore, the impact on the
Company cannot be reasonably estimated at this time. However,
the impact could have a material adverse effect on our results
of operations. An estimate of the range of premiums to be
recouped from all impacted parties could be from zero to
approximately $7,400.

5. On July 18, 2002, Texas
Childrens Hospital (TCH) in Houston filed suit in
State District Court against AMERIGROUP Texas, Inc., our Texas
subsidiary, seeking to be paid full-billed charges for all
services rendered to our Texas subsidiarys Medicaid
members since October 1999. Our Texas subsidiary does not have a
contract with TCH to provide services to its Medicaid members.
When TCH provides services to our members, it does so as a
non-network provider. On January 17, 2003, the physicians
of Baylor College of Medicine, or Baylor, non-network providers
who provide medical services at TCH, filed suit against our
Texas subsidiary seeking full-billed charges for services
provided since October 1999 to our Texas Medicaid members. On
July 7, 2003, TCH and Baylor added AMERIGROUP Corporation
as an additional defendant to the lawsuits, alleging that we are
directly liable for the obligations of our Texas subsidiary. The
trial court ruled in November 2003 to abate the lawsuit pending
TCHs exhaustion of its administrative remedies with the
Texas Health and Human Services Commission (HHSC). To our
knowledge, TCH has not initiated an administrative complaint in
accordance with the courts order. However, in March 2004,
we received notice that HHSC had commenced a review of certain
claims payment issues raised by TCH in early 2002 which are part
of the subject matter of the lawsuit. TCH and Baylor requested
an early review of the Courts decision by the Court of
Appeals in a Writ of Mandamus action. The Court has not rendered
a decision in this mandamus action.

7



---



##### 



AMERIGROUP CORPORATION AND
SUBSIDIARIES


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

In May 2002, Capital Health Systems (Capital) in
New Jersey filed an action in the Superior Court of
New Jersey (the Court) against AMERIGROUP New Jersey, Inc.,
our New Jersey subsidiary, seeking to be paid full-billed
charges for all services rendered to our New Jersey
subsidiarys Medicaid members since January 1, 2002.
Our New Jersey subsidiary has not had a contract with
Capital to provide services to its Medicaid members since
December 31, 2001. As a result, services provided by
Capital to our members since January 1, 2002 have been
provided as a non-network provider. Capital asserts that our
New Jersey subsidiary agreed to pay full-billed charges
upon the expiration of our contract with them on
December 31, 2001. The Court ruled in favor of Capital on
August 8, 2003, and determined that our New Jersey
subsidiary entered into a new contract with Capital as of
December 31, 2001. Capital filed a notice of motion for
summary judgment on damages on September 12, 2003, seeking
approximately $8,500. Capitals motion was denied on
December 5, 2003. No trial date on damages is currently
scheduled.

We believe in both cases that we have paid the
providers in an appropriate manner. However, we have recorded in
our financial statements amounts that represent our best
estimates of outcomes that are considered probable. There can be
no assurances that the ultimate outcome of either or both of
these matters will not be materially different and each or both
could have a material adverse effect on our consolidated
financial position, results of operations, or liquidity.

8



---



##### 



Item 2.     Managements
Discussion and Analysis of Financial Condition and Results of
Operations

Forward-looking Statements

This Quarterly Report on Form 10-Q, and
other information we provide from time-to-time, contain certain
forward-looking statements as that term is defined
by Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as
amended. All statements regarding our expected 2004 performance
and future financial position, membership, revenues, operating
cash flows, health benefits expenses, seasonality of health
benefits expenses, selling, general and administrative expenses,
capital expenditures, days in claims payable, income tax rates,
earnings per share, net income growth, results of operations or
cash flows, our continued performance improvements, our ability
to service our debt obligations and refinance our debt
obligations, our ability to finance growth opportunities, our
expectations on the effective date and successful integration of
acquisitions, our ability to respond to changes in government
regulations, and similar statements including, without
limitation, those containing words such as believes,
anticipates, expects, may,
will, should, estimates,
intends, plans, and other similar
expressions are forward-looking statements.

Forward-looking statements involve known and
unknown risks and uncertainties that may cause our actual
results in future periods to differ materially from those
projected or contemplated in the forward-looking statements as a
result of, but not limited to, the following factors:



| |   |                                                                                                                                                                                                                                                          
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | national, state and local economic conditions,
    including their effect on the rate setting 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 health care 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 the
    Company;                                                                                                                                                                                           
|
| |  | 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; and                                                                                                                                                                                          
|
| |  | demographic changes.                                                                                                                                                                                                                                     

Investors should also refer to our Annual Report
on Form 10-K filed with the Securities and Exchange
Commission on March 9, 2004 for a discussion of risk
factors. Given these risks and uncertainties, we can give no
assurances that any forward-looking statements will, in fact,
transpire and therefore caution investors not to place undue
reliance on them.

9



---



##### 



Overview

We are a multi-state managed health care company
focused on serving people who receive health care benefits
through publicly-sponsored programs, including Medicaid, State
Childrens Health Insurance Program, or SCHIP and
FamilyCare. We were founded in December 1994 with the objective
to become the leading managed care organization in the United
States focused on serving people who receive these types of
benefits. As we begin our tenth year of operations, we believe
that managed health care remains the only mechanism that
significantly reduces medical cost trends and helps our state
partners control their costs.

In our first quarter ended March 31, 2004,
we increased our total revenues by 8.4% over the same period in
2003. Our first quarter 2004 revenue growth was due to a number
of factors including:



| |   |                                  
| | - | ---------------------------------
| |  | Growth in existing service areas;



| |   |                                                                                                                                     
| | - | ------------------------------------------------------------------------------------------------------------------------------------
| |  | Existing service areas premium revenues
    increased 5.9% from the first quarter of 2004 compared to the
    first quarter of 2003
|
| |  | Our first quarter 2004 existing service
    areas membership increased by 42,000, or 5.4%, compared to
    the same period in 2003 



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Rate increases from the states in which we
    operate to cover expense trends, benefit changes and premium tax;                                                                                                                                                                                                                                                                                                                                            
|
| |  | Growth through acquisitions  Effective
    July 1, 2003, we acquired the Medicaid contract rights and
    related assets of St. Augustine Medicaid, or
    St. Augustine, a division of AvMed., Inc. which added
    membership to our existing operations in Florida.
    St. Augustine operates in nine counties in the Miami/ Fort
    Lauderdale, Orlando and Tampa markets and served approximately
    26,000 members at the time of acquisition; and
|
| |  | These increases were partially offset by a lower
    average premium per member due to changes in the membership mix
    by product.                                                                                                                                                                                                                                                                                                                        

Our health benefits ratio (HBR) was 81.0%
for the three months ended March 31, 2004, compared to
81.4% in the same period of the prior year. The variance in the
HBR year-over-year is primarily due to additional health
benefits expenses related to the PHP acquisition in early 2003.

Selling, general and administrative expenses
(SG&A) were 10.7% of total revenues for the first quarter of
2004 compared to 11.3% in the first quarter of 2003.
Technological improvements made during 2003 continue to help us
leverage our SG&A. In the first quarter of 2003, we
experienced transition costs for the PHP acquisition, as well as
certain costs related to the implementation of the Health
Insurance Portability and Accountability Act of 1996, or HIPAA.

Cash and investments totaled $566.1 million
at March 31, 2004. A portion of this cash was regulated by
state capital requirements. However, $212.9 million of our
cash and investments was unregulated and held at the parent
level.

We continue to expect acquisitions and new market
entries to be an important part of our growth strategy. Almost
45% of our membership has resulted from nine acquisitions and we
are currently evaluating potential acquisition opportunities. We
have entered into a contract with the Texas Department of Health
and Human Services Commission to begin coordinating Medicaid
managed care benefits in the Travis County, Texas service area
on June 1, 2004.

In April 2004, the Maryland Legislature enacted a
budget for the fiscal year beginning July 1, 2004 that
included a provision that would reduce the premium paid to
managed care organizations which did not meet certain medical
quality outcomes and whose medical loss ratio was below 84% for
the calendar year ended December 31, 2002. The budget
provided that the adjustment would take the form of premium
reductions starting July 1, 2004 through June 30,
2005. The details surrounding the implementation of this
provision are not finalized. Therefore, the impact on the
Company cannot be reasonably estimated at this time. However,

10



---



##### 



the impact could have a material adverse effect
on our results of operations. An estimate of the range of
premiums to be recouped from all impacted parties could be from
zero to approximately $7.4 million.


The State of Michigan recently announced that we
won a competitive bid and signed a letter of intent with the
Michigan Office of Financial and Insurance Services (OFIS) to
acquire The Wellness Plan (Wellness). Wellness has been in
rehabilitation under the supervision of the State since
July 2003. Completion of the transaction was subject to
certain factors including negotiation of acceptable new premium
rates, a successful re-bid for existing contracts and approval
by our Board of Directors. On May 6, 2004, we informed OFIS
of our decision to terminate negotiations for the purchase of
Wellness.

The following table sets forth the approximate
number of our members we serve in each of our service areas on
the dates presented.

|                                                            |  |           |         |      |  |  |         | 
|----------------------------------------------------------- |  | --------- | ------- | ---- |  |  | ------- | 
|                                                            |  |          
|                                                            |  | March 31,
|                                                            |  |          
|Market                                                      |  | 2004      |         | 2003
|                                                            |  |           |         |     
|Houston                                                     |  |           | 149,000 |      |  |  | 138,000 | 
|Dallas                                                      |  |           | 89,000  |      |  |  | 89,000  | 
|Fort Worth                                                  |  |           | 102,000 |      |  |  | 78,000  | 
|New Jersey                                                  |  |           | 101,000 |      |  |  | 99,000  | 
|Maryland                                                    |  |           | 124,000 |      |  |  | 126,000 | 
|District of Columbia                                        |  |           | 37,000  |      |  |  | 37,000  | 
|Chicago                                                     |  |           | 33,000  |      |  |  | 32,000  | 
|Tampa                                                       |  |           | 132,000 |      |  |  | 114,000 | 
|Orlando                                                     |  |           | 42,000  |      |  |  | 49,000  | 
|Miami/ Fort Lauderdale                                      |  |           | 58,000  |      |  |  | 37,000  | 
|                                                            |  |           |         |      |  |  |         | 
|Total                                                       |  |           | 867,000 |      |  |  | 799,000 | 
|                                                            |  |           |         |      |  |  |         | 
|Percentage growth from March 31, 2003 to
    March 31, 2004 |  |           | 8.5     | %    |  |  |         | 

The following table sets forth the approximate
number of our members we serve in each of our products on the
dates presented.

|                            |  |           |         |      |  |  |         | 
|--------------------------- |  | --------- | ------- | ---- |  |  | ------- | 
|                            |  |          
|                            |  | March 31,
|                            |  |          
|Product                     |  | 2004      |         | 2003
|                            |  |           |         |     
|AMERICAID (Medicaid  TANF) |  |           | 589,000 |      |  |  | 519,000 | 
|AMERIKIDS (SCHIP)           |  |           | 189,000 |      |  |  | 189,000 | 
|AMERIPLUS (Medicaid  SSI)  |  |           | 74,000  |      |  |  | 67,000  | 
|AMERIFAM (FamilyCare)       |  |           | 15,000  |      |  |  | 24,000  | 
|                            |  |           |         |      |  |  |         | 
|Total                       |  |           | 867,000 |      |  |  | 799,000 | 
|                            |  |           |         |      |  |  |         | 

11



---



##### 



Results of Operations

The following table sets forth selected operating
ratios. All ratios, with the exception of the health benefits
ratio, are shown as a percentage of total revenues. We operate
in one business segment with a single line of business.

|                                             |  |                 |       |      |  |  |       |  
|-------------------------------------------- |  | --------------- | ----- | ---- |  |  | ----- | -
|                                             |  |                
|                                             |  | Three months   
|                                             |  | ended March 31,
|                                             |  |                
|                                             |  | 2004            |       | 2003
|                                             |  |                 |       |     
|Premium revenue                              |  |                 | 99.5  | %    |  |  | 99.6  | %
|Investment income                            |  |                 | 0.5   |      |  |  | 0.4   |  
|                                             |  |                 |       |      |  |  |       |  
|Total revenues                               |  |                 | 100.0 | %    |  |  | 100.0 | %
|                                             |  |                 |       |      |  |  |       |  
|Health benefits (1)                          |  |                 | 81.0  | %    |  |  | 81.4  | %
|Selling, general and administrative expenses |  |                 | 10.7  | %    |  |  | 11.3  | %
|Income before income taxes                   |  |                 | 7.2   | %    |  |  | 6.0   | %
|Net income                                   |  |                 | 4.3   | %    |  |  | 3.5   | %



---



|    |                                                                                                                                                                                        
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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.

Three Month Period Ended March 31, 2004
Compared to Three Month Period Ended March 31,
2003

Revenues

Premium revenues for the three months ended
March 31, 2004 increased $32.7 million, or 8.4%, to
$422.3 million from $389.6 million for the three
months ended March 31, 2003. The increase was due to
internal growth in overall membership, the St. Augustine
acquisition and premium rate increases. These increases were
partially offset by a lower average premium per member due to
changes in the membership mix by product. Total membership
increased by 68,000, or 8.5%, to 867,000 as of March 31,
2004, from 799,000 as of March 31, 2003.

Investment income increased $0.3 million to
$2.0 million for the three months ended March 31, 2004
from $1.7 million for the three months ended March 31,
2003. The increase in investment income was due to an increase
in overall levels of cash and investments partially offset by
increased levels of investments in tax-advantaged securities and
the continued decline in market interest rates. Cash and
investment levels have increased primarily due to proceeds from
our October 2003 public offering of common stock.

Health benefits

Expenses relating to health benefits for the
three months ended March 31, 2004 increased
$24.9 million, or 7.8%, to $342.2 million from
$317.3 million for the three months ended March 31,
2003. The increase in health benefits expense was primarily due
to the increase in membership of 68,000 members. Our health
benefits ratio was 81.0% for the first quarter versus 81.4% in
the prior year. The variance in the HBR year-over-year is
primarily due to additional health benefits expenses related to
the PHP acquisition in early 2003.

Selling, general and administrative
expenses

SG&A for the three months ended
March 31, 2004 increased $1.4 million, or 3.2%, to
$45.5 million from $44.1 million for the three months
ended March 31, 2003. The increase in SG&A was
primarily due to expenses supporting our increased membership
and market development activities. Our SG&A ratio to total
revenue was 10.7% and 11.3% for the three months ended
March 31, 2004 and 2003, respectively. The improved ratio
was primarily due to technological improvements, as well as
certain costs we incurred during the three months ended
March 31, 2003, relating to HIPAA implementation and our
entry into the Florida market.

12



---



##### 



Interest expense

Interest expense was $0.2 million and
$0.6 million for the three months ended March 31, 2004
and 2003, respectively. The decrease primarily relates to
borrowings outstanding during the three month period ended
March 31, 2003 on our credit facility used to partially
finance the PHP acquisition. We used a portion of the net
proceeds from our October 2003 public offering of common stock
to repay the $30.0 million balance outstanding under our
credit facility. During the quarter ended March 31, 2004,
our credit facility was undrawn.

Provision for income taxes

Income tax expense for the three months ended
March 31, 2004 was $12.3 million with an effective tax rate
of 40.1% as compared to $9.9 million in the three months
ended March 31, 2003 with an effective tax rate of 41.9%.
The effective tax rate decreased primarily due to increased
investments in tax-advantaged securities, decreases in the
amount of non-deductible amortization related to the PHP
acquisition for 2004 compared to 2003 and changes in our blended
state income tax rate.

Liquidity and capital
resources

Our primary sources of liquidity are cash and
cash equivalents, short and long-term investments, cash flow
from operations and borrowings under our credit facility. As of
March 31, 2004, we had cash and cash equivalents of
$388.1 million, short and long-term investments of
$142.5 million and restricted investments on deposit for
licensure of $35.5 million. Total cash and investments as
of March 31, 2004 was $566.1 million, a portion of
which is restricted by state regulatory requirements, compared
to $398.1 million as of March 31, 2003 and
$570.4 million as of December 31, 2003. Unrestricted
cash and investments as of March 31, 2004 were
approximately $212.9 million.

On October 22, 2003, we entered into a
$95.0 million Amended and Restated Credit Agreement (credit
facility) with a syndicate of banks. The credit facility
contains a provision which allows us to obtain, subject to
certain conditions, an increase in commitments of up to an
additional $30.0 million. The proceeds of the credit
facility are available for general corporate purposes,
including, without limitation, permitted acquisitions of
businesses, assets and technologies. There is a commitment fee
on the unused portion of the credit facility that ranges from
0.375% to 0.50%, depending on our leverage ratio. The credit
facility terminates on October 22, 2006.

Cash provided by operating activities was
$0.1 million for the three months ended March 31,
2004, compared to $39.1 million for the three months ended
March 31, 2003. The decrease in cash from operations was
primarily due to timing differences related to the receipt of
unearned revenue and decreases in the change in claims payable
attributable to the acquisition of PHP, partially offset by an
increase in net income.

For the three months ended March 31, 2004,
cash used in investing activities was $18.6 million
compared to $26.7 million for the three months ended
March 31, 2003. Cash used in investing activities related
primarily to net purchases of investments and purchases of
property, equipment and software. We currently anticipate total
capital expenditures for property, equipment and software to be
approximately $30.0 million to $34.0 million in 2004.

Our investment policies are designed to preserve
capital, provide liquidity and maximize total return on invested
assets. As of March 31, 2004, our investment portfolio
consisted primarily of fixed-income securities. The weighted
average maturity is currently six months. We utilize investment
vehicles such as municipal bonds, commercial paper,
U.S. government backed agencies, auction-rate securities
and U.S. Treasury instruments. The states in which we operate
prescribe the types of instruments in which our subsidiaries may
invest their cash. The weighted average taxable equivalent yield
on consolidated investments as of March 31, 2004 was
approximately 1.48%.

Cash used in financing activities was
$0.6 million for the three months ended March 31, 2004
compared to $1.9 million for the three months ended
March 31, 2003. The decrease primarily related to payments
made under our credit facility during the three month period
ended March 31, 2003.

13



---



##### 



We believe that existing cash and investment
balances, internally generated funds and available funds under
our credit facility will be sufficient to support continuing
operations, capital expenditures and our growth strategy for at
least 12 months.

Regulatory Capital and Dividend
Restrictions

Our operations are conducted through our wholly
owned subsidiaries, which include Health Maintenance
Organizations, or HMOs, and one managed care organization, or
MCO. HMOs and MCOs are subject to state regulations that, among
other things, may require the maintenance of minimum levels of
statutory capital, as defined by each state, and restrict the
timing, payment and amount of dividends and other distributions
that may be paid to their stockholders. Additionally, state
regulatory agencies may require individual HMOs to maintain
statutory capital levels higher than the state regulations. We
believe our subsidiaries are in compliance with all minimum
statutory capital requirements.

Item 3.     Quantitative
and Qualitative Disclosures About Market Risk

As of March 31, 2004 we had short-term
investments of $29.5 million, long-term investments of
$113.0 million and investments on deposit for licensure of
$35.5 million. These investments consist of highly liquid
investments with maturities between three and twenty-four
months. These investments are subject to interest rate risk and
will decrease in value if market rates increase. Credit risk is
managed by investing in money market funds, U.S. Treasury
securities, asset-backed securities, debt securities of
government sponsored entities, municipal bonds and auction rate
securities. Our investment policies are subject to revision
based upon market conditions and our cash flow and tax
strategies, among other factors. We have the ability to hold
these investments to maturity, and as a result, we would expect
any decrease in the value of these investments resulting from
changes in market interest rates to be temporary. As of
March 31, 2004, a hypothetical 1% change in interest rates
would result in an approximate $1.8 million change in our annual
investment income.

Item 4.     Controls
and Procedures

(a) Disclosure Controls and Procedures. Our
management, with the participation of our Chief Executive
Officer and Chief Accounting Officer, has evaluated the
effectiveness of our disclosure controls and procedures (as such
term is defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934, as amended (the Exchange
Act)) as of the end of the period covered by this report.
Based on such evaluation, our Chief Executive Officer and Chief
Accounting Officer have concluded that, as of the end of such
period, our disclosure controls and procedures are effective.

(b) Changes in Internal Controls Over
Financial Reporting. There were no material changes in our
internal controls over financial reporting or in other factors
that could significantly affect these controls during the period
covered by this report. In accordance with Section 404 of
the Sarbanes-Oxley Act of 2002, the Company is evaluating its
internal controls and is in the process of making changes to
improve the effectiveness of its internal control structure.

14



---



##### 



PART II. OTHER INFORMATION

Item 1.     Legal
Proceedings

On July 18, 2002, Texas Childrens
Hospital, or TCH, in Houston filed suit in State District Court
against AMERIGROUP Texas, Inc., our Texas subsidiary, seeking to
be paid full-billed charges for all services rendered to our
Texas subsidiarys Medicaid members since October 1999. Our
Texas subsidiary does not have a contract with TCH to provide
services to its Medicaid members. When TCH provides services to
our members, it does so as a non-network provider. On
January 17, 2003, the physicians of Baylor College of
Medicine, or Baylor, non-network providers who provide medical
services at TCH, filed suit against our Texas subsidiary seeking
full-billed charges for services provided since October 1999 to
our Texas Medicaid members. On July 7, 2003, TCH and Baylor
added AMERIGROUP Corporation as an additional defendant to the
lawsuits, alleging that we are directly liable for the
obligations of our Texas subsidiary.

Our Texas subsidiarys contracts with the
State of Texas provide a methodology for compensating
non-network providers for services provided to our Medicaid
members and the State of Texas has approved our Texas
subsidiarys current non-network provider payment
methodology. TCH and Baylor each assert that they are not a
party to the contract our Texas subsidiary has with the State of
Texas and, therefore, they are not obligated to accept the
payments determined in accordance with our State contract. The
State approved our subsidiarys payment methodology for the
period prior to January 1, 2003 and determined that it was
appropriate with respect to compensating non-network providers
other than TCH and Baylor. Therefore, we believe that our
payment methodology approved by the State should be equally
applicable to TCH and Baylor. We believe that our methodology
for calculating payments to TCH and Baylor as non-network
providers is appropriate and we will vigorously defend against
the claims of TCH and Baylor. If we are required to pay
full-billed charges to TCH and Baylor at the conclusion of
litigation and all appeals, it could have a material adverse
effect on us.

On July 21, 2003, we filed a motion with the
Court to abate the suit and have the issues resolved through an
administrative procedure by the Texas Health and Human Services
Commission, or HHSC, which we believe has exclusive jurisdiction
to resolve out-of-network provider complaints concerning
reimbursements by Medicaid managed care organizations.

On November 10, 2003, the Court granted our
Motion to Abate the claims of TCH and Baylor and further ordered
that there be no further discovery or other action by the
parties on these claims until TCH and Baylor have completed the
administrative process with HHSC. To our knowledge, TCH has not
initiated an administrative complaint in accordance with the
Courts order. However, in March 2004 we received notice
from HHSC that it had commenced a review of certain claims
payment issues raised by TCH in early 2002 and which are part of
the subject matter of the lawsuit.

TCH and Baylor requested an early review of the
Courts decision by the Court of Appeals in a Writ of
Mandamus action. The Court has not rendered a decision in this
mandamus action.

In May 2002, Capital Health Systems, or Capital,
in New Jersey filed an action against our New Jersey
subsidiary, in the Superior Court of New Jersey, Mercer
County Law Division, seeking to be paid full-billed charges for
all services rendered to our New Jersey subsidiarys
Medicaid members since January 1, 2002. Our New Jersey
subsidiary has not had a contract with Capital to provide
services to its Medicaid members since December 31, 2001.
As a result, services provided by Capital to our members since
January 1, 2002 have been provided as a non-network
provider. Capital asserts that our New Jersey subsidiary
agreed to pay full-billed charges upon the expiration of our
contract with them on December 31, 2001. The Court ruled in
favor of Capital on August 8, 2003, and determined that our
New Jersey subsidiary entered into a new contract with Capital
as of December 31, 2001. Capital filed a notice of motion
for summary judgment on damages on September 12, 2003,
seeking approximately $8.5 million. Capitals motion
was denied on December 5, 2003. Our petition for leave to
file an interlocutory appeal of the Courts summary
judgment on the issue of liability was denied by the Court of
Appeals. No trial date on damages is currently scheduled.

15



---



##### 



We disagree with the Courts ruling and
believe that we have provided payment to Capital in an
appropriate manner. Once a determination of damages is made, we
intend to appeal the ruling. Our payments to Capital in their
role as a non-network provider were based upon our understanding
of the usual and customary reimbursement practices in
New Jersey. Effective July 1, 2003, New Jersey
mandated that payments to non-network facilities for emergency
services be limited to the States Medicaid fee-for-service
rates. If we are required to pay full-billed charges to Capital
at the conclusion of all appeals, it could have a material
adverse effect on us.

We are from time-to-time the subject matter of,
or involved in, other legal proceedings including claims for
reimbursement by providers. We believe that any liability or
loss resulting from such matters will not have a material
adverse effect on our financial position or results of
operations.

Item 2.     Changes
in Securities, Use of Proceeds and Issuer Purchases of Equity
Securities

On October 16, 2003, we completed a public
offering of 3,162,500 shares of common stock, including an
over-allotment issuance of 412,500 shares. The shares of common
stock sold in the offering were registered under the Securities
Act of 1933, as amended, on a Registration Statement on
Form S-3, Registration Number 333-108531, which was
declared effective by the Securities and Exchange Commission on
October 9, 2003 and Registration Statement on
Form S-3, Registration Number 333-109609, filed with
the Securities and Exchange Commission pursuant to
Rule 462(b) of the General Rules and Regulations under the
Securities Act of 1933, as amended, on October 9, 2003. All
3,162,500 shares sold in the public offering were sold at a
price of $46.50 per share. We received proceeds from the
offering of approximately $139.0 million, net of
approximately $7.4 million of underwriting fees and
$0.7 million of expenses. On October 21, 2003, we used
$30.0 million of proceeds from the offering to repay the
outstanding balance of our credit facility. The balance of
approximately $109.0 million will be used for general
corporate purposes, including acquisitions of businesses, assets
and technologies.

Banc of America Securities LLC, Credit Suisse
First Boston LLC, CIBC World Markets Corp. and Stephens Inc.
acted as representatives of the underwriters for the public
offering.

Item 3.     Defaults
Upon Senior Securities

None.

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

None.

Item 5.     Other
Information

None.

16



---



##### 



Item 6.     Exhibits
and Reports on Form 8-K

a. 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. 333-347410)).
|        | 10.1. | 1           |  | Amendment, dated March 1, 2004, to the 1999
    Contract for Services between the HHS and HMO (Harris Service
    Area).                                                                                
|        | 10.2. | 1           |  | Amendment, dated March 1, 2004, to the 1999
    Contract for Services between the HHS and HMO (Tarrant Service
    Area).                                                                               
|        | 10.3. | 1           |  | Amendment, dated March 1, 2004, to the 1999
    Contract for Services between the HHS and HMO (Harris County
    Service Area STAR+Plus Contract).                                                      
|        | 10.5. | 1           |  | Amendment, dated September 1, 2003, to the
    2000 Contract for Services between the HHS and HMO
    (Childrens Health Insurance Program Agreement), dated
    September 1, 2003.                     
|        | 10.42 |             |  | Contract for Services between Texas Health and
    Human Services Commission and AMERIGROUP Texas, Inc. (Travis
    County), dated June 1, 2004.                                                        
|        | 31.1  |             |  | Certification of Chief Executive Officer pursuant
    to Section 302 of Sarbanes-Oxley Act of 2002, dated
    May 7, 2004.                                                                              
|        | 31.2  |             |  | Certification of Chief Accounting Officer
    pursuant to Section 302 of Sarbanes-Oxley Act of 2002,
    dated May 7, 2004.                                                                             
|        | 32    |             |  | Certification of Chief Executive Officer and
    Chief Accounting Officer pursuant to Section 906 of
    Sarbanes-Oxley Act of 2002, dated May 7, 2004.                                                 

Reports on Form 8-K

We furnished a report on Form 8-K on
April 29, 2004, announcing our earnings for the three
months ended March 31, 2004.

We filed a report on Form 8-K on
April 8, 2004, announcing Thomas E. Capps was elected
to AMERIGROUPs Board of Directors on April 5, 2004.

We furnished a report on Form 8-K on
February 18, 2004, announcing our earnings for the three
and twelve months ended December 31, 2003.

17



---



##### 



SIGNATURES

Pursuant to the requirements of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report
to be signed on its behalf by the undersigned thereunto duly
authorized.



| |                       
| | ----------------------
| | AMERIGROUP CORPORATION

|                  |  |                                                                                            
|----------------- |  | -------------------------------------------------------------------------------------------
|Date: May 7, 2004 |  | By: /s/ JEFFREY L. MCWATERS                                                                
|                  |  |                                                                                            
|                  |  | Chairman and Chief
    Executive Officer                                                   
|                 
|Date: May 7, 2004 |  | By: /s/ KATHLEEN K. TOTH                                                                   
|                  |  |                                                                                            
|                  |  | Executive Vice President and
    Chief Accounting Officer
    (principal financial officer)

18