The following selected consolidated financial data should be read in connection with the consolidated financial statements and related notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations appearing elsewhere in this Form 10-K. Selected financial data as of and for each of the years in the five-year period ended December 31, 2006 are derived from our consolidated financial statements, which have been audited by KPMG LLP, independent registered public accounting firm. All share and per share amounts included in the following consolidated financial data have been retroactively adjusted to reflect the two-for-one stock split effective January 18, 2005.
Additionally, the premium revenue for the year-ended December 31, 2006 was impacted by a net favorable prior period revenue adjustment totaling $1.7 million resulting from various premium recoupment issues in several of our markets. Net of the related income tax effect, net income increased approximately $1.0 million or $0.02 per diluted share for the year ended December 31, 2006 as a result of this net favorable prior period revenue adjustment.
On October 30, 2006, the jury in the Qui Tam litigation against the Company and AMERIGROUP Illinois, Inc. returned a verdict in favor of the plaintiffs in the amount of $48.0 million, which, under applicable law will be trebled to $144.0 million, plus penalties. The jury also found that there were 18,130 false claims. Under the Federal False Claims Act, false claims carry a penalty of between $5,500 and $11,000 per claim. Under the Illinois Whistleblower and Reward and Protection Act, 740 ILC 175/3, false claims carry a penalty of between $5,000 and $10,000 per claim. To date, the Court has not determined the amount of the statutory penalties. We timely filed motions for a new trial and for judgment notwithstanding the verdict. On February 20, 2007, the Court heard oral arguments on all post-trial motions. The Court has not yet ruled on the motions, but we expect that a ruling is imminent. In the event that the Court rules in favor of the plaintiffs motions, the Court could enter a judgment against us in an amount up to $524.7 million, plus attorneys’ fees, costs and expenses of Tyson’s counsel. In the event that our motions are denied, we intend to appeal the judgment to the U.S. Court of Appeals for the Seventh Circuit.
As a result of the Qui Tam litigation, it is possible that state or federal governments will subject the Company to a greater regulatory scrutiny, investigation, action, or litigation. We have been proactively in contact with all of the insurance and Medicaid regulators in the states in which we operate as well as the Office of the Inspector General of the Department of Health and Human Services (OIG), with respect to the practices at issue in the Qui Tam litigation. In connection with our discussions with the OIG we entered into a tolling agreement with the OIG which preserves the rights that the OIG had as of October 30, 2006 until September 30, 2007. In some circumstances, state or federal governments may move to exclude a company from contacts as a result of a civil verdict under the False Claims Act. We are unable to predict at this time what, if any, further action any state of federal regulators may take. Exclusion is a discretionary step which we believe would not be commenced, if at all, until all appeals had been exhausted. Further, prior to any administrative action or exclusion taking effect, we believe we would have an opportunity to advocate our position. While the circumstances of this case do not appear to warrant such action, exclusion from
doing business with the federal or any state governments could have a material adverse effect on our financial position, results of operations or liquidity.
HBR on a recast basis decreased from 83.1% for the year ended December 31, 2005 to 82.1% for the year ended December 31, 2006. This is primarily a result of premium rate increases averaging 5.9% across all markets which was in excess of medical trend. These rate increases are a result of negotiations with our government partners. Additionally, the commencement of operations of our SNP product in our Houston, Texas market beginning January 1, 2006 resulted in improvement in the HBR. During the year ended December 31, 2006, health benefits expenses were reduced by approximately $28.7 million as a result of changes in our estimates of claims payable for prior periods. Net of the related tax impact, net income increased approximately $17.6 million or $0.33 per diluted share as a result of this favorable prior period development. The changes in estimates were a result of actuarial analysis of actual claims paid for dates of service for December 31, 2005 and prior. This decrease in claims payable is reflected in the above table as an increase in reported health benefits expenses for the year ended December 31, 2006 and a decrease in reported health benefits expenses for the year ended December 31, 2005 in order to present recast health benefits expenses and recast HBR. In addition to this adjustment, health benefits expenses for the year ended December 31, 2005 is further reduced for changes in estimates in the year ended December 31, 2005 related to dates of service of December 31, 2004 and prior.
On July 26, 2006, AMERIGROUP Tennessee, Inc. was chosen to offer healthcare coverage to Medicaid members in the State of Tennessee, for the Middle-Grand region. Eligible members in this region are estimated at approximately 300,000 members who would be served by two contractors including AMERIGROUP Tennessee, Inc. On August 15, 2006, AMERIGROUP Tennessee, Inc. entered into a contract with the State of Tennessee. AMERIGROUP Tennessee, Inc. expects to begin enrolling members in mid-2007, provided implementation remains on schedule.
As a result of a competitive bidding process, our Georgia subsidiary, AMGP Georgia Managed Care Company, Inc. (d/b/a AMERIGROUP Georgia), was chosen in July 2005 to offer healthcare coverage to low-income residents in four of six regions in the State of Georgia. AMERIGROUP Georgia has two competitors in the Atlanta Region and one competitor in each of the other regions. We began serving the Atlanta Region effective June 1, 2006 and in the East, North and Southeast regions effective on September 1, 2006.
As a result of a competitive bidding process, our wholly-owned subsidiary, AMERIGROUP Texas, Inc. was awarded STAR and SCHIP, or TexCare, contracts in its current service areas of Houston, Dallas and Fort Worth and contracts in two new service areas of Corpus Christi and El Paso. AMERIGROUP Texas, Inc. was also granted a STAR contract for the Austin service area. These contracts were effective September 1, 2006. AMERIGROUP Texas, Inc. has one or more competitors in each of its new and current service areas for the STAR and TexCare programs. The combined eligibles for these expanded products and markets are approximately 1,100,000 as compared to the previously existing eligible population of 735,000. In September 2005, the AMERIGROUP Texas, Inc. notified the State of Texas that it had declined the contract award in El Paso for the contract period beginning September 1, 2006. AMERIGROUP Texas, Inc. elected not to enter into a contract for the El Paso service area due to the competitive environment in that market, which would limit expansion. The State announced expansion of STAR+PLUS into four urban areas under a modified structure which will exclude risk on hospitalization costs to protect the upper payment limit. The State awarded AMERIGROUP Texas, Inc., the Houston expansion, Austin, and San Antonio regions in addition to our current Houston market with an anticipated implementation date in early 2007.
estimate is approximately $10.4 million, as of December 31, 2006. The contract with CCHCN prescribes reconciliation procedures with respect to each contract period. As of this date, we are completing the reconciliation process with CCHCN with respect to the 2005 contract year. We recently completed the reconciliation process with CCHCN with respect to the 2004 contract year resulting in payment in full from CCHCN of approximately $1.7 million. If we are unable to agree on a settlement, our expenses attributable to these periods may be adversely affected, and we may incur significant costs in our efforts to reach a final resolution of this matter.
One year into our participation as a SNP in the Houston, Texas market, we are receiving fewer medical claims than we expected. As of December 31, 2006, we paid $35.8 million of physician and hospital claims for services rendered to our members for Medicare Parts A & B benefits or 63% of the $56.4 million in estimated incurred expenses. A liability for incurred but not reported claims of $20.6 million, representing the difference between the estimated incurred expense and the amount paid, is recorded as a liability in the Consolidated Financial Statements at December 31, 2006. Due to the uniqueness of this new program, there are a variety of factors that could contribute to this lower volume of claims. Such factors may include, among other things: claims sent in error to other payors, confusion on behalf of providers as to the appropriate payor for the members, retroactive enrollment changes, variability in our enrollment since inception, difficulty adjudicating claims due to new or different medical benefits, complexities associated with a new product causing confusion among the members and providers, and changes in the severity of illness of our members. All of these factors could cause a delay in the receipt of claims for services provided to our SNP members, necessitate re-adjudication of claims or result in a retroactive premium adjustment. We are continuing to evaluate the potential impact of these various factors.
We estimate that our liability related to incurred but not reported Medicare Parts A & B physician and hospital claims to be in the range of approximately $9.8 million to $46.0 million. As discussed above, we have recorded a liability of $20.6 million in the Consolidated Financial Statements which represents our best estimate at December 31, 2006. In determining our best estimate, our actuaries relied upon their original medical cost estimates (based on data provided by CMS), and blended in the emerging medical claims experience using a credibility model. In doing so, more credibility or reliance was placed on the paid claim data and less reliance was placed on our original medical cost estimates as of December 31, 2006. Our range of liability related to incurred but not reported Medicare Parts A & B physician and hospital claims represents our original estimates on the upper end of the range and estimates based solely on claims experience on the lower end of the range.
As we continue to evaluate our claims payment experience, favorable prior period development may result. Alternatively, if because of one or more of the factors stated above or for other reasons, we find that additional claims payments more closely approximate or exceed our previous estimate, then our actuarial estimate of incurred claims may be increased resulting in unfavorable prior period development. We can give no assurance that any prior
The Company’s contract with CMS includes a risk sharing provision. The risk sharing provision takes effect if actual pharmacy benefit costs are more than 2.5 percentage points above or below expected cost levels as submitted by the Company in its initial contract application. We have calculated an estimate of the risk share and accordingly, as of and for the year ended December 31, 2006, we recorded a risk share liability to CMS in other current liabilities in the Consolidated Balance Sheets and a corresponding retrospective premium adjustment in premium revenues in the Consolidated Income Statements. The recorded liability represents the estimated amount payable by the Company to CMS under the risk share contract provision if the program was terminated at December 31, 2006 based on estimated costs incurred through that date. The final risk share amounts due to or from CMS, if any, will be determined approximately six months after the end of the contract year-end.
AMERIGROUP Texas, Inc., our Texas subsidiary, is required to pay a rebate to the State of Texas in the event profits exceed established levels. The rebate calculation reports that we filed for the contract years ended August 31, 2000 through 2004 have been audited by a contracted auditing firm retained by the State of Texas. In their report, the auditor has challenged inclusion in the rebate calculation certain expenses incurred by the Company in providing services to AMERIGROUP Texas, Inc. under the administrative services agreement. We are not certain whether there has been an ultimate determination by the State of Texas with respect to the recommendations to exclude these expenses as defined in the report. The contract year ending August 31, 2005 is currently being audited by the state contracted firm and the audit of the contract year ended August 31, 2006 is
In December 2006, our New Jersey subsidiary received a notice of deficiency for failure to meet provider network requirements in several New Jersey counties as required by our Medicaid contract with New Jersey. We submitted to the State of New Jersey a corrective action plan and a request for a waiver of certain contractual provisions in December 2006 and January 2007. The State of New Jersey is considering our requests for waivers, and we have been granted an extension to correct the network deficiencies through June 2007. Prior to the expiration of the extension, we will work with the State of New Jersey to correct certain electronic records and to correct the network deficiencies. Although we believe that we will be able to resolve this issue, if the State of New Jersey does not grant further waivers and imposes fines and penalties our financial results could be materially impacted.
We generate revenues primarily from premiums we receive from the states in which we operate to arrange for health benefit services for our members. We receive premiums from CMS for the SNP program. We recognize premium revenue during the period in which we are obligated to provide services to our members. A fixed premium per member per month is paid to us to arrange for healthcare benefit services for our members pursuant to our contracts in each of our markets. These premium payments are based upon eligibility determined by the state governments with which we have contracted. Errors in this eligibility determination on which we rely can result in positive and negative premium adjustments to the extent this information is adjusted by the state. In all of our states, except Virginia, we are eligible to receive supplemental payments to offset the health benefits expenses associated with the birth of a baby. Each state contract is specific as to what is required before payments are generated. Upon delivery of a newborn, each state is notified according to our contract. Revenue is recognized in the period that the delivery occurs and the related services are provided to our member based on our authorization system for these services. Additionally, in some states we receive supplemental payments for certain services such as high cost drugs and early childhood prevention screenings. Any amounts that have not been received from the state by the end of the period are recorded on our balance sheet as premium receivables. We also generate income from investments.
Our results of operations depend on our ability to effectively manage expenses related to health benefits, as well as our ability to accurately predict costs incurred in recording the amounts in our consolidated financial statements. Expenses related to health benefits have two components: direct medical expenses and medically related administrative costs. Direct medical expenses include fees paid to hospitals, physicians and providers of ancillary medical services, such as pharmacy, laboratory, radiology, dental and vision. Medically related administrative costs include expenses related to services such as health promotion, quality assurance, case management, disease management and 24-hour on-call nurses. Direct medical expenses also include estimates of IBNR. For the year ended December 31, 2006, approximately 96% of our direct medical payments related to fees paid on a
We have used a consistent methodology for estimating our medical expenses and medical liabilities since our inception, and have refined our assumptions to take into account our maturing claims, product and market experience. For new products and markets, we estimate health benefits expense at underwritten levels until actual historical experience becomes reliable or “credible” enough to incorporate into our estimates. Typically this occurs at approximately six months after inception. In the case of our SNP product, claims payments have been significantly lower than underwritten levels. Therefore, our actuaries relied upon their original cost estimates (based on data provided by CMS) and blended in the emerging medical claims experience. In doing so, more credibility or reliance was placed on the paid claims data and less reliance was placed on our original cost estimates as of December 31, 2006. As medical utilization patterns and cost trends change from year-to-year, our underlying claims payments reflect the variations in experience. Our estimates are revised based upon actual claims payments using historical per member per month claims cost, including provider settlements, changes in the age and gender of our membership, variations in the severity of medical conditions, high dollar claims and authorization data. Each of these factors may be considered in determining our current medical liabilities.
Also included in claims payable are estimates for provider settlements due to clarification of contract terms, out-of-network reimbursement and claims payment differences, as well as amounts due to or from contracted providers under risk-sharing or other arrangements. During 2005, we reclassified certain provider receivables under our risk-sharing arrangement with CCHCN to prepaid expenses, provider receivables and other current assets as a result of the termination of the contract whereby no liabilities remained in claims payable to offset the risk-sharing receivable.
The following table shows the components of the change in medical claims payable for the years ended December 31, 2006, 2005 and 2004 (in thousands):
Changes in estimates are primarily the result of obtaining more complete claims information that directly correlates with the claims and provider reimbursement trends. Since our estimates are based upon the blended per member per month claims experience, changes cannot typically be explained by any single factor, but are the result of a number of interrelated variables, all influencing the resulting experience. These variables include fluctuations in claims payment patterns, changes in membership levels, number and mix of products, benefit structure, changes in provider networks or contract terms, severity of illness and utilization levels. Absent a major acquisition, change in product mix, or expansion into new markets, we believe there will likely be less volatility as we increase in size and gain more maturity in our markets and successfully convert our remaining health plans to FACETS.
As of December 31, 2006 and 2005, we had goodwill and other intangible assets of $255.3 million and $255.1 million, respectively, net of accumulated amortization. We review our intangible assets with defined lives for impairment whenever events or changes in circumstances indicate we might not recover their carrying value. We assess our goodwill for impairment at least annually. In assessing the recoverability of these assets, we must make assumptions regarding estimated future utility and cash flows and other internal and external factors to determine the fair value of the respective assets. If these estimates or their related assumptions change in the future, we may be required to record impairment charges for these assets.
i. the expected life of each award granted was calculated using the “simplified method” in accordance with Staff Accounting Bulletin No. 107;
On December 16, 2004, the FASB issued SFAS No. 123(R), Shared-Based Payment, which is a revision of SFAS No. 123. SFAS No. 123(R) supersedes Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, SFAS No. 148, Accounting for Stock-Based Compensation and amends SFAS No. 95, Statement of Cash Flows. SFAS No. 123(R) establishes the accounting for transactions in which an entity pays for employee services in share-based payment transactions. We adopted this standard, as required, in the first quarter of 2006. The Company’s results for the year ended December 31, 2006 include $8.5 million of selling, general, and
Summarized comparative financial information for the years ending December 31, 2006, 2005 and 2004 are as follows ($ in millions, except per share data)
Investment income increased $21.0 million or 114.8% during the year ended December 31, 2006 and $8.0 million or 77.7% during the year ended December 31, 2005. These increases in investment are primarily due to increases in market interest rates and increases in cash and investment balances.
Expenses relating to health benefits for the year ended December 31, 2006 increased $308.8 million, or 15.8%. The HBR on a recast basis for the year ended December 31, 2006 was 82.1% compared to 83.1% in 2005. Our 2006 results compared to 2005 reflect the favorable impact of actuarially sound premium rate increases that exceeded medical trend and commencement of operations as a SNP in our Houston, Texas market. Our recast 2005 results compared to reported 2004 results reflect an increased medical trend greater than premium rate increases received in the period and entry into new markets.
an increase in legal expenses related to the Qui Tam litigation; and
SG&A increased $66.5 million for the year ended December 31, 2005 compared to 2004. Our SG&A ratio for the year ended December 31, 2005 was 11.1% compared to 10.5% in 2004. The increase in SG&A ratio was primarily due to:
an increase in legal expenses related to the Qui Tam litigation and the securities class action complaints; and
Premium taxes were $47.1 million, $25.9 million and $14.1 million for the years ended December 31, 2006, 2005 and 2004, respectively.
Depreciation and amortization expense was $25.5 million, $26.9 million and $20.8 million for the years ended December 31, 2006, 2005 and 2004, respectively. The decrease from 2005 to 2006 is primarily a result of decreasing amortization expense related to intangibles which are amortized based on the timing of the related cash flows. The increase from 2004 to 2005 is primarily related to amortization of intangibles acquired through the acquisition of CarePlus Health Plans, Inc. effective January 1, 2005.
Interest expense was $0.6 million, $0.6 million and $0.7 million for the years ended December 31, 2006, 2005, and 2004 respectively.
On May 10, 2005, we entered into an amendment to our Credit Agreement, which, among other things, provides for commitments under our Credit Agreement of $150.0 million and terminates on May 10, 2010. The Credit Agreement was further amended on November 21, 2006 which provided for an increase in the aggregate principal amount of the letter of credit sublimit to $75.0 million. The Credit Agreement contains a provision which allows us to obtain, subject to certain conditions, an increase in revolving commitments of up to an additional $50.0 million. The proceeds of the Credit Agreement are available for general corporate purposes, including, without limitation, permitted acquisitions of businesses, assets and technologies. The borrowings under the Credit Agreement will accrue interest at one of the following rates, at our option: Eurodollar plus the applicable margin or an alternate base rate plus the applicable margin. The applicable margin for Eurodollar borrowings is between 0.875% and 1.625% and the applicable margin for alternate base rate borrowings is between 0.00% and 0.75%. The applicable margin will vary depending on our leverage ratio. The Credit Agreement is secured by substantially all of the assets of AMERIGROUP and its wholly-owned subsidiary, PHP Holdings, Inc., including the stock of their respective wholly-owned managed care subsidiaries. There is a commitment fee on the unused portion of the Credit Agreement that ranges from 0.20% to 0.325%, depending on our leverage ratio. During the year ended December 31, 2006, the Company obtained two separate letters of credit through the Credit Agreement. A letter of credit for $217,000 was obtained in connection with standard requirements of a lease for office space for its New York subsidiary, CarePlus. A letter of credit for $50.4 million was obtained in November 2006 for the benefit of the
In order to stay the execution of the judgment of the Court during the pendency of our appeal, we may be required to establish a supersedeas bond equal to an amount set forth by the Court in its final judgment, plus one year of interest. We may raise the necessary financing to collateralize a letter of credit in favor of the Court through any combination of one of more of the following: (i) borrowing additional amounts under our Credit Agreement; (ii) using existing unregulated cash and investments; (iii) issuing debt, preferred stock and/or equity securities (including debt securities or preferred stock convertible into our common equity), under our shelf registration and/or in one or more public or Rule 144A offerings or privately negotiated transactions; and/or (iv) entering into additional credit arrangements. If we incur additional debt, it may limit our access to capital in the future which could impact our ability to meet statutory net worth requirements in the states in which we do business and limit our ability to pursue acquisition opportunities or enter new states. Additionally, any new credit arrangement may call for significant debt service requirements and have less favorable terms than under our current Credit Agreement. Any issuance of equity securities or debt or preferred stock convertible into our equity securities could have a material adverse effect on the trading price of our common stock. Depending upon the ultimate outcome, the amount of the final judgment against us could negatively impact our liquidity and could cause any amounts borrowed, or otherwise owed, under the Credit Agreement to become due and payable.
In order to ensure available funds to collateralize a letter of credit for the required supersedeas bond on January 19, 2007, we entered into a commitment letter with Goldman Sachs Credit Partners L.P. (GSCP) and Wachovia Capital Markets, LLC (WCM), for a senior secured credit facility of up to $600.0 million in the aggregate (the Commitment Letter). Subject to the terms of the Commitment Letter, GSCP and WCM have committed to provide (i) up to $550.0 million of financing under a senior secured synthetic letter of credit facility (the Synthetic LC Facility) and (ii) up to $50.0 million of financing under a senior secured revolving credit facility (the Revolver Facility and collectively with the Synthetic LC Facility, the Facilities), each with a term of up to five years.
The documentation governing the Facilities has not been finalized and the actual terms, amounts and uses of the Facilities may differ from those described herein. There can be no assurance that the parties will be able to finalize the documentation governing the Facilities or that we will be able to satisfy the conditions to close the Facilities. In the event that we are unable to close the Facilities, no assurance can be given that we would be able to (i) obtain a bond in a form necessary to stay enforcement of the Judgment or (ii) arrange alternative financing necessary to obtain a bond that would not have a material adverse effect on our financial position, results of operation or liquidity.
The Commitment Letter conditions the availability of the Facilities on certain customary closing conditions, including but not limited to (i) the absence of a material adverse change (other than the judgment), (ii) the execution of satisfactory definitive loan and closing documentation, (iii) timeframe limitations, (iv) the accuracy of our representations and warranties at closing, (v) the delivery of certain financial statements, and (vi) the satisfaction by the Company and its subsidiaries of a maximum leverage ratio and a minimum unrestricted cash balance at closing.
pledge of 100% of the capital stock of each domestic subsidiary (other than immaterial subsidiaries) of the Company.
Cash from operations was $235.7 million for the year ended December 31, 2006 compared to $113.1 million for the year ended December 31, 2005. The increase in cash from operations is primarily due to the following items:
an increase in the change in accounts payable, accrued expense and other current liabilities of $56.8 million primarily as a result of timing of premium tax payments, the reversal of the contingent liability in the Maryland market of $6.1 million in the prior year, increase in accrued legal fees and experience rebate payable and the net increase in the change in the earnings-based compensation liabilities of $27.5 million; and
Our investment policies are designed to provide liquidity, preserve capital and maximize total return on invested assets. As of December 31, 2006, our investment portfolio consisted primarily of fixed-income securities. The weighted average maturity is less than eighteen months. We utilize investment vehicles such as money market funds, commercial paper, certificates of deposit, municipal bonds, debt securities of government sponsored entities, corporate securities, 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 December 31, 2006 was approximately 5.27%.
Cash provided by financing activities was $11.1 million and $5.8 million for the years ended December 31, 2006 and 2005, respectively. The increase in cash provided by financing activities primarily related to reductions in payments for capital lease obligations and debt issue costs and increases in cash flows from bank overdrafts.
We believe that internally generated funds and available funds under our Credit Agreement will be sufficient to support continuing operations, capital expenditures and our growth strategy for at least 12 months provided we are not required to post a supersedeas bond in the Qui Tau litigation that exceeds funds available under our Credit Agreement or that may be available to us under the Facilities or other forms of financing.
The following table summarizes our material contractual obligations, including both on- and off-balance sheet arrangements, and our commitments at December 31, 2006 (in thousands):
In order to stay the execution of the judgment of the Court during the pendency of our appeal, we may be required to establish a supersedeas bond equal to an amount set forth by the Court in its final judgment, plus one year
of interest. We may raise the necessary financing to collateralize a letter of credit in favor of the Court through any combination of one or more of the following: (i) borrowing additional amounts under our Credit Agreement; (ii) using existing unregulated cash and investments; (iii) issuing debt, preferred stock and/or equity securities (including debt securities or preferred stock convertible into our common equity), under our shelf registration and/or in one or more public or Rule 144A offerings or privately negotiated transactions; and/or (iv) entering into additional credit arrangements. If we incur additional debt, it may limit our access to capital in the future which could impact our ability to meet statutory net worth requirements in the states in which we do business and limit our ability to pursue acquisition opportunities or enter new states. Additionally, any new credit arrangement may call for significant debt service requirements and have less favorable interest terms than under our current Credit Agreement. Any issuance of equity securities or debt or preferred stock convertible into our equity securities could have a material adverse effect on the trading price of our common stock. Depending upon the ultimate outcome, the amount of the final judgment against us could negatively impact our liquidity and could cause any amounts borrowed, or otherwise owed, under the Credit Agreement to become due and payable.
Should the Facilities be finalized, the primary purpose of the Synthetic LC Facility would be to collateralize an irrevocable letter of credit for the supersedeas bond in order to stay the enforcement of the judgment, in the event the Court enters a final judgment in excess of the initial $48.0 million jury verdict entered by the Court on November 2, 2006. The Revolver Facility would be expected to be available to refinance and supercede the Company’s existing credit facility, for ongoing working capital and general corporate purposes.
AMERIGROUP Corporation (the Company), a Delaware corporation, is a multi-state managed healthcare company focused on serving people who receive healthcare benefits through publicly sponsored programs, including Medicaid, State Children’s Health Insurance Program (SCHIP) FamilyCare and Special Needs Plans (SNP) for members who are eligible for both Medicaid and Medicare or “dual eligibles”.
Available-for-sale securities are recorded at fair value. Changes in fair value are reported in other comprehensive income until realized through the sale or maturity of the security.
Included in short-term and long-term investments are auction rate securities totaling $121,090 and $94,105 at December 31, 2006 and 2005, respectively. Auction rate securities are securities with an underlying component of a long-term debt or an equity instrument. These auction rate securities trade or mature on a shorter term than the underlying instrument based on an auction bid that resets the interest rate of the security. The auction or reset dates occur at intervals that are typically less than three months providing high liquidity to otherwise longer term investments.
Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization expense on property and equipment is calculated on the straight-line method over the estimated useful lives of the assets. Property and equipment held under capital leases and leasehold improvements are amortized on the straight-line method over the shorter of the lease term or estimated useful life of the asset. Depreciation and amortization expense on property and equipment was $13,714, $12,978 and $12,495 for the years ended December 31, 2006, 2005 and 2004, respectively. The estimated useful lives are as follows:
Software is stated at cost less accumulated amortization in accordance with Statement of Position 98-1, Accounting for the Costs of Software Developed or Obtained for Internal Use. Software is amortized over its estimated useful life of three to ten years, using the straight-line method. Amortization expense on software was $6,723, $5,477 and $4,121 for the years ended December 31, 2006, 2005 and 2004, respectively.
Goodwill represents the excess of cost over fair value of businesses acquired. In accordance with Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (SFAS No. 142), goodwill and
Income taxes are accounted for under the asset and liability method as mandated by Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes (SFAS No. 109). SFAS No. 109 requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in our financial statements or tax returns. Deferred tax assets and liabilities are measured using enacted tax rates. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
Taxes based on premium revenues are currently paid by our plans in the States of Texas, New Jersey (beginning July 1, 2004), Maryland (beginning April 1, 2005), New York (beginning January 1, 2005), Ohio (beginning September 1, 2005) and Georgia (beginning June 1, 2006). Premium tax expense totaled $47,100, $25,903 and $14,054 in 2006, 2005 and 2004, respectively, and is included in selling, general and administrative expenses. Premium taxes range from 2% to 6% of revenues or are calculated on a per member per month basis.
On August 10, 2005, the Compensation Committee approved the immediate and full acceleration of vesting of approximately 909,000 “out-of-the-money” stock options awarded on February 9, 2005 to employees, including its executive officers, under the Company’s annual bonus program pursuant to its 2003 Equity Incentive Plan (the “Grant”). No other option grants were affected. Each stock option issued as a part of the Grant has an exercise price which is greater than the closing price per share on the date of the Compensation Committee’s action. The purpose of the acceleration was to enable the Company to avoid recognizing compensation expense associated with these options in future periods in its consolidated income statements, as a result of Statement of Financial Accounting Standards No. 123 (revised 2004) (SFAS No. 123(R)). The pre-tax charge avoided totals approximately $8,900 which would have been recognized over the years 2006 and 2007. This amount has been reflected in the proforma disclosures of the 2005 consolidated year-end financial statements. Because the options that were accelerated had a per share exercise price in excess of the market value of a share of the Company’s common stock on the date of acceleration, the Compensation Committee determined that the expense savings outweighs the objective of incentive compensation and retention.
We record premium revenue based on membership and premium information from each government partner. Premiums are due monthly and are recognized as revenue during the period in which we are obligated to provide services to members. In all of our states except Virginia, we are eligible to receive supplemental payments for newborns and/or obstetric deliveries. Each state contract is specific as to what is required before payments are generated. Upon delivery of a newborn, each state is notified according to our contract. Revenue is recognized in the period that the delivery occurs and the related services are provided to our member. Additionally, in some states we receive supplemental payments for certain services such as high cost drugs and early childhood prevention screenings. Any amounts that have been earned and have not been received from the state by the end of the period are recorded on our balance sheet as premium receivables.
that no amounts were due. Net of the related tax effect, net income increased approximately $3,800, or $0.07 per diluted share for the year ended December 31, 2005 as a result of the favorable resolution of this issue.
During the year ended December 31, 2006, we recorded a reserve of approximately $5,200 of unearned revenue for a potential premium recoupment related to the provision of comprehensive behavioral health care services in accordance with the Florida Statute for the 2004 and 2005 contract years. Net of the related tax effect, net income decreased by approximately $3,200 or $0.06 per diluted share for the year ended December 31, 2006 as a result of this reserve.
Experience rebate payable, included in accrued expenses, capital leases and other current liabilities, consists of estimates of amounts due under contracts with a state government. These amounts are computed based on a percentage of the contract profits as defined in the contract with the state. The profitability computation includes premium revenue earned from the state less actual medical and administrative costs incurred and paid and less estimated unpaid claims payable for the applicable membership. The unpaid claims payable estimates are based on historical payment patterns using actuarial techniques. A final settlement is generally made 334 days after the contract period ends using paid claims data and is subject to audit by the State any time thereafter. Any adjustment made to the experience rebate payable as a result of final settlement is included in current operations.
During the year ended December 31, 2006, we decreased our actuarial best estimates for health benefits expense by approximately $28,700 related to reserves established during the year ended December 31, 2005. This decrease was determined using actuarial analysis based upon the additional claims paid during 2006. Net of the related tax effect, net income increased approximately $17,600, or $0.33 per diluted share for the year ended December 31, 2006 as a result of this decrease in claims estimates.
On July 13, 2006, the Financial Accounting Standards Board (FASB) issued Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income Taxes, which is effective for the Company on January 1, 2007. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in the financial statements in accordance with FASB Statement No. 109, Accounting for Income Taxes. This interpretation provides guidance on the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. For a tax benefit to be recognized, a tax position must be more likely than not to be sustained upon examination by applicable taxing authorities. The benefit recognized is the amount that has a greater than 50% likelihood of being realized upon final settlement of the tax position. The cumulative effects of applying FIN 48 will be recorded as an adjustment to retained earnings as of the beginning of the period of adoption. Based on our evaluation as of December 31, 2006, it is estimated that the Company will record an adjustment to increase retained earnings by up to $8,100. This amount is subject to revision as management completes its analysis of the impact of FIN 48.
As a condition for licensure by various state governments to operate HMOs or PHSPs we are required to maintain certain funds on deposit with or under the control of the various departments of insurance. Accordingly, at December 31, 2006 and 2005, the amortized cost, gross unrealized holding gains, gross unrealized holding losses and fair value for these held-to-maturity securities are summarized as follows:
The temporary declines in value as of December 31, 2006 and 2005, are primarily due to fluctuations in short-term market interest rates.
Effective January 1, 2005, we completed our stock acquisition of CarePlus, LLC (CarePlus), in New York City, New York for $126,781 in cash, including acquisition costs, pursuant to the terms of the merger agreement entered into on October 26, 2004. On June 17, 2005, in accordance with the terms of the merger agreement, additional consideration was paid in the amount of $4,619 for meeting agreed upon revenue targets for the month ended December 31, 2004. On December 8, 2005, in accordance with the terms of the merger agreement, additional consideration was paid in the amount of $4,000 upon the approval from and execution of a contract with the State of New York to conduct a long-term care business in that state and enrollment of long-term care membership in December 2005. On August 16, 2006, in accordance with the terms of the merger agreement, additional consideration was paid in the amount of $4,766 for the achievement of an earnings threshold by CarePlus during the twelve months ended December 31, 2005. These payments were accounted for as additional costs of the acquisition. Beginning January 1, 2005, the results of operations of CarePlus have been included in the accompanying Condensed Consolidated Financial Statements.
Goodwill and acquired intangible assets for the years ended December 31, 2006 and 2005 are as follows:
Total income taxes for the years ended December 31, 2006, 2005 and 2004 were allocated as follows:
Income tax expense differed from the amounts computed by applying the statutory US federal income tax rate to income before income taxes as a result of the following:
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2006 and 2005 are presented below:
To assess the recoverability of deferred tax assets, we consider whether it is more likely than not that deferred tax assets will be realized. In making this determination, we take into account the scheduled reversal of deferred tax liabilities and whether projected future taxable income is sufficient to permit deduction of the deferred tax assets. Based on the level of historical taxable income and projections for future taxable income, we believe it is more likely than not that we will fully realize the benefits of the gross deferred tax assets of $31,582. State net operating loss carryforwards that expire in 2021 through 2026 comprise $1,899 of the gross deferred tax assets.
Income tax payable was $5,945 at December 31, 2006 and is included in accrued expenses and other current liabilities. Prepaid income tax was $3,719 at December 31, 2005, and is included in prepaid expenses, provider receivables and other current assets.
On May 10, 2005, we entered into an amendment to our Credit Agreement, which, among other things, provides for commitments under our Credit Agreement of $150,000 and terminates on May 10, 2010. The Credit Agreement was further amended on November 21, 2006. The Credit Agreement contains a provision which allows us to obtain, subject to certain conditions, an increase in revolving commitments of up to an additional $50,000. The proceeds of the Credit Agreement are available for general corporate purposes, including, without limitation, permitted acquisitions of businesses, assets and technologies. The borrowings under the Credit Agreement will accrue interest at one of the following rates, at our option: Eurodollar plus the applicable margin or an alternate base rate plus the applicable margin. The applicable margin for Eurodollar borrowings is between 0.875% and 1.625% and the applicable margin for alternate base rate borrowings is between 0.00% and 0.75%. The applicable margin will vary depending on our leverage ratio. The Credit Agreement is secured by substantially all of the assets of AMERIGROUP and its wholly-owned subsidiary, PHP Holdings, Inc., including the stock of their respective
wholly-owned managed care subsidiaries. There is a commitment fee on the unused portion of the Credit Agreement that ranges from 0.20% to 0.325%, depending on our leverage ratio. During the year ended December 31, 2006, the Company obtained two separate letters of credit through the Credit Agreement. A letter of credit for $217 was obtained in connection with standard requirements of a lease for office space for its New York subsidiary, CarePlus. A letter of credit for $50,400 was obtained in November 2006 for the benefit of the clerk of the United States District Court for the Northern District of, Illinois on behalf of the Company and AMERIGROUP Illinois, Inc. to stay the enforcement of a judgment in Qui Tam litigation in the United States District Court for the Northern District of Illinois pending the resolution of the post trial motions. As of December 31, 2006, there were no borrowings outstanding under our Credit Agreement.
In May 2003, our shareholders approved and we adopted the 2003 Equity Incentive Plan (2003 Plan), which provides for the granting of stock options, restricted stock, phantom stock and stock bonuses to employees and directors. We reserved for issuance a maximum of 3,300,000 shares of common stock under the 2003 Plan.
In July 2000, we adopted the 2000 Equity Incentive Plan (2000 Plan), which provides for the granting of stock options, restricted stock, phantom stock and stock bonuses to employees, directors and consultants. We reserved for issuance a maximum of 4,128,000 shares of common stock under the 2000 Plan at inception.
The weighted-average fair value per share of options granted during the years ended December 31, 2006, 2005 and 2004 was $11.08, $14.64 and $10.13, respectively. The total fair value of options vested during the years December 31, 2006, 2005 and 2004 was $7,538, $30,084 and $9,967, respectively. The following table provides information related to options exercised during the years ended December 31, 2006, 2005, and 2004:
Total intrinsic value of options exercised was $10,634, $27,051 and $27,348, for the years ended December 31, 2006, 2005 and 2004, respectively.
Non-vested restricted stock for the twelve months ended December 31, 2006 is summarized below:
Options to purchase 1,666,560, 1,774,285 and 185,000 shares of common stock were outstanding during the years ended December 31, 2006, 2005 and 2004, respectively, and were not included in the computation of diluted net income per share because the option exercise price was greater than the average market price; therefore, including such shares would have been anti-dilutive.
These leases have various escalations, abatements and tenant improvement allowances that have been included in the total cost of each lease and amortized on a straight-line basis. Total rent expense for all office space and office equipment under non-cancelable operating leases was $12,576, $11,362 and $8,704 in 2006, 2005 and 2004, respectively, and is included in selling, general and administrative expenses in the accompanying consolidated income statements.
Our employees have the option to participate in a deferred compensation plan sponsored by the Company. All full-time and most part-time employees of AMERIGROUP Corporation and subsidiaries may elect to participate in this plan. This plan is exempt from income taxes under Section 401(k) of the Internal Revenue Code. Participants may contribute a certain percentage of their compensation subject to maximum federal and plan limits. We may elect to match a certain percentage of each employee’s contributions up to specified limits. For the years ended December 31, 2006, 2005 and 2004, the matching contributions under the plan were $2,785, $1,700, and $1,227, respectively.
liability of $1,620 and $1,742 at December 31, 2006 and 2005 was included in accrued payroll and related liabilities. There was no current portion of the liability at December 31, 2004. The related long-term portion of the liability of $1,465 and $1,320 at December 31, 2006 and 2005, respectively, was included in other long-term liabilities.
In 2002, Cleveland A. Tyson, a former employee of our Illinois subsidiary, AMERIGROUP Illinois, Inc., filed a federal and state Qui Tam or whistleblower action against our Illinois subsidiary. The complaint was captioned the United States of America and the State of Illinois, ex rel., Cleveland A. Tyson v. AMERIGROUP Illinois, Inc. The complaint was filed in the U.S. District Court for the Northern District of Illinois, Eastern Division. It alleged that AMERIGROUP Illinois, Inc. submitted false claims under the Medicaid program. Mr. Tyson’s first amended complaint was unsealed and served on AMERIGROUP Illinois, Inc., in June 2003. Therein, Mr. Tyson alleged that AMERIGROUP Illinois, Inc. maintained a scheme to discourage or avoid the enrollment into the health plan of pregnant women and other recipients with special needs. In his suit, Mr. Tyson seeks statutory penalties and an unspecified amount of damages, which would be trebled under the False Claims Act.
In March 2005, the Court allowed the State of Illinois to intervene. In June 2005, Plaintiffs were allowed to amend their complaint to add AMERIGROUP Corporation as a party. In the third amended complaint, the Plaintiffs alleged that AMERIGROUP Corporation was liable as the alter-ego of AMERIGROUP Illinois, Inc. and that AMERIGROUP Corporation was liable for making false claims or causing false claims to be made. In October 2005, the Court allowed the United States of America to intervene.
On November 22, 2006, the Court entered a judgment in the amount of $48,000 and we posted an irrevocable letter of credit in the amount of $50,400 with the Court to stay the execution of the judgment.
On February 20, 2007, the Court heard oral arguments on the post-trial motions. The Court has not yet ruled on, the motions, but we expect that a ruling is imminent. In the event that the Court rules in favor of the plaintiffs motions, the Court could enter a judgment against us in an amount up to $524,730, plus attorneys’ fees, costs and expenses of Tyson’s counsel. In the event that the Court denies our motions, we intend to appeal the judgment to the U.S. Court of Appeals for the Seventh Circuit.
To date, the Court has not determined the amount of the statutory penalties. AMERIGROUP Corporation and AMERIGROUP Illinois, Inc. believe that there is a basis for the jury verdict to be set aside or reversed on appeal, either resulting in a judgment in our favor or in a new trial. Accordingly, we believe that it is reasonably possible that damages may range from zero to $524,730, plus the reasonable attorney’s fees, expenses and costs of Tyson’s counsel.
It is also possible that plaintiffs in other states could bring similar litigation against the Company. While we believe that the practices at issue in the Qui Tam litigation have not occurred outside of the operations of the Company’s Illinois subsidiary, successful verdict in similar litigation in another state could have a material adverse effect on our financial position, results of operations or liquidity.
Beginning on October 3, 2005, five purported class action complaints (the Actions) were filed in the United States District Court for the Eastern District of Virginia on behalf of persons who acquired our common stock between April 27, 2005 and September 28, 2005. The Actions purported to allege claims against us and certain of our officers for alleged violations of Sections 10(b), 20(a), 20(A) and Rule 10b-5 of the Securities Exchange Act of 1934. On January 10, 2006, the Court issued an order (i) consolidating the Actions; (ii) setting Illinois State Board of Investment v. AMERIGROUP Corp., et al., Civil Action No. 2:05-cv-701 as lead case for purposes of trial and all pretrial proceedings; (iii) appointing Illinois State Board of Investment (ISBI) as Lead Plaintiff and its choice
On February 24, 2006, ISBI filed the CAC, which purports to allege claims on behalf of all persons or entities who purchased our common stock from February 16, 2005 through September 28, 2005. The CAC asserts claims for alleged violations of Sections 10(b), 20(a), 20(A) and Rule 10b-5 of the Securities Exchange Act of 1934 against defendants AMERIGROUP Corporation, Jeffrey L. McWaters, James G. Carlson, E. Paul Dunn, Jr. and Kathleen K. Toth.
In a letter dated March 28, 2006, a purported shareholder of the Company demanded that the Board commence legal proceedings against each member of the Board and senior officer of the Company who has served in such capacities at any point from April 2005 to March 28, 2006. The letter, which stated that it was intended to comply with the requirements of a “Shareholder Demand Letter” pursuant to Virginia Code Ann. §13.1-672 and Del. Ch. Ct. R. 23.1, alleges that the Board and senior officers breached their fiduciary duties to the Company, including the duty of loyalty and due care, by (i) causing the Company to engage in unlawful conduct or failing to properly oversee the Company’s press releases and internal controls to prevent such misconduct; (ii) causing the Company to issue false and misleading statements; and (iii) exposing the Company to potential liability for the foregoing violations. As described in the letter, the purported shareholder believes that the legal proceedings should seek recovery of damages in an unspecified amount allegedly sustained by the Company, as well as disgorgement by certain members of the Board and senior officers to the Company of salaries and bonuses received by them from April 2005 to the present. The letter further demands an investigation into the circumstances surrounding the resignations of E. Paul Dunn, Jr. and Frederick C. Dunlap and the fairness of the terms of the Separation Agreement and General Release entered into between the Company and Mr. Dunn.
One year into our participation as a SNP in the Houston, Texas market, we are receiving fewer medical claims than we would have expected. As of December 31, 2006, we have paid $35,800 of physician and hospital claims for services rendered to our members for Medicare Parts A & B benefits or 63% of the $56,400 in estimated incurred expenses. A liability for incurred but not reported claims of $20,600, representing the difference between the estimated incurred expense and the amount paid, is recorded as a liability in the Consolidated Financial Statements at December 31, 2006. Due to the uniqueness of this new program, there are a variety of factors that could contribute to this lower volume of claims. Such factors may include, among other things: claims sent in error to other payors, confusion on behalf of providers as to the appropriate payor for the members, retroactive enrollment changes, variability in our enrollment since inception, difficulty adjudicating claims due to new or different medical benefits, complexities associated with a new product causing confusion among the members and providers, and changes in the severity of illness of our members. All of these factors could cause a delay in the receipt of claims for services
We estimate that our liability related to incurred but not reported Medicare Parts A & B physician and hospital claims to be in the range of approximately $9,800 to $46,000. As discussed above, we have recorded a liability of $20,600 in the Consolidated Financial Statements which represents our best estimate at December 31, 2006. In determining our best estimate, our actuaries relied upon their original medical cost estimates (based on data provided by CMS), and blended in the emerging medical claims experience using a credibility model. In doing so, more credibility or reliance was placed on the paid claim data and less reliance was placed on our original medical cost estimates as of December 31, 2006. Our range of liability related to incurred but not reported Medicare Parts A & B physician and hospital claims represents our original estimates on the upper end of the range and estimates based solely on claims experience on the lower end of the range.
As we continue to evaluate our claims payment experience, favorable prior period developments may result. Alternatively, if because of one or more of the factors stated above or for other reasons, we find that additional claims payments more closely approximate or exceed our previous estimate, then our actuarial estimate of incurred claims may be increased resulting in unfavorable prior period development. We can give no assurance that any prior period development related to this issue in any future periods, whether favorable or unfavorable, will not have a material effect on our business, results of operations or financial condition.
In an effort to reimburse Medicare prescription drug plans for drug costs incurred on behalf of Medicare beneficiaries who may have switched plans or otherwise may not have been appropriately enrolled in a plan during the Part D program start-up earlier this year, CMS has implemented a reconciliation process to correct payment discrepancies between plans which is referred to as the Plan-to-Plan Reconciliation project. This project facilitates the exchange of payments between the plan where the beneficiary is officially enrolled and the plan that paid claims. During the fourth quarter of 2006, Phase 1 of the Plan-to-Plan Reconciliation was completed with no significant impact on the results of operations of the Company.
A Florida Statute (the Statute) gives the Florida Agency for Health Care Administration (AHCA) the right to contract with entities to provide comprehensive behavioral healthcare services, including mental health and substance abuse services. The Statute further requires the contractor to use at least 80% of the capitation for the provision of behavioral healthcare services, with any shortfall in the 80% expenditure being refunded to the State. In the contract that AMERIGROUP Florida, Inc. has with AHCA, AMERIGROUP Florida, Inc. is required to provide comprehensive behavioral healthcare services, but the contract defines a limited subset of behavioral healthcare services that can be counted towards the fulfillment of the 80% requirement. AMERIGROUP Florida, Inc. and other similarly situated contractors have disputed the restrictive definition imposed by AHCA and believe that providing only the limited AHCA definition does not support meeting our obligation to provide comprehensive healthcare services in accordance with our contract. There was an attempt to resolve this issue in the most recent session of the
In the Fort Worth service area, AMERIGROUP Texas, Inc. had an exclusive risk-sharing arrangement with Cook Children’s Health Care Network (CCHCN) and Cook Children’s Physician Network (CCPN), which includes Cook Children’s Medical Center (CCMC), that was terminated as of August 31, 2005. Under the risk-sharing arrangement the parties have an obligation to perform annual reconciliations and settlements of the risk pool for each contract year. We believe that CCHCN owes us substantial payments for the 2005 contract year, which we estimate are approximately $10,400, as of December 31, 2006. The contract with CCHCN prescribes reconciliation procedures with respect to each contract period. As of this date, we are completing the reconciliation process with CCHCN with respect to the 2005 contract years. We recently completed the reconciliation process with CCHCN with respect to the 2004 contract year resulting in payment in full from CCHCN of approximately $1,700. If we are unable to agree on a settlement, our expenses attributable to these periods may be adversely affected, and we may incur significant costs in our efforts to reach a final resolution of this matter.
Our Texas health plan is required to pay a rebate to the State of Texas in the event profits exceed established levels. The rebate calculation reports that we filed for the contract years ended August 31, 2000 through 2004 have been audited by a contracted auditing firm retained by the State of Texas. In their report, the auditor has challenged inclusion in the rebate calculation certain expenses incurred by the Company in providing services to the health plan under the administrative services agreement. We are not certain whether there has been an ultimate determination by the State of Texas with respect to the recommendations to exclude these expenses as defined contained in the report. The contract year ending August 31, 2005 is currently being audited by the state contracted firm and contract year ended August 31, 2006 is expected to be audited commencing in mid-2007. Although we believe that the rebate calculations were done appropriately, if the regulators were ultimately to disallow certain of these expenses in the rebate calculation, it could result in the requirement that we pay the State of Texas additional amounts for these prior periods and it could reduce our profitability in future periods. We believe it is reasonably possible that the liability related to this issue could range from zero to $18,900.
The fair value of the employees’ purchase rights granted in each of the six months offering periods during 2006, 2005 and 2004 was estimated on the date of grant using the Black-Scholes-Merton option-pricing model with the following weighted average assumptions:
The per share fair value of those purchase rights granted in each of the six month offering periods during 2006, 2005 and 2004 were as follows:
The Company recognized $537 of compensation expense during the year ended December 31, 2006 for the purchase rights granted during 2006. Included in the pro forma effect on net income and earnings per share if the Company had applied fair value recognition in prior years was $791 and $316 for the years ended December 31, 2005 and 2004, respectively.
The following parent only condensed financial information reflects the financial condition, results of operations and cash flows of AMERIGROUP Corporation.