On March 1, 2009, our South Carolina subsidiary, AMERIGROUP Community Care of South Carolina, Inc., sold its rights to serve Medicaid members pursuant to the contract with the State of South Carolina for $5.8 million, or $0.07 per diluted share, and recorded a gain, which is included in investment income and other revenues in the accompanying Consolidated Statements of Operations, for the year ended December 31, 2009. As a result of this transaction, our South Carolina subsidiary does not currently serve any members. Certain claims run-out and transition obligations exist that will continue into 2010. Additional costs recorded and to be recorded to discontinue operations in South Carolina are not expected to be material.
higher than the otherwise estimated value of such claims at the time of the estimate. Therefore, in many situations, the claim amounts ultimately settled will be less than the estimate that satisfies the actuarial standards of practice.
In addition, we are periodically audited by state and Federal taxing authorities and these audits can result in proposed assessments. We believe that our tax positions comply with applicable tax law and, as such, will vigorously defend these positions on audit. We believe that we have adequately provided for any reasonable foreseeable outcome related to these matters. Although the ultimate resolution of these audits may require additional tax payments, we do not anticipate any material impact to earnings.
Expenses relating to health benefits for the year ended December 31, 2008 increased $402.2 million, or 12.5%. The HBR for the year ended December 31, 2008 was 82.9% compared to 83.9% in 2007. Our 2008 results compared to 2007 reflect a decrease in the HBR primarily as a result of retroactive premium rate adjustments in Tennessee and Georgia, totaling approximately $45.9 million, in addition to premium rate increases and yield increases in our other markets.
Depreciation and amortization expense was $34.7 million, $37.4 million and $31.6 million for the years ended December 31, 2009, 2008 and 2007, respectively. The decrease from 2008 to 2009 is primarily a result of decreased amortization of debt issuance costs relating to the term loan repaid in July 2009. The increase in depreciation and amortization expense in 2008 compared to 2007 was a result of an increase in fixed assets and accelerated amortization of debt issuance costs due to significant principal payments on the term loan in 2008.
Cash used in investing activities was $296.6 million for the year ended December 31, 2009 compared to cash provided by investing activities of $307.2 million for the year ended December 31, 2008. The change resulted primarily from net purchases of investments during the year ended December 31, 2009 compared to net proceeds from the release of restricted investments held as collateral during the year ended December 31, 2008. We currently anticipate total capital expenditures for 2010 to be between approximately $30.0 million and $40.0 million related primarily to technological infrastructure development and enhancement of core systems to increase scalability and efficiency.
AMERIGROUP Corporation, a Delaware corporation, through its wholly-owned subsidiaries, is a multi-state managed healthcare company focused on serving people who receive healthcare benefits through publicly sponsored programs, including Medicaid, Children’s Health Insurance Program (“CHIP”), Medicaid expansion and Medicare Advantage. AMERIGROUP Corporation and subsidiaries are collectively referred to as “the Company”.
The amortized cost, gross unrealized holding gains, gross unrealized holding losses and fair value for available-for-sale and held-to-maturity long-term investments were as follows at December 31, 2009 and 2008:
On November 1, 2007, AMERIGROUP Corporation’s Tennessee subsidiary, AMERIGROUP Tennessee, Inc., acquired the contract rights and substantially all of the assets of Memphis Managed Care Corporation (“MMCC”) including substantially all of the assets of Midsouth Health Solutions, Inc., a subsidiary of MMCC, for approximately $11,733. The purchase price was financed through available unregulated cash. The assets purchased consisted primarily of MMCC’s rights to provide services through an ASO contract to the State of Tennessee for its TennCare members in the West Tennessee region. Goodwill and other intangibles totaled $9,967, which included $1,923 of specifically identifiable intangibles allocated to the rights to the ASO contract, the provider network and trademarks.
Total income taxes for the years ended December 31, 2009, 2008 and 2007 were allocated as follows:
The convertible note hedges are expected to reduce the potential dilution upon conversion of the 2.0% Convertible Senior Notes in the event that the market value per share of the Company’s common stock, as measured under the convertible note hedges, at the time of exercise is greater than the strike price of the convertible note hedges, which corresponds to the initial conversion price of the 2.0% Convertible Senior Notes and is subject to certain customary adjustments. If, however, the market value per share of the Company’s common stock exceeds the strike price of the warrants (discussed below) when such warrants are exercised, the Company will be required to issue common stock. Both the convertible note hedges and warrants provide for net-share settlement at the time of any exercise for the amount that the market value of the common stock exceeds the applicable strike price.
In October 2008, the Company submitted its response to the letters. In July 2009, The Company received another series of letters from the IG and AHCA stating that, based on a review of the Company’s response, they had determined that AMERIGROUP Florida, Inc. did not comply with the Unborn Activation Process and assessed a penalty against AMERIGROUP Florida, Inc. in the amount of two thousand, five hundred dollars per newborn for an aggregate amount of approximately $6,000. The letters further reserved AHCA’s right to pursue collection of the amount paid for the fee-for-service claims. AMERIGROUP Florida, Inc. appealed these findings and submitted documentation to evidence its compliance with, and performance under, the Unborn Activation Process requirements of the contract. On January 14, 2010, AMERIGROUP Florida, Inc. appealed AHCA’s contract interpretation that anything less than 100% compliance with the Unborn Activation Process could result in sanctions. This appeal is pending.
AMERIGROUP Texas, Inc. had an exclusive risk-sharing arrangement in the Fort Worth service area with Cook Children’s Health Care Network (“CCHCN”) and Cook Children’s Physician Network (“CCPN”), which includes Cook Children’s Medical Center, that expired by its own terms as of August 31, 2005. Under this risk-sharing arrangement, the parties performed annual reconciliations and settlements of the risk pool for each contract year. The contract with CCHCN prescribed reconciliation procedures all of which were completed without agreement on amounts owed under the risk-sharing arrangement. On August 27, 2008, AMERIGROUP Texas, Inc. filed suit against CCHCN and CCPN in the District Court for the 153rd Judicial District in Tarrant County, Texas, Case No. 153-232258-08. The amended petition asserted a breach of contract claim and sought compensatory damages in the amount of $11,300 plus pre- and post-judgment interest, attorney’s fees and costs. CCHCN and CCPN filed an amended counterclaim against AMERIGROUP Texas, Inc. seeking an amount to be determined at trial plus pre- and post-judgment interest and attorney’s fees and costs. On December 22, 2009, AMERIGROUP Corporation, AMERIGROUP Texas, Inc., CCHCN and CCPN entered into a confidential Settlement Agreement