In February 2005, the Office of the Chief Accountant of the SEC issued a letter to the American Institute of Certified Public Accountants expressing its views regarding certain lease accounting issues and their application under Statement of Financial Accounting Standards No. 13, Accounting for Leases and other authoritative pronouncements (“SFAS 13”). In light of this letter, management initiated a review of our accounting for leases and leasehold improvements and determined that our then-current accounting practices for leases and leasehold improvements were incorrect in our Employer Cost Containment and Health Services segment and at our corporate headquarters. Accordingly, management conducted an in-depth review of the Company’s lease accounting to determine the magnitude of the potential error on the financial statements. Based on the results of our review, we determined
Under the Company’s MAS Agreement with Capital Partners, the controlling stockholder of the Company, Capital Partners provides certain management advisory services related to investments, general administration, corporate development, strategic planning, stockholder relations, financial matters and general business policy. Under the current MAS Agreement, we pay Capital Partners $1,550 per annum, subject to adjustment upon the occurrence of any unforeseen event. Total management advisory fees included in SG&A were $1,550, $1,400 and $1,273 for the years ended December 31, 2004, 2003 and 2002, respectively. In 2003, an investment banking fee of $150 was also paid to Capital Partners in connection with the Octagon acquisition.
Consolidated Statements of Income for the years ended December 31, 2004, 2003 and
Acquisitions are accounted for under the “purchase method” whereby acquired tangible and intangible assets and assumed liabilities are recorded at fair value. Identified intangible assets are amortized over their estimated useful lives. Goodwill is not amortized; however, it is subject to annual impairment testing.
The Primrose Term Loan was payable in quarterly installments through December 31, 2004 and bore interest at LIBOR plus 2.5% or Prime plus 0.5%, at our option. This loan was repaid in full in 2004.
During April 2005, we received notification from certain employees of WC (“WC Shareholders”) that they wished to sell or convert to Company stock their minority shares in WC (“Shares”) and exercise their vested options (“Vested Options”) to purchase shares of WC stock and sell or convert them to Company stock. Under the terms of the agreement governing these options, the per share value of WC stock is determined based on a formula stipulated in the agreement and the Company may settle these options in Company shares or cash, at its discretion. The Company has provided the WC Shareholders with the per share value calculation and notified them that it intends to settle the Shares and Vested Options for cash. The WC Shareholders have notified the Company that they do not agree with the per share value calculation. In addition, with the recent announcement that the Board of Directors has approved a formal sale process of the Company, the WC Shareholders have notified us that they are considering amending or revoking their request to convert their Shares and Vested Options. If we were to settle the Shares and Vested Options at the fair value per share determined by the Company, we would pay approximately $4,200 to $4,300 to the WC Shareholders.