We operate regional service centers that perform claims processing, premium billing and collection, enrollment and customer service functions for our health plans. Our regional service centers enable us to take advantage of economies of scale, implement standardized management practices at each of our plans and capitalize on the benefits of our integrated information technology systems. We centralize the underwriting and product pricing functions for our health plans, which allows us to utilize our underwriting expertise and a disciplined pricing strategy at each of our health plans. First Health operating expenses consist primarily of salaries and related costs for personnel involved in the administrative services offered by the Company. To a lesser extent, the operating expenses include facility expenses and information processing costs needed to provide those administrative services.
In April 2005, the Securities and Exchange Commission issued a rule that amends the compliance date for SFAS No. 123(R). The rule allowed the Company to delay the implementation of SFAS No. 123(R) until January 1, 2006. The Company adopted SFAS No. 123(R) on January 1, 2006 using the modified-prospective method.
During the three years ended December 31, 2005, we completed several business combinations and membership purchases. These business combinations are all accounted for using the purchase method of accounting and, accordingly, the operating results of each acquisition have been included in our consolidated financial statements since their effective date of acquisition. The purchase price for each business combination was allocated to the assets, including the identifiable intangible assets, and liabilities based on estimated fair values. The excess of the purchase price over the net identifiable assets acquired was allocated to goodwill. The purchase price of our membership purchases is allocated to identifiable intangible assets and is being amortized over a useful life of ten to twenty years.
As described earlier, the effects of Hurricane Katrina affected the operations of our local Louisiana Health Plan. The Louisiana Department of Insurance imposed an emergency order governing claim payments and premium collection procedures. The Louisiana Department of Insurance emergency order rules prohibited the termination of members from August 26, 2005 to November 30, 2005 and required that members be allowed to access out-of-network providers at the in-network benefit level. Additionally, our New Orleans in-network provider community has changed as a result of the closure of certain facilities within our New Orleans provider network. As a result, medical costs have increased significantly. The reduced membership, allowances for premium receivables and higher medical costs experienced by our Louisiana Health Plan reduced our fourth quarter earnings by approximately $0.04 per diluted share. That order expired at the end of November 2005 and our Louisiana Health Plan is back to more normal operating protocols. Going forward, we expect the Louisiana Health Plan to operate as a profitable, but smaller, business.
Excluding funds held by entities subject to regulation and excluding our investment in an equipment leasing limited liability company, we had cash and investments of approximately $347.2 million and $383.1 million at December 31, 2005 and December 31, 2004, respectively. The decline is a result of cash and investments used related to the First Health acquisition and debt repayment offset by dividends from our regulated subsidiaries. During the year ended December 31, 2005, we made capital contributions to our subsidiaries of $8.1 million.
Cash and Cash Equivalents - Cash and cash equivalents consist principally of money market funds, commercial paper and certificates of deposit. The Company considers all highly liquid securities purchased with an original maturity of three months or less to be cash equivalents. The carrying amounts of cash and cash equivalents reported in the accompanying consolidated balance sheets approximate fair value.
During 2005, the Company awarded 790,500 shares of restricted stock. The weighted average fair value, at the measurement date, of the restricted stock awards was $47.74. The fair value of the restricted shares is amortized over various vesting periods through 2009. The Company recorded compensation expense related to restricted stock grants, including restricted stock granted in prior periods of approximately $21.9 million, $15.5 million and $9.6 million for the years ended December 31, 2005, 2004 and 2003, respectively. The deferred portion of the restricted stock is reported as a reduction to additional paid in capital and was $55.6 million at December 31, 2005.
Several acquisitions have been completed since the adoption of the Savings Plan. Pursuant to specific terms of each acquisition’s respective merger agreement, the surviving entity became an adopting employer of the Savings Plan, and commenced participation in the Savings Plan, following approval by the Company’s Board of Directors, as of the effective dates below:
During the quarter ended June 30, 2005, as a result of the refinancing, the Company wrote off $5.4 million of deferred financing costs related to the original credit facilities.
In the normal course of business, the Company has been named as a defendant in various legal actions such as actions seeking payments for claims denied by the Company, medical malpractice actions, employment related claims and other various claims seeking monetary damages. The claims are in various stages of proceedings and some may ultimately be brought to trial. Incidents occurring through December 31, 2005 may result in the assertion of additional claims. The Company maintains general liability, professional liability and employment practices liability insurances in amounts that it believes are appropriate, with varying deductibles for which it maintains reserves. The professional liability and employment practices liability insurances are carried through its captive subsidiary. Although the results of pending litigation are always uncertain, we do not believe the results of such actions currently threatened or pending, including those described below, will individually or in the aggregate, have a material adverse effect on our consolidated financial position or results of operations.
• Workers’ Compensation Services - managed care administrative services including access to the First Health Network, bill review and clinical management