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 arrangements 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.
We believe that the amount of claims payable is adequate to cover our ultimate liability for unpaid claims as of December 31, 2006; however, actual claim payments and other items may differ from established estimates. Assuming a hypothetical 1% difference between our December 31, 2006 estimates of claims payable and actual claims payable, our results of operations for the year ended December 31, 2006 would increase or decrease by approximately $2.4 million net of related income tax effects and diluted earnings per share would increase or decrease by approximately $0.04 per share.
The following table sets forth the approximate number of our members in each of our service areas for the periods presented. Since we received two premiums for members that are in both the AMERIVANTAGE and AMERIPLUS product beginning in 2006, these members have been counted twice in the State of Texas. Accordingly, membership counts represent an occurrence of payment under our contracts with our government partners.
Our subsidiaries are required to maintain minimum statutory capital requirements prescribed by various jurisdictions, including the departments of insurance in each of the states in which we operate. As of December 31, 2006, our subsidiaries were in compliance with all minimum statutory capital requirements. We anticipate the parent company will be required to fund minimum net worth shortfalls during 2007 using unregulated cash, cash equivalents and investments. We believe as a result that we will continue to be in compliance with these requirements for the next 12 months.
On January 1, 2005, we completed our acquisition of CarePlus, LLC, which operates as CarePlus Health Plan (CarePlus). The following summarizes cash paid for this acquisition through December 31, 2006:
Basic net income per share has been computed by dividing net income by the weighted average number of common shares outstanding. Diluted net income per share reflects the potential dilution that could occur assuming the inclusion of dilutive potential common shares and has been computed by dividing net income by the weighted average number of common shares and dilutive potential common shares outstanding. Dilutive potential common shares include all outstanding stock options after applying the treasury stock method to the extent the options are dilutive.
The following are the proforma results of operations for the year ended December 31, 2004 as if the acquisition had been completed on January 1, 2004:
Amortization expense for the years ended December 31, 2006, 2005 and 2004 was $4,541, $7,940 and $3,504, respectively, and the estimated aggregate amortization expense for the five succeeding years is as follows:
Pursuant to the Credit Agreement, we must meet certain financial covenants. These financial covenants include meeting certain financial ratios and limits on capital expenditures and repurchases of our outstanding common stock. We believe we are in compliance with these financial covenants as of December 31, 2006.
Non-vested restricted stock includes grants with both service and performance condition based vesting. Service-based awards generally vest annually over a period of four years contingent only on the employees’
continued employment. Performance based shares contingently vest over a period of four years from the date of grant based upon the extent of achievement of certain operating goals relating to the Company’s earnings per share, with up to 25% vesting on the first anniversary of the grant date and up to an additional 25% vesting on each of the second, third and fourth anniversaries of the grant date. The shares in each of the respective four tranches vest in full if earnings per share for each of the calendar years 2006 through 2009 equals or exceeds 115% of earnings per share for the preceding calendar year, as adjusted for any changes in measurement methods; provided that 50% of each tranche will vest if earnings per share for the year is between 113.50% and 114.24% (inclusive) of adjusted earnings per share for the preceding year, and 75% of each tranche will vest if earnings per share for the year is between 114.25% and 114.99% (inclusive) of adjusted earnings per share for the preceding year. Performance based awards represent 49,600 shares of outstanding non-vested restricted stock awards.
Certain employees have the option to participate in a non-qualified deferred compensation plan sponsored by the Company. Participants may contribute a percentage of their income subject to maximum plan limits. The Company does not match any employee contributions; however, the Company’s obligation to the employee is equal to the employees’ deferrals plus or minus any return on investment the employee earns through self-selected investment allocations. Included in other long-term liabilities at December 31, 2006 and 2005, respectively was $4,382 and $4,396 related to this plan.
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 can be materially impacted.