General and administrative expenses decreased by $307,000, or 9.1%, for the fiscal year ended May 31, 2005 as compared to the fiscal year ended May 31, 2004. This decrease is primarily attributable to a decrease in salaries and benefits resulting from our restructuring of regional and corporate operations and less usage of outside professional services. General and administrative expense as a percentage of operating revenue increased slightly from 12.3% for the fiscal year ended May 31, 2004 to 12.6% for the fiscal year ended May 31, 2005.
Accrued claims payable consists primarily of reserves established for reported claims and claims incurred but not reported (“IBNR”) which are unpaid through the respective balance sheet dates. Our policy is to record management’s best estimate of IBNR. The IBNR liability is estimated monthly using an actuarial paid completion factor methodology and is continually reviewed and adjusted, if necessary, to reflect any change in the estimated liability as more information becomes available. In deriving a range of estimates, management considers qualitative factors, authorization information, and an actuarial model that incorporates past claims payment experience, enrollment data and key assumptions such as trends in healthcare costs and seasonality. The accrued claims payable ranges were between $2.6 and $2.9 million at December 31, 2006, between $2.6 and $2.8 million at May 31, 2006, and between $3.5 and $3.8 million at May 31, 2005. To determine the best estimates, management reviews
In June 2006, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes,” (“FIN 48”) which clarifies the accounting for uncertainty in income taxes. FIN 48 requires that companies recognize in the consolidated financial statements the impact of a tax position, if that position is more likely than not of being sustained on audit, based on the technical merits of the position. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods and disclosure. The provisions of FIN 48 are effective for fiscal years beginning after December 15, 2006. We adopted FIN 48 effective January 1, with no impact on our consolidated financial statements.
At December 31, 2006, restricted cash of $1,000 represents the amount of deposits required under the terms of client contracts for the purpose of paying outstanding claims. At May 31, 2006, such deposits totaled $514,000, which when combined with the Company’s office lease security of $75,000, comprised the May 31, 2006 restricted cash balance of $589,000. All of the claims payment deposits required at May 31, 2006 were disbursed following the end of the associated contracts, and the office lease deposit was returned to the Company in June 2006 subsequent to the end of the lease on May 31, 2006.
The Company offers a 401(k) Plan (the “Plan”), which is a defined contribution plan qualified under Section 401(k) of the Internal Revenue Code, for the benefit of its eligible employees. All full-time and part-time employees who have attained the age of 21 and have completed one thousand hours of service are eligible to participate in the Plan. Each participant may contribute from 2% to 50% of his or her compensation to the Plan up to the annual maximum allowed amount, which was $15,000 during Calendar 2006, subject to limitations on the highly compensated employees to ensure the Plan is non-discriminatory. Company contributions are discretionary and are determined by the Company’s management. The Company did not make a matching contribution during the seven months ended December 31, 2006 or during the 2006 and 2005 fiscal years. The Company’s employer matching contributions were approximately $2,300 to the Plan in fiscal 2004.
At December 31, 2006, there was approximately $344,000 of total unrecognized compensation cost related to unvested options, which is expected to be recognized over a weighted-average period of 3.58 years. Total recognized compensation costs during the seven months ended December 31, 2006 were $57,000. No compensation cost related to employees was recognized prior to June 1, 2006. The Company recognized approximately $19,000 of tax benefits
(e) Includes a $62,500 asset write down of eye care memberships.