We are also in advanced negotiations to begin operations in two other states. We are working with the State of South Carolina to begin serving Medicaid mothers and children in the Greenville-Spartanburg area. We are also working with the State of New Mexico to serve people with long-term illnesses and disabilities there.
A Florida Statute (the Statute) gives the Florida Agency for Health Care Administration (AHCA) the right to contract with entities to provide comprehensive behavioral healthcare services, including mental health and substance abuse services. The Statute further requires the contractor to use at least 80% of the capitation for the provision of behavioral healthcare services, with any shortfall in the 80% expenditure being refunded to the State. In the contract that AMERIGROUP Florida, Inc. has with AHCA, AMERIGROUP Florida, Inc. is required to provide comprehensive behavioral healthcare services, but the contract defines a limited subset of behavioral healthcare services that can be counted towards the fulfillment of the 80% requirement. AMERIGROUP Florida, Inc. and other similarly situated contractors have disputed the restrictive definition imposed by AHCA and believe that AHCA’s limited definition does not support meeting our obligation to provide comprehensive healthcare services in accordance with our contract. There was an attempt to resolve this issue in the most recent session of the Florida legislature, which was unsuccessful. AMERIGROUP Florida, Inc. believes that the implementation by AHCA of the restrictive definition of comprehensive behavioral healthcare services in the contract is impermissible and inconsistent with the statutory requirements for administrative rule making. In February 2007, the Company received a determination from AHCA indicating amounts owed to AHCA of $5.2 million for the 2004 and 2005 contract years which has been recorded in the accompanying Consolidated Financial Statements as of December 31, 2006. The Company has the option to appeal this determination through arbitration and is currently considering this alternative. The Company has reserved approximately $7.9 million as its best estimate of liability for all prior and current contract periods, which is included in unearned revenue in the Consolidated Balance Sheets as of December 31, 2006.
administrative expense related to the adoption of SFAS No. 123(R). Net earnings for the year ended December 31, 2006 were reduced by $5.8 million or $0.11 per diluted share as a result of adoption.
The loan documents governing the Facilities are expected to contain representations and warranties, financial, affirmative and negative covenants and events of default as are usual and customary for financings of this kind. Our obligations under the Facilities will be secured by a first priority security interest in all assets of the Company and a
an increase in the change in premium receivables of $38.8 million primarily due to the acceleration of premium receipts from the State of the New York that had historically paid in arrears;
The National Association of Insurance Commissioners (NAIC) has defined risk-based capital (RBC) standards for HMOs and other entities bearing risk for healthcare coverage that are designed to identify weakly capitalized companies by comparing each company’s adjusted surplus to its required surplus (RBC ratio). The RBC ratio is designed to reflect the risk profile of HMOs. Within certain ratio ranges, regulators have increasing authority to take action as the RBC ratio decreases. There are four levels of regulatory action, ranging from requiring insurers to submit a comprehensive plan to the state insurance commissioner to requiring the state insurance commissioner to place the insurer under regulatory control. At December 31, 2006, the RBC ratio of each of the Company’s health plans was at or above the level that would require regulatory action. Although not all states had adopted these rules at December 31, 2006, at that date, each of the Company’s active HMOs had a surplus that exceeded either the applicable state net worth requirements or, where adopted, the levels that would require regulatory action under the NAIC’s RBC rules.
On December 16, 2004, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard No. 123 (revised 2004) (SFAS No. 123(R)), Shared-Based Payment, which is a revision of SFAS No. 123. SFAS No. 123(R) supersedes Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, (APB Opinion No. 25), Statement of Financial Accounting Standards No. 148, Accounting for Stock-Based Compensation and amends Statement of Financial Accounting Standards No. 95, Statement of Cash Flows. SFAS No. 123(R) establishes the accounting for transactions in which an entity pays for employee services in share-based payment transactions. SFAS No. 123(R) requires companies to measure the cost of employee services received in exchange for an award of equity instruments based on the grant date fair value of the award. The fair value of employee share options and similar instruments is estimated using option-pricing models adjusted for the unique characteristics of those instruments. That cost is recognized over the period during which an employee is required to provide service in exchange for the award. The Company adopted SFAS No. 123(R) effective January 1, 2006, using the modified-prospective transition method. Under this method, compensation cost is recognized for awards granted and for awards modified, repurchased, or cancelled in the period after adoption. Compensation cost is also recognized for the unvested portion of awards granted prior to adoption. Prior year financial statements are not restated. The Company’s results for the year ended December 31, 2006 include $8,462 of selling, general and administrative expenses related to the adoption of SFAS No. 123(R). Net earnings for the year ended December 31, 2006 were reduced by $5,776 or $0.11 per basic and diluted share. Additionally, upon adoption of SFAS No. 123(R), excess tax benefits related to stock compensation are presented as a cash inflow from financing activities. This change had the effect of decreasing cash flows from operating activities and increasing cash flows from financing activities by $2,611 for the year ended December 31, 2006.
In 1994, we established the 1994 Stock Plan (1994 Plan), which provides for the granting of either incentive stock options or non-qualified options to purchase shares of our common stock by employees, directors and consultants of the Company for up to 4,199,000 shares of common stock as of December 31, 1999. On February 9, 2000, we increased the number of options available for grant to 4,499,000.
As of December 31, 2006, there was $13,499 of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the 2005, 2003, 2000 and 1994 Plans, which is expected to be recognized over a weighted-average period of 3.0 years.
Cash and cash equivalents, premium receivables, prepaid expenses, provider and other receivables, prepaids and other current assets, deposits, accounts payable, unearned revenue, accrued payroll and related liabilities, accrued expenses and other current liabilities and claims payable: The carrying amounts approximate fair value because of the short maturity of these items.
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 arrangement 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.