Includes shared office space for our corporate headquarters and our Tennessee health plan. Also includes a lease executed in January 2007 for approximately 54,000 square feet of office space, which lease expires in May 2014.
Commercial. Our commercial HMO membership declined from 41,769 members at December 31, 2005 to 31,970 members at December 31, 2006, or by 23.5%, primarily as a result of our decision to increase premiums to maintain our commercial margins and the discontinuance of certain unprofitable customer and provider relationships in Alabama and Tennessee.
Our provision for adverse claims development is intended to account for variability in the following types of factors:
The Company uses the asset and liability method of accounting for income taxes. Under this method, deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes and net operating loss and tax credit carry forwards. The amount of deferred taxes on these temporary differences is determined using the tax rates that are expected to apply to the period when the asset is realized or the liability is settled, as applicable, based on tax rates and laws in the respective tax jurisdiction enacted as of the balance sheet date.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of HealthSpring, Inc. and subsidiaries as of December 31, 2006 and 2005 and the results of their operations and their cash flows for the year ended December 31, 2006 and the ten-month period from March 1, 2005 through December 31, 2005; and the results of NewQuest, LLC and subsidiaries operations and their cash flows for the two months ended February 28, 2005 and for the year ended December 31, 2004, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
Health plan premiums are due monthly and are recognized as revenue during the period in which the Company is obligated to provide services to the members. Certain monthly payments for Part D from the Centers for Medicare and Medicaid Services (“CMS”), represent payments for claims for which the Company assumes risk for the costs of services or products delivered to its Part D members, whereas other Part D payments from CMS represent payments for claims for which it assumes no risk (See Note 2). The Company recognizes premium revenue for the Part D payments received from CMS for which it assumes risk. Deferred revenue consists of premium payments received by the Company for covered lives for which the services will be rendered and revenue recognized in future months.
The total intrinsic value of stock options exercised during 2006 was $84. Cash received from stock option exercises for the year ended December 31, 2006 totaled $12. Total compensation expenses related to nonvested options not yet recognized was $21,578 at December 31, 2006. The Company expects to recognize this compensation expense over a weighted average period of 3.3 years.
For the year ended December 31, 2006, the ten months ended December 31, 2005, the two months ended February 28, 2005 and the year ended December 31, 2004, RPO paid GulfQuest L.P. management and other fees of approximately $15,630, $11,359, $2,060, and $10,412, respectively. In addition, Texas HealthSpring, LLC paid RPO approximately $98,391, $67,172, $11,398, and $53,846 for the year ended December 31, 2006, for the ten months ended December 31, 2005, two months ended February 28, 2005 and the year ended December 31, 2004, respectively, to provide medical services to its members.
On April 21, 2006, HealthSpring, Inc. and certain of its non-HMO subsidiaries as guarantors entered into a $75.0 million, five-year senior secured revolving credit agreement (the “New Credit Agreement”) with UBS Securities LLC, Citigroup Global Markets, Inc. and the lenders party thereto, which replaced the Prior Credit Facility (as defined below). The New Credit Agreement provides up to a maximum aggregate principal amount outstanding of $75.0 million, including a $2.5 million swingline subfacility and a maximum of $5.0 million in outstanding letters of credit. The Company may request an expansion of the aggregate commitments under the New Credit Agreement to a maximum of $125.0 million, subject to certain conditions precedent including the consent of the lenders providing the increased credit availability. Loans under the New Credit Agreement accrue interest on the basis of either a base rate or a LIBOR rate plus, in each case, an applicable margin depending on the Company’s leverage ratio. The applicable margin for base rate loans (including swingline loans) ranges from 0.00% to 0.75%, and the applicable margin for LIBOR loans ranges from 1.00% to 1.75%. The Company pays a commitment fee of 0.375% per annum on the unfunded portion of the lenders’ aggregate commitments under the facility.
The HMOs are required to maintain satisfactory minimum net worth requirements established by their respective state departments of insurance. At December 31, 2006, the statutory minimum net worth requirements and actual statutory net worth were $9,621 and $35,700 for the Tennessee HMO; $1,112 and $30,071 for the Alabama HMO; and $7,565 and $35,486 for the Texas HMO, respectively. Each of these subsidiaries were in compliance with applicable statutory requirements as of December 31, 2006. The HMOs are restricted from making dividend