<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A-1
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest reported): July 18, 1996
-------------
FIRST COMMONWEALTH, INC.
------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 0-27064 75-2154228
-------- ------- ----------
(State of incorporation (Commission (I.R.S. Employer
or organization) File Number) Identification No.)
444 NORTH WELLS STREET, SUITE 600, CHICAGO, IL 60610
----------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (312) 644-1800
--------------
NOT APPLICABLE
--------------
(Former name or former address, if changed since last report)
<PAGE>
The undersigned registrant hereby amends Item 7 of its Current Report on
Form 8-K dated July 18, 1996, as set forth below.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
(a) Financial Statements of Business Acquired. The following financial
statements of business acquired are filed as Exhibit 99.4 hereto:
Financial Statements of Smileage Dental Services, Inc. as of and for the
six months ended June 30, 1996
Balance Sheets as of June 30, 1996
Statements of Income for the six months ended June 30, 1996
Statements of Stockholders' Equity as of June 30, 1996
Statements of Cash Flows for the six months ended June 30, 1996
Summary of Accounting Policies
Notes to Financial Statements
Financial Statements of Smileage Dental Services, Inc. as of and for the
years ended December 31, 1995 and 1994
Independent Auditors' Report
Balance Sheets as of December 31, 1995 and 1994
Statements of Income for the years ended December 31, 1995 and 1994
Statements of Stockholders' Equity as of December 31, 1995 and 1994
Statements of Cash Flows for the years ended December 31, 1995 and 1994
Summary of Accounting Policies
Notes to Financial Statements
(b) Pro Forma Financial Information. The following pro forma financial
statements of the registrant are filed as Exhibit 99.5 hereto:
Unaudited Pro Forma Condensed Consolidated Financial Statements of First
Commonwealth, Inc. as of and for the six months ended June 30, 1996
Introduction to the Unaudited Pro Forma Condensed Consolidated Financial
Statements
Unaudited Pro Forma Condensed Consolidated Statement of Income for the
six months ended June 30, 1996
Unaudited Pro Forma Consolidated Balance Sheet as of June 30, 1996
Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements
Unaudited Pro Forma Condensed Consolidated Financial Statements of First
Commonwealth, Inc. as of and for the year ended December 31, 1995
Introduction to the Unaudited Pro Forma Condensed Consolidated Financial
Statements
2
<PAGE>
Unaudited Pro Forma Condensed Consolidated Statement of Income for the year
ended December 31, 1995
Unaudited Pro Forma Consolidated Balance Sheet as of December 31, 1995
Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements
(c) Exhibits
23.1 Consent of Accountants
99.4 Financial Statements of Smileage Dental Services, Inc. as of and for
the six months ended June 30, 1996, and as of, and for the year ended
December 31, 1995 and 1994
99.5 Pro Forma Condensed Consolidated Financial Statements of First
Commonwealth, Inc. as of, and for the six months ended June 30, 1996,
and as of, and for the year ended December 31, 1995
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: September 30, 1996 FIRST COMMONWEALTH, INC.
(Registrant)
By: /s/ Christopher C. Multhauf
---------------------------
Christopher C. Multhauf
Chairman and Chief Executive Officer
4
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
23.1 Consent of Accountants
99.4 Financial Statements of Smileage
Dental Services, Inc. as of and for the six
months ended June 30, 1996 and as of and for
the years ended December 31, 1995 and 1994
99.5 Pro Forma Condensed Consolidated Financial
Statements of First Commonwealth, Inc. as of
and for the six months ended June 30, 1996
and as of and for the years ended December
31, 1995 and 1994
<PAGE>
EXHIBIT 23.1
CONSENT OF ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
by reference of our report dated June 19, 1996 on the balance sheets of Smileage
Dental Services, Inc. as of December 31, 1995 and 1994 and the related
statements of income, stockholders' equity and cash flows for the years then
ended, which is included in this amendment to the Form 8-K of First
Commonwealth, Inc. dated July 18, 1996, into the previously filed Form S-8
Registration Statement of First Commonwealth, Inc. (registration no.
333-00474).
/s/ BDO Seidman, LLP
BDO Seidman, LLP
September 27, 1996
<PAGE>
Exhibit 99.4
Financial Statements of Smileage Dental Services, Inc. as of, and for the six
months ended June 30, 1996, and as of, and for the years ended December 31, 1995
and 1994
<PAGE>
SMILEAGE DENTAL
SERVICES, INC.
===========================================================
FINANCIAL STATEMENTS
JUNE 30, 1996
[LOGO OF BDO SEIDMAN, LLP]
BDO SEIDMAN, LLP
ACCOUNTANTS AND CONSULTANTS
<PAGE>
SMILEAGE DENTAL
SERVICES, INC.
============================================================
FINANCIAL STATEMENTS
JUNE 30, 1996
<PAGE>
SMILEAGE DENTAL SERVICES, INC.
CONTENTS
================================================================================
FINANCIAL STATEMENTS
Balance sheet 4
Statement of income 5
Statement of stockholders' equity 6
Statement of cash flows 7-8
SUMMARY OF ACCOUNTING POLICIES 9
NOTES TO FINANCIAL STATEMENTS 10-12
2
<PAGE>
[This page intentionally left blank]
3
<PAGE>
================================================================================
June 30, 1996
--------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Related party receivables, less allowance
for losses of $70,000 (Note 2) $ 54,312
Accounts receivable 20,000
Prepaid expenses and miscellaneous 1,578
Deferred tax asset (Note 5) 50,000
--------------------------------------------------------------------------
Total current assets 125,890
--------------------------------------------------------------------------
PROPERTY AND EQUIPMENT
Computers 137,539
Less accumulated depreciation (118,423)
--------------------------------------------------------------------------
Net property and equipment 19,116
--------------------------------------------------------------------------
$ 145,006
==========================================================================
<PAGE>
SMILEAGE DENTAL SERVICES, INC.
BALANCE SHEET
================================================================================
June 30, 1996
================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 7,786
Accrued compensation 59,806
Accrued expenses - other (Note 4) 38,714
Accrued income taxes 38,700
- --------------------------------------------------------------------------------
Total liabilities 145,006
- --------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (NOTE 6)
STOCKHOLDERS' EQUITY (NOTES 3, 7, AND 8)
Common stock 861
Additional paid-in capital 240,639
Retained earnings 334,063
- --------------------------------------------------------------------------------
575,563
Less treasury stock (17,400 shares at cost) (575,563)
- --------------------------------------------------------------------------------
Total stockholders' equity -
- --------------------------------------------------------------------------------
$145,006
================================================================================
See accompanying summary of accounting policies and notes to financial
statements.
4
<PAGE>
SMILEAGE DENTAL SERVICES, INC.
STATEMENT OF INCOME
================================================================================
<TABLE>
<CAPTION>
Six months ended June 30, 1996
- --------------------------------------------------------------------------------
<S> <C>
Revenues (Notes 2)
Practice management fees $1,288,905
- --------------------------------------------------------------------------------
Operating expenses
Salaries and related expenses 697,695
General and administrative 501,510
Depreciation and amortization 30,883
- -------------------------------------------------------------------------------
Total operating expenses 1,230,088
- --------------------------------------------------------------------------------
Operating Income 58,817
- --------------------------------------------------------------------------------
Other Income (expense)
Interest income 687
Interest expense (20,015)
Life insurance - income 222,732
Intercompany debt forgiven (Note 2) 621,115
Other income 3,866
- --------------------------------------------------------------------------------
Total other income, net 828,385
- --------------------------------------------------------------------------------
Income before provision for
income taxes 887,202
Provision for income taxes (Note 5) 208
- --------------------------------------------------------------------------------
Net income $ 886,994
================================================================================
</TABLE>
See accompanying summary of accounting policies and notes to financial
statements.
5
<PAGE>
Smileage Dental Services, Inc.
Statement of Stockholders' Equity
===============================================================================
<TABLE>
<CAPTION> Addi- Total
Shares tional Stock-
----------------- Common Paid-In Retained Treasury holders'
Common Treasury Stock Capital Earnings Stock Equity
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995 86,100 17,400 $ 861 $240,639 $(552,931) $(575,563) $(886,994)
Net income - - - - 886,994 - 886,994
- ------------------------------------------------------------------------------------------------------------------
Balance, June 30, 1996 86,100 17,400 $ 861 $240,639 $ 334,063 $(575,563) $ -
==================================================================================================================
</TABLE>
See accompanying summary of accounting policies and notes to financial
statements.
6
<PAGE>
SMILEAGE DENTAL SERVICES, INC.
STATEMENT OF CASH FLOWS
===============================================================
Six months ended June 30, 1996
- ---------------------------------------------------------------
Cash flows from operating activities
Net income $ 886,994
Adjustments to reconcile net income
to net cash used in operating
activities:
Depreciation and amortization 30,883
Changes in assets and liabilities:
Decrease (increase) in:
Related party receivables (467,679)
Accounts receivable (2,694)
Prepaid expenses and miscellaneous (8,257)
Increase (decrease) in:
Accounts payable 32,337
Accrued compensation 5,303
Accrued expenses - other 19,688
Income taxes, accrued and deferred (249,416)
Related party payables (649,721)
- ---------------------------------------------------------------
Net cash used in operating activities (402,562)
- ---------------------------------------------------------------
Cash flows from investing activities
Purchase of computer equipment (11,366)
Proceeds from notes receivable - shareholders 1,554
- ---------------------------------------------------------------
Net cash used in investing activities (9,812)
- ---------------------------------------------------------------
7
<PAGE>
SMILEAGE DENTAL SERVICES, INC.
STATEMENT OF CASH FLOWS
================================================================================
<TABLE>
<CAPTION>
Six months ended June 30, 1996
- ---------------------------------------------------------------------
<S> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of notes payable, net $ (456)
Repayment of debt and capitalized lease obligations (60,442)
- ---------------------------------------------------------------------
Net cash used in financing activities (60,898)
- ---------------------------------------------------------------------
Net decrease in cash (473,272)
CASH, at beginning of year 473,272
- ---------------------------------------------------------------------
CASH, at end of year $ -
=====================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during year for:
Interest $ 20,015
Taxes 249,624
=====================================================================
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES
Long-term debt and lease obligations
assumed by a related party $ 358,794
Equipment and facilities transferred to a
related party 307,622
Notes receivable transferred to a
related party 283
=====================================================================
</TABLE>
See accompanying summary of accounting policies and notes to financial
statements.
8
<PAGE>
Smileage Dental Services, Inc.
Summary of Accounting Policies
================================================================================
Basis of Presentation
The financial statements are prepared on the accrual basis in accordance with
generally accepted accounting principles.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period.
Actual results could differ from those estimates.
Fair Value of Financial Instruments
The carrying amount reported in the balance sheet for financial instruments
approximates their fair values.
Property and Equipment
Property and equipment is stated at cost. Depreciation is computed over the
estimated useful lives of the related assets by the straight-line method.
Income Taxes
Income taxes are calculated using the liability method specified by Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes." Deferred
income taxes are provided for temporary differences between amounts reported for
financial statements and income tax purposes.
9
<PAGE>
Smileage Dental Services, Inc.
Notes to Financial Statements
================================================================================
1. Nature of Operations
Smileage Dental Services, Inc. (the "Company") manages and services the
insurance contracts of a related company in the State of Wisconsin. The
Company also provides other management services to a related insurance
company in Georgia and a related dental practice in Wisconsin through May
31, 1996.
2. Related Party Transactions
The Company provides management services to three related companies. The
amount of revenue recognized through June 30, 1996 for the management and
servicing of insurance contracts and for other management services was
$881,627 and $407,278, respectively.
The receivable balance at June 30, 1996 represents unpaid management fees
from Smileage Dental Care, Inc. (SDC) of $54,312. Another related party,
Smileage Dental Insurance, Inc. owes management fees of $70,000 at June 30,
1996 which have been fully reserved by an allowance.
In connection with the Company discontinuing its management and
administrative servicing for the two related entities, certain assets,
liabilities and contingencies were assumed by the new management company.
Assets in the amount of $1,625,233, liabilities totaling $2,627,771 and all
operating leases of the Company were transferred to a related company, SDC
at May 31, 1996. The resulting balance owed to SDC at May 31, 1996, of
$621,115 was forgiven.
3. Common Stock
The Company has authorized 2,801,400 shares of common stock at $.01 par
value and issued 86,100 shares, of which 68,700 are outstanding. There is
2,801,400 shares of $.01 par value preferred stock authorized for issuance,
of which none are outstanding. The preferences, limitations and relative
rights of the preferred stock will be determined by the Company's Board of
Directors prior to issuance of such class or series.
10
<PAGE>
SMILEAGE DENTAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
======================================================================
4. EMPLOYEE BENEFIT PLAN
The Company has a qualified contributory cash and deferred
profit sharing plan for eligible employees. The Company's
contribution to the plan for each employee is an amount
equal to 50% of each participant's contribution up to a
maximum of $500 per employee for the plan year. Contributions
to the plan for the six months ended June 30, 1996 totaled
$2,243. A balance of $4,224 remains unpaid at June 30, 1996.
5. PROVISION FOR INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
Six months ended June 30, 1996
=============================================================
<S> <C>
Current
Federal $ 41,708
State 8,500
-------------------------------------------------------------
50,208
-------------------------------------------------------------
Deferred
Federal (42,500)
State (7,500)
-------------------------------------------------------------
(50,000)
-------------------------------------------------------------
$ 208
=============================================================
A reconciliation of federal and state deferred income taxes
consists of the following:
June 30, 1996
-------------------------------------------------------------
Total deferred tax assets $ 52,640
Valuation allowance for deferred tax assets 2,640
-------------------------------------------------------------
Total net deferred tax assets 50,000
Deferred tax liabilities -
-------------------------------------------------------------
Net deferred tax assets $ 50,000
=============================================================
</TABLE>
11
<PAGE>
SMILEAGE DENTAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
===============================================================================
5. PROVISION FOR INCOME TAXES (Continued)
Deferred taxes result primarily from differences in depreciation recorded
for tax purposes and financial reporting purposes and reserves and accruals
recorded for book purposes.
6. COMMITMENTS AND CONTINGENCIES
The Company leases its facilities and equipment through 1998. The facility
lease requires the Company to pay real estate taxes and common area charges
in addition to the base rent. As discussed in Note 2, all leases were
assumed by Smileage Dental Care, Inc. at May 31, 1996. Rent expense was
$39,083 for the six months ended June 30, 1996.
The Company has entered into debt and lease agreements on behalf of other
related entities. At June 30, 1996, they were jointly and severally liable
on an additional $975,506 of long-term debt and $4,271,365 under future
minimum lease commitments.
LITIGATION
The Company is involved in litigation on a number of matters and is subject
to certain claims which arise in the normal course of business, none of
which, in the opinion of the Company's management, is expected to have a
materially adverse effect on the Company's financial position or results of
operations.
7. STOCK RESTRICTION AGREEMENT
The shareholders are subject to a Stock Restriction Agreement which
restricts the lifetime transfer of shares owned by a shareholder, the
transfer of shares upon discharge or permanent disability and the transfer
of shares upon the death of a shareholder, except in accordance with the
terms of the Agreement.
8. STOCK OPTIONS
On May 11, 1992, the Company issued to an executive the option to purchase
up to 1% of the outstanding common stock of the Company at the completion
of each of his first three years of employment, at year end 1992 book value
($1.00 per share).
12
<PAGE>
SMILEAGE DENTAL
SERVICES, INC.
================================================================================
FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1994
[LOGO OF BDO SEIDMAN, LLP]
Accountants and Consultants
<PAGE>
SMILEAGE DENTAL
SERVICES, INC.
===============================================================================
FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1994
<PAGE>
SMILEAGE DENTAL SERVICES, INC.
CONTENTS
================================================================================
INDEPENDENT AUDITORS' REPORT 3
FINANCIAL STATEMENTS
Balance sheets 4
Statements of income 5
Statements of stockholders' equity 6
Statements of cash flows 7 - 8
SUMMARY OF ACCOUNTING POLICIES 9
NOTES TO FINANCIAL STATEMENTS 10 - 16
2
<PAGE>
[LOGO OF BDO SEIDMAN, LLP]
BDO SEIDMAN, LLP Two Plaza East
Accountants and Consultants 330 East Kilbourn Avenue, Suite 950
Milwaukee, Wisconsin 53202-3143
Telephone: (414) 272-5900
Fax: (414) 272-1090
INDEPENDENT AUDITORS' REPORT
Smileage Dental Services, Inc.
Milwaukee, Wisconsin
We have audited the accompanying balance sheets of Smileage Dental Services,
Inc. as of December 31, 1995 and 1994 and the related statements of income,
stockholders' equity and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. These standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Smileage Dental Services, Inc.
at December 31, 1995 and 1994 and the results of their operations and their cash
flows for the years then ended in conformity with generally accepted accounting
principles.
/s/ BDO Seidman, LLP
June 19, 1996
3
<PAGE>
================================================================================
<TABLE>
<CAPTION>
December 31, 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Assets (Note 4)
Current assets
Cash (Note 2) $ 473,272 $ 2,959
Accounts receivable 17,306 17,069
Related party receivables, less
allowance for losses of $70,000
and $34,000 (Note 3) 218,735 287,297
Notes receivable - officers and shareholders 1,837 --
Prepaid expenses and miscellaneous 31,607 317,689
Net deferred tax asset (Note 7) 34,000 64,254
- --------------------------------------------------------------------------------
Total current assets 776,757 689,268
- --------------------------------------------------------------------------------
Property and equipment
Land -- 104,000
Buildings 457,952 457,952
Furniture and fixtures 273,026 290,907
Computers 330,858 283,755
Dental equipment -- 765,335
- --------------------------------------------------------------------------------
1,061,836 1,901,949
Less accumulated depreciation (715,581) (1,348,264)
- --------------------------------------------------------------------------------
Net property and equipment 346,255 553,685
- --------------------------------------------------------------------------------
Other assets
Investment in subsidiary -- 932,000
Deposits and miscellaneous 6,225 6,225
Net book value of facilities held for sale -- 227,372
- --------------------------------------------------------------------------------
Total other assets 6,225 1,165,597
- --------------------------------------------------------------------------------
$1,129,237 $ 2,408,550
================================================================================
</TABLE>
<PAGE>
SMILEAGE DENTAL SERVICES, INC.
BALANCE SHEETS
================================================================================
<TABLE>
<CAPTION>
December 31, 1995 1994
- --------------------------------------------------------------------------------
Liabilities an Stockholders' Equity
<S> <C> <C>
Current liabilities
Checks drawn against future deposits $ -- $ 57,713
Notes payable (Note 4) 456 200,000
Accounts payable 63,640 238,164
Related party payable (Note 3) 1,100,439 --
Accrued compensation 147,311 86,127
Accrued expenses - other 155,649 196,213
Accrued income taxes (Note 7) 129,500 51,000
Current maturities of long-term debt (Note 4) 222,449 603,650
Current obligations under capital lease (Note 8) -- 65,303
- --------------------------------------------------------------------------------
Total current liabilities 1,819,444 1,498,170
- --------------------------------------------------------------------------------
Long-term liabilities
Lease obligation, less current
obligations (Note 8) -- 181,424
Long-term debt, less current maturities (Note 4) 196,787 963,900
- --------------------------------------------------------------------------------
Total long-term liabilities 196,787 1,145,324
- --------------------------------------------------------------------------------
Total liabilities 2,016,231 2,643,494
- --------------------------------------------------------------------------------
Commitments and contingencies (Notes 8 and 13)
Stockholders' equity (Notes 5, 9, 10 and 11)
Common stock 861 877
Additional paid-in capital 240,639 240,623
Retained earnings (deficit) (552,931) 99,119
- --------------------------------------------------------------------------------
(311,431) 340,619
Less treasury stock (575,563) (575,563)
- --------------------------------------------------------------------------------
$1,129,237 $ 2,408,550
================================================================================
</TABLE>
See accompanying summary of accounting policies and notes to financial
statements.
4
<PAGE>
SMILEAGE DENTAL SERVICES, INC.
STATEMENTS OF INCOME
================================================================================
<TABLE>
<CAPTION>
Year ended December 31, 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Revenues (Notes 3 and 12)
Capitation revenue $ 3,423,620 $ 8,810,541
Practice management fees 2,285,250 2,108,475
- --------------------------------------------------------------------------------
Total revenues 5,708,870 10,919,016
- --------------------------------------------------------------------------------
Operating expenses
Provider payments 2,615,269 8,222,379
Salaries and related expenses 1,376,572 1,496,436
General and administrative 1,148,508 979,082
Depreciation and amortization 101,224 111,393
- --------------------------------------------------------------------------------
Total operating expenses 5,241,573 10,809,290
- --------------------------------------------------------------------------------
Operating income 467,297 109,726
- --------------------------------------------------------------------------------
Other income (expense)
Interest income 5,596 3,832
Rent and other income 83,742 92,269
Interest expense (67,300) (220,696)
Miscellaneous (784) 7,213
- --------------------------------------------------------------------------------
Total other income (expense) 21,254 (117,382)
- --------------------------------------------------------------------------------
Income (loss) before provision for
income taxes (benefit) 488,551 (7,656)
Provision for income taxes (benefit) (Note 7) 209,601 (270,000)
- --------------------------------------------------------------------------------
Net income $ 278,950 $ 262,344
================================================================================
</TABLE>
See accompanying summary of accounting policies and notes to financial
statements.
5
<PAGE>
SMILEAGE DENTAL SERVICES, INC.
STATEMENTS OF CASH FLOWS
================================================================================
Year ended December 31, 1995 1994
Cash flows from operating activities
Net income $ 278,950 $ 262,344
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 101,224 111,393
Provision for doubtful accounts 36,000 34,000
Loss on sale of fixed assets 50 648
Non-cash bad debt - 935,447
Changes in assets and liabilities:
Decrease (increase) in:
Accounts receivable (237) 28,798
Related party receivables 32,562 (411,317)
Prepaids, deposits and miscellaneous 287,082 (314,341)
Increase (decrease) in:
Checks drawn against future deposits (57,713) 57,713
Accounts payable (174,524) (553,226)
Accrued expenses 20,620 108,318
Income taxes, accrued and deferred 108,754 45,046
Related party payables 207,482 (82,881)
- ----------------------------------------------------------------------------
Net cash provided by operating activities 840,250 221,942
- ----------------------------------------------------------------------------
Cash flows from investing activities
Purchase of property and equipment (18,633) (7,967)
- ----------------------------------------------------------------------------
Net cash used in investing activities (18,633) (7,967)
- ----------------------------------------------------------------------------
7
<PAGE>
SMILEAGE DENTAL SERVICES, INC.
STATEMENTS OF CASH FLOWS
================================================================================
<TABLE>
<CAPTION>
Year ended December 31, 1995 1994
- ---------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of notes payable, net $ (199,544) $(400,000)
Repayment of debt and capitalized lease
obligations (151,760) (526,959)
Borrowings under long-term debt - 389,364
- ---------------------------------------------------------------------------
Net cash used in financing activities (351,304) (537,595)
- ---------------------------------------------------------------------------
Net increase (decrease) in cash 470,313 (323,620)
CASH, at beginning of year 2,959 326,579
- ---------------------------------------------------------------------------
CASH, at end of year $ 473,272 $ 2,959
===========================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during year for:
Interest $ 17,476 $ 163,547
Taxes 100,000 -
===========================================================================
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES
Investment in subsidiary generated through
related party receivables forgiveness $ - $ 930,000
Facilities transferred from a related party - 66,529
Noncash dividend 931,000 -
Long-term debt and lease obligations
assumed by a related party 1,243,281 -
Equipment and facilities transferred to a
related party 352,161 -
Notes receivable transferred from a
related party 1,837 -
===========================================================================
</TABLE>
See accompanying summary of accounting policies and notes to financial
statements.
8
<PAGE>
Smileage Dental Services, Inc.
Summary of Accounting Policies
================================================================================
Basis of Presentation
The financial statements are prepared on the accrual basis in accordance with
generally accepted accounting principles.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period.
Actual results could differ from those estimates.
Fair Value of Financial Instruments
The carrying amount reported in the balance sheet for financial instruments
approximates their fair values. For notes payable, fair value was determined
based on the borrowing rates currently available to the Company for bank loans
with similar terms and average maturities.
Property and Equipment
Property and Equipment is stated at cost. Depreciation is computed over the
estimated useful lives of the related assets principally by the straight-line
method for buildings and by the straight-line and accelerated methods for other
property and equipment.
Income Taxes
The Company changed its method of accounting for income taxes effective January
1, 1993, to conform with Statement of Financial Accounting Standards ("SFAS"
No. 109, "Accounting for Income Taxes." Deferred income taxes are provided for
temporary differences between amounts reported for financial statement and
income tax purposes.
9
<PAGE>
SMILEAGE DENTAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
================================================================================
1. NATURE OF OPERATIONS
The Company manages and services the insurance contracts of a related company in
the State of Wisconsin. The Company also provides management services to a
related insurance company in Georgia and a related dental practice in Wisconsin.
2. BUSINESS AND CREDIT CONCENTRATIONS
The Company's customers are concentrated in two specific geographical regions;
Wisconsin and Georgia. The Company establishes an allowance for doubtful
accounts based upon factors surrounding the credit risk of specific customers,
historical trends and other information. The Company routinely assesses the
financial strength of its customers and, as a consequence, believes that its
trade accounts receivable credit risk exposure is limited.
The Company believes it places its cash and temporary cash investments with high
credit quality institutions. At December 31, 1995, approximately $696,500 of
cash and temporary cash investments were in excess of FDIC insurance limits.
3. RELATED PARTY TRANSACTIONS
The Company provides management services in connection with obtaining and
servicing a related company's insurance contracts and receives monthly
capitation fees for servicing the patients covered under the contract. Revenues
earned in connection with these service arrangements have been included in the
statements of income as follows:
<TABLE>
<CAPTION>
Year ended December 31, 1995 1994
-----------------------------------------------------------
<S> <C> <C>
Capitation revenue $ -- $5,541,165
Practice management fee 1,543,367 1,401,701
===========================================================
</TABLE>
Prior to 1995, all the revenue of a related company (SDI) was passed through to
the Company and recorded as revenue and, upon disbursement to the provider
network, recorded as provider payments. Starting in 1995, SDI paid the Company
management fees and the portion of capitation fees related to the patients
serviced by the Company. This change in SDI cash management resulted in a
decrease in revenue and provider payments of $5,937,668.
10
<PAGE>
SMILEAGE DENTAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
================================================================================
3. RELATED PARTY TRANSACTIONS (CONTINUED)
The Company also provides management services to two other related companies.
Revenues earned in connection with the management services total $741,883 and
$706,774 at December 31, 1995 and 1994, respectively.
Cash advances between the Company and related companies are to be repaid at
varying times and at no stated interest rate. The amount due from the related
companies net of the allowance is $218,735 and $287,297 at December 31, 1995 and
1994, respectively. The amounts due to related companies is $1,100,439 at
December 31, 1995.
Long-term debt includes demand notes that bear interest at prime plus 1% on
funds advanced by the shareholders. The amount due, of which $134,205 and
$244,377 is included in current maturities, is $284,205 and $354,377 at December
31, 1995 and 1994, respectively.
4. NOTES PAYABLE AND LONG-TERM DEBT
Notes payable consist of the following:
<TABLE>
<CAPTION>
December 31, 1995 1994
---------------------------------------------------------
<S> <C> <C>
Borrowings under a $200,000
revolving credit note repaid
during 1995 $ -- $200,000
Borrowings under a $200,000
revolving credit note with
interest at the bank's prime
rate plus 1% (prime currently
8.5%); and collateralized by
all Company assets. 456 --
---------------------------------------------------------
$456 $200,000
=========================================================
</TABLE>
11
<PAGE>
SMILEAGE DENTAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
================================================================================
4. NOTES PAYABLE AND LONG-TERM DEBT (CONTINUED)
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31, 1995 1994
-----------------------------------------------------------
<S> <C> <C>
Notes payable, assumed by a
related company during 1995. $ -- $ 425,307
Mortgages payable,
assumed by a related
company during 1995. -- 571,247
Notes payable, shareholders,
prime plus 1% (prime currently
8.5%), payable on demand. 284,205 354,377
Note payable, with interest
imputed at 8%, collateralized
by treasury stock, payable in
semi-annual installments of
$48,658 until May of 1997. 135,031 216,619
-----------------------------------------------------------
419,236 1,567,550
Less current maturities 222,449 603,650
-----------------------------------------------------------
$196,787 $ 963,900
===========================================================
</TABLE>
Borrowing under the $200,000 revolving credit note are subject to covenants and
restrictions, the most significant of which prohibits payment of cash dividends,
restricts sales or transfer of stock, limits expenditures for fixed assets and
requires maintenance of certain financial ratios and minimum levels of
stockholders' equity.
Notes payable, shareholders of $150,000 have been classified as long-term debt
in the accompanying financial statements. The Company has the intent and ability
to extend the terms on this amount beyond one year.
The aggregate maturities of long-term debt maturing in each of the next two
years are as follows: 1996 - $222,449; 1997 - $196,787.
12
<PAGE>
SMILEAGE DENTAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
================================================================================
5. COMMON STOCK
Smileage Dental Services, Inc. has authorized 2,801,400 shares of common stock
at $.01 par value and issued 86,100 shares, of which 68,700 are outstanding.
There is 2,801,400 shares of $.01 par value preferred stock authorized for
issuance, of which none are outstanding. The preferences, limitations and
relative rights of the preferred stock will be determined by the Company's Board
of Directors prior to issuance of such class or series.
6. EMPLOYEE BENEFIT PLAN
The Company has a qualified contributory cash and deferred profit sharing plan
for eligible employees. The Company's contribution to the plan for each employee
is an amount equal to 50% of each participant's contribution up to a maximum of
$500 per employee for the plan year. Contributions to the plan in 1995 and 1994
were $38,201 and $51,300, respectively.
7. PROVISION FOR INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
Year ended December 31, 1995 1994
------------------------------------------------
<S> <C> <C>
Current
Federal $139,432 $ 51,000
State 39,915 --
------------------------------------------------
179,347 51,000
------------------------------------------------
Deferred
Federal 30,254 (321,000)
State -- --
------------------------------------------------
30,254 (321,000)
------------------------------------------------
$209,601 $(270,000)
================================================
</TABLE>
13
<PAGE>
SMILEAGE DENTAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
================================================================================
7. TAXES ON INCOME (CONTINUED)
A reconciliation of federal and state deferred income taxes consists of the
following:
<TABLE>
<CAPTION>
December 31, 1995 1994
--------------------------------------------------------
<S> <C> <C>
Total deferred taxes assets $42,685 $121,880
Valuation allowance
for deferred tax assets -- 46,431
--------------------------------------------------------
Total net deferred tax assets 42,685 75,449
Deferred tax liabilities 8,685 11,195
--------------------------------------------------------
Net deferred tax asset $34,000 $ 64,254
========================================================
</TABLE>
Deferred taxes result primarily from differences in depreciation recorded for
tax purposes and financial reporting purposes and reserves recorded for book
purposes.
8. COMMITMENTS AND CONTINGENCIES
The Company leases its facilities and equipment through 1998. The facility lease
requires the Company to pay real estate taxes and common area charges in
addition to the base rent. Rent expense was approximately $134,000 and $135,000
in 1995 and 1994, respectively.
The following is a schedule by years of the future minimum rental payments
required under operating leases.
<TABLE>
<CAPTION>
Years ending December 31, Facilities Equipment
-------------------------------------------------------
<S> <C> <C>
1996 $38,948 $19,731
1997 -- 9,915
1998 -- 6,201
-------------------------------------------------------
$38,948 $35,847
=======================================================
</TABLE>
14
<PAGE>
SMILEAGE DENTAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
================================================================================
8. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Litigation
- ----------
The Company is involved in litigation on a number of matters and is subject to
certain claims which arise in the normal course of business, none of which, in
the opinion of the Company's management, is expected to have a materially
adverse effect on the Company's financial position or results of operations.
9. STOCK RESTRICTION AGREEMENT
The shareholders are subject to a Stock Restriction Agreement which restricts
the lifetime transfer of shares owned by a shareholder, the transfer of shares
upon discharge or permanent disability and the transfer of shares upon the death
of a shareholder, except in accordance with the terms of the Agreement.
10. STOCK OPTIONS
On May 11, 1992, the Company issued to an executive the option to purchase up to
1% of the outstanding common stock of the Company, at the completion of each of
his first three years of employment at year end 1992 book value ($1.00 per
share).
11. RECAPITALIZATION
During 1995, Smileage Dental Services, Inc. divested its holdings in its
remaining subsidiaries in the following manner. Effective May 31, 1995, Georgia
Dental Plan declared a 68.7 to 1 stock split and Smileage Dental Services, Inc.
passed the 68,700 shares held in Georgia Dental Plan, Inc. to its shareholders
prorata. Effective December 31, 1995, Smileage Dental Care, Inc. declared a
34.35 to 1 stock split and Smileage Dental Services, Inc. passed the 34,350
shares held in Smileage Dental Care, Inc. to its shareholders prorata. In
addition, Smileage Dental Services, Inc. retired 1,600 shares held in treasury.
12. MAJOR CUSTOMERS
One of the Company's clients accounted for approximately 46% and 20% of revenues
in 1995 and 1994, respectively. Revenues from a related party accounted for
approximately 27% and 64% of total revenues in 1995 and 1994, respectively.
15
<PAGE>
Smileage Dental Services, Inc.
Notes to Financial Statements
================================================================================
13. Contingencies
Smileage Dental Services, Inc. has entered into debt and lease agreements
on behalf of other related entities. At December 31, 1995 they are jointly
and severally liable on an additional $859,589 of long-term debt and
$4,360,189 under future minimum lease commitments.
16
<PAGE>
Exhibit 99.5
Pro Forma Condensed Consolidated Financial Statements of First Commonwealth,
Inc. as of, and for the six months ended June 30, 1996, and as of, and for the
year ended December 31, 1995.
<PAGE>
First Commonwealth, Inc.
Unaudited Pro Forma Condensed Consolidated Financial Statements
Introduction
June 30, 1996
The accompanying unaudited pro forma condensed consolidated financial statements
reflect the consolidated financial position of First Commonwealth, Inc. (the
Company) as of June 30, 1996, and the results of its consolidated operations for
the six months then ended after giving pro forma effect to (i) the purchase of
Smileage Dental Services, Inc. (Smileage Dental Services) which was completed on
July 18, 1996. The unaudited pro forma condensed consolidated financial
statements should be read in conjunction with the respective historical
financial statements of the Company and Smileage Dental Services, and the
related notes hereto. The unaudited pro forma information does not purport to
be indicative of actual results that would have been achieved had the offering
and acquisition actually been completed as of the dates indicated on the
following pages nor which may be achieved in the future.
<PAGE>
FIRST COMMONWEALTH, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
For the six months ended June 30, 1996
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
COMPANY
SMILEAGE PRO FORMA
DENTAL PRO FORMA CONSOLIDATED
COMPANY (a) SERVICES (a) ADJUSTMENTS AS ADJUSTED
---------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Subscriber Revenue $ 10,019 $ 1,289 $ (479)(c) $ 10,829
Benefit Coverage Expenses 6,220 0 0 6,220
---------- ----------- -------- ----------
Gross Margin 3,799 1,289 (479) 4,609
Selling, General and
Administrative Expense 2,517 1,199 (699)(d) 3,017
Depreciation and Amortization 276 31 63 (e) 370
---------- ----------- -------- ----------
Operating Income 1,006 59 157 1,222
Interest Income, net 160 828 (828)(f) 160
---------- ----------- -------- ----------
Income Before Income Taxes 1,166 887 (671) 1,382
Provision For Income Taxes 468 0 112 (g) 580
---------- ----------- -------- ----------
Net Income $ 698 $ 887 $ (783) $ 802
========== =========== ======== ==========
Weighted Average Common and Common
Equivalent Shares Outstanding (b) 3,500,668 231,399 (h) 3,732,067
========== ======== ==========
Earnings Per Common and Common $ 0.20 $ 0.21
Equivalent Share ========== ==========
</TABLE>
See notes to the unaudited pro forma condensed consolidated
financial statements.
<PAGE>
FIRST COMMONWEALTH, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
June 30, 1996
(in thousands)
<TABLE>
<CAPTION>
Company
Smileage Pro Forma
Dental Pro Forma Consolidated
Company (i) Services (i) Adjustments (j) As Adjusted
----------- ------------ --------------- ------------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents $ 9,272 $ 0 $ 69 $ 9,341
Investments - Short Term 4,121 0 0 4,121
Accounts Receivable, Net 1,714 20 (20) 1,714
Related Party Receivable 0 54 (54) 0
Other Receivables 117 0 0 117
Deposit Under Reinsurance Agreement 485 0 0 485
Prepaid Expenses 1,314 2 (2) 1,314
Deferred Tax Asset 404 50 (50) 404
Income Taxes Receivable 622 0 0 622
------- ---- ------ -------
TOTAL CURRENT ASSETS 18,049 126 (57) 18,118
------- ---- ------ -------
Property & Equipment 2,770 138 0 2,908
Less: Accumulated Depreciation (1,328) (119) 0 (1,447)
------- ---- ------ -------
Property & Equipment, Net 1,442 19 0 1,461
------- ---- ------ -------
OTHER ASSETS
Restricted Cash 1,077 0 0 1,077
Excess of purchase price over net assets acquired 0 0 5,530 5,530
Deposits & Other 92 0 0 92
------- ---- ------ -------
TOTAL OTHER ASSETS 1,169 0 5,530 6,699
------- ---- ------ -------
TOTAL ASSETS $20,660 $145 $5,473 $26,278
======= ==== ====== =======
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable-Trade $ 149 $ 8 $ 13 $ 170
Accounts Payable-Dental Service Providers 407 0 0 407
Claims Liability 1,395 0 0 1,395
Related Party Payable 0 0 0 0
Accrued Payroll and Related Costs 643 60 (40) 663
Other Accrued Expenses 600 39 (27) 612
Current Portion of Capital Lease Obligations 0 0 0 0
Current Portion of Long-Term Debt 0 0 0 0
Deferred Subscriber Revenue 3,841 0 0 3,841
Payable Under Reinsurance Agreement 437 0 0 437
Accrued Preferred Dividends 0 0 0 0
Income Taxes Payable 0 38 (3) 35
------- ---- ------ -------
TOTAL CURRENT LIABILITIES 7,472 145 (57) 7,560
------- ---- ------ -------
Capital Lease Less Current 0 0 0 0
Long-Term Debt Less Current 0 0 0 0
Deferred Tax Liability - Long-term 125 0 0 125
------- ---- ------ -------
TOTAL LONG-TERM LIABILITIES 125 0 0 125
------- ---- ------ -------
TOTAL LIABILITIES 7,597 145 (57) 7,685
------- ---- ------ -------
REDEEMABLE PREFERRED STOCK 0 0 0 0
------- ---- ------ -------
STOCKHOLDERS' EQUITY
Common Stock 3 1 1 5
Capital In Excess of Par 7,678 241 5,287 13,206
Retained Earnings 5,392 334 (334) 5,392
Treasury Stock (10) (576) 576 (10)
------- ---- ------ -------
TOTAL STOCKHOLDERS' EQUITY 13,063 0 5,530 18,593
------- ---- ------ -------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $20,660 $145 $5,473 $26,278
======= ==== ====== =======
</TABLE>
See notes to the unaudited pro forma condensed consolidated financial
statements.
<PAGE>
FIRST COMMONWEALTH, INC.
NOTES TO THE UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
(in thousands)
The unaudited pro forma condensed consolidated statement of operations for the
six months ended June 30, 1996 gives effect to the consolidated results of
operations for the six months ended June 30, 1996, as if the acquisition of
Smileage Dental Services, Inc. occurred at January 1, 1996. These results are
not necessarily indicative of the consolidated results of the Company as they
may be in the future, or as they might have been had these events been effective
at January 1, 1996. The unaudited pro forma condensed consolidated balance
sheet gives effect to the financial position at June 30, 1996, as if the
acquisition of Smileage Dental Services, Inc. occurred at June 30, 1996. Such
consolidated financial position is not necessarily indicative of the
consolidated financial position of the Company as it may be in the future, or as
it might have been had these events been effective at June 30, 1996. The
unaudited pro forma condensed consolidated financial information should be read
in conjunction with the historical financial statements of the Company and
Smileage Dental Services, Inc. and the related notes thereto.
PRO FORMA ADJUSTMENTS FOR THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1996 ARE AS FOLLOWS:
(a) Represents the historical condensed consolidated results of the
Company and Smileage Dental Services, Inc. on a consolidated and stand
alone basis, respectively, for the six months ended June 30, 1996.
(b) Weighted average number of common shares outstanding is calculated
based upon the relevant weighted average shares outstanding and
options outstanding utilizing the treasury stock method for each
calculation presented.
(c) Reflects the reduction in revenue for contracts not acquired as of the
date of acquisition.
(d) Reflects the elimination of selling, general and administrative
expenses for employees who will not be retained as well as associated
office expenses that will be eliminated.
(e) Represents the net increase to amortization ($69) for the cost over
the fair value of the net assets acquired over a period of forty
years and the net decrease to depreciation ($6) for assets that were
sold prior to the acquisition.
(f) Reflects the elimination of transactions that are of a non-recurring
basis.
(g) Reflects applicable income tax effects of adjustments.
(h) Reflects the number of common shares and common share equivalents
issued (231,399) as a result of the acquisition.
PRO FORMA ADJUSTMENTS FOR THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE
SHEET AT JUNE 30, 1996 ARE AS FOLLOWS:
(i) Reflects historical financial position of the Company and Smileage
Dental Services, Inc. at June 30, 1996.
(j) Reflects assumed adjustment based upon the purchase price for the
Smileage Dental Services, Inc. acquisition, including the elimination
of assets and liabilities not in place as of the date of the
acquisition, the allocation of the purchase price over the fair values
of the net assets acquired and the elimination of Smileage Dental
Services, Inc. stockholders' equity.
<PAGE>
FIRST COMMONWEALTH, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
INTRODUCTION
December 31, 1995
The accompanying unaudited pro forma condensed consolidated financial statements
reflect the consolidated financial position of First Commonwealth, Inc. (the
Company) as of December 31, 1995, and the results of its consolidated operations
for the year then ended after giving pro forma effect to (i) the initial public
offering of common stock that was completed November 17, 1995 and (ii) the
purchase of Smileage Dental Services, Inc. (Smileage Dental Services) which was
completed on July 18, 1996. The unaudited pro forma condensed consolidated
financial statements should be read in conjunction with the respective
historical financial statements of the Company and Smileage Dental Services, and
the related notes thereto. The unaudited pro forma information does not purport
to be indicative of actual results that would have been achieved had the
offering and acquisition actually been completed as of the dates indicated on
the following pages nor which may be achieved in the future.
<PAGE>
FIRST COMMONWEALTH, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
For the year ended December 31, 1995
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
Initial Company
Public Smileage Pro Forma
Offering Dental Pro Forma Consolidated
Company (a) Adjustments Pro Forma Services (a) Adjustments As Adjusted
----------- ----------- --------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Subscriber Revenue $33,315 $ 0 $33,315 $5,709 $(4,166)(f) $34,858
Benefit Coverage Expenses 20,286 0 20,286 2,615 (2,615)(g) 20,286
--------- ------- --------- ------ ------- ---------
Gross Margin 13,029 0 13,029 3,094 (1,551) 14,572
Selling, General and
Administrative Expense 9,471 0 9,471 2,601 (1,601)(h) 10,471
Depreciation and Amortization 412 0 412 25 126 (i) 563
--------- ------- --------- ------ ------- ---------
Operating Income 3,146 0 3,146 468 (76) 3,538
Interest Income, net 194 303(b) 497 21 (21) 497
--------- ------- --------- ------ ------- ---------
Income Before Income Taxes 3,340 303 3,643 489 (97) 4,035
Provision For Income Taxes 1,336 121(c) 1,457 210 2 (c) 1,669
--------- ------- --------- ------ ------- ---------
Net Income $ 2,004 $182 $ 2,186 $ 279 $ (99) $ 2,366
========= ======= ========= ====== ======= =========
Weighted Average Common and Common
Equivalent Shares Outstanding (d) 2,993,319 465,222(e) 3,458,541 231,399 (j) 3,689,940
========= ======= ========= ======= =========
Earnings Per Common and Common
Equivalent Share $0.67 $0.63 $0.64
========= ========= =========
See notes to the unaudited pro forma condensed consolidated financial statements.
</TABLE>
<PAGE>
FIRST COMMONWEALTH, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
December 31, 1995
(in thousands)
<TABLE>
<CAPTION>
Company
Smileage Pro Forma
Dental Pro Forma Consolidated
ASSETS Company (k) Services (k) Adjustments (l) As Adjusted
----------- ------------ --------------- ------------
<S> <C> <C> <C> <C>
CURRENT ASSETS
Cash and Cash Equivalents $12,680 $ 473 $ (404) $12,749
Investments - Short Term 0 0 0 0
Accounts Receivable, Net 1,751 17 (17) 1,751
Related Party Receivable 0 219 (219) 0
Other Receivables 52 2 (2) 52
Deposit Under Reinsurance Agreement 432 0 0 432
Prepaid Expenses 1,290 32 (32) 1,290
Deferred Tax Asset 665 34 (34) 665
Income Taxes Receivable 19 0 0 19
------- ------ ------- -------
TOTAL CURRENT ASSETS 16,889 777 (708) 16,958
------- ------ ------- -------
Property & Equipment 2,465 1,062 (924) 2,603
Less: Accumulated Depreciation (1,086) (716) 597 (1,205)
------- ------ ------- -------
Property & Equipment, Net 1,379 346 (327) 1,398
------- ------ ------- -------
OTHER ASSETS
Restricted Cash 799 0 0 799
Excess of purchase price over net assets acquired 0 0 5,530 5,530
Deposits & Other 44 6 (6) 44
------- ------ ------- -------
TOTAL OTHER ASSETS 843 6 5,524 6,373
------- ------ ------- -------
TOTAL ASSETS $19,111 $1,129 $ 4,489 $24,729
======= ====== ======= =======
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable--Trade $ 365 $ 64 $ (43) $ 386
Accounts Payable--Dental Service Providers 399 0 0 399
Claims Liability 1,258 0 0 1,258
Related Party Payable 0 1,100 (1,100) 0
Accrued Payroll and Related Costs 846 147 (127) 866
Other Accrued Expenses 720 156 (144) 732
Current Portion of Capital Lease Obligations 27 0 0 27
Current Portion of Long-Term Debt 0 223 (223) 0
Deferred Subscriber Revenue 3,263 0 0 3,263
Payable Under Reinsurance Agreement 389 0 0 389
Accrued Preferred Dividends 13 0 0 13
Income Taxes Payable 0 129 (94) 35
------- ------ ------- -------
TOTAL CURRENT LIABILITIES 7,280 1,819 (1,731) 7,368
------- ------ ------- -------
Capital Lease Less Current 0 0 0 0
Long-Term Debt Less Current 0 197 (197) 0
Deferred Tax Liability - Long-term 125 0 0 125
------- ------ ------- -------
TOTAL LONG-TERM LIABILITIES 125 197 (197) 125
------- ------ ------- -------
------- ------ ------- -------
TOTAL LIABILITIES 7,405 2,016 (1,928) 7,493
------- ------ ------- -------
REDEEMABLE PREFERRED STOCK 0 0 0 0
------- ------ ------- -------
STOCKHOLDERS' EQUITY
Common Stock 3 1 1 5
Capital In Excess of Par 7,677 241 5,287 13,205
Retained Earnings 4,026 (553) 553 4,026
Treasury Stock 0 (576) 576 0
------- ------ ------- -------
TOTAL STOCKHOLDERS' EQUITY 11,706 (887) 6,417 17,236
------- ------ ------- -------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $19,111 $1,129 $ 4,489 $24,729
======= ====== ======= =======
See notes to the unaudited pro forma condensed consolidated financial statements.
</TABLE>
<PAGE>
FIRST COMMONWEALTH, INC.
NOTES TO THE UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995
(in thousands)
The unaudited pro forma condensed consolidated statement of operations of the
year ended December 31, 1995 gives effect to the consolidated results of
operations for the year ended December 31, 1995, as if the acquisition of
Smileage Dental Services, Inc. and the offering occurred at January 1, 1995.
These results are not necessarily indicative of the consolidated results of the
Company as they may be in the future, or as they might have been had these
events been effective at January 1, 1995. The unaudited pro forma condensed
consolidated balance sheet gives effect to the financial position at December
31, 1995, as if the acquisition of Smileage Dental Services, Inc. occurred at
December 31, 1995. Such consolidated financial position is not necessarily
indicative of the consolidated financial position of the Company as it may be in
the future, or as it might have been had these events been effective at December
31, 1995. The unaudited pro forma condensed consolidated financial information
should be read in conjunction with the historical financial statements of the
Company and Smileage Dental Services, Inc. and the related notes thereto.
PRO FORMA ADJUSTMENTS FOR THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1995 ARE AS FOLLOWS:
(a) Represents the historical condensed consolidated results of the
Company and Smileage Dental Services, Inc. on a consolidated and stand
alone basis, respectively, for the year ended December 31, 1995.
(b) Reflects the increase in interest income ($303) as if the proceeds
from the initial public offering of approximately $6.6 million were
invested for the full year at 5.0%.
(c) Reflects applicable income tax effects of adjustments.
(d) Weighted average number of common shares outstanding is calculated
based upon the relevant weighted average shares outstanding and
options outstanding utilizing the treasury stock method for each
calculation presented.
(e) Reflects the incremental number of shares to be used (465,222) in the
calculation as if the additional new shares of 530,000 had been
outstanding for the full year.
(f) Reflects the reduction in revenue for contracts not acquired as of the
date of acquisition.
(g) Reflects the reduction in benefit coverage expenses for contracts not
acquired as of the date of acquisition.
(h) Reflects the elimination of selling, general and administrative
expenses for employees who will not be retained as well as associated
office expenses that will be eliminated.
(i) Represents the net increase to amortization ($138) for the cost over
the fair value of the net assets acquired over a period of forty years
and the net decrease to depreciation ($12) for assets that were sold
prior to the acquisition.
(j) Reflects the number of common shares and common share equivalents
issued (231,399) as a result of the acquisition.
PRO FORMA ADJUSTMENTS FOR THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE
SHEET AT DECEMBER 31, 1995 ARE AS FOLLOWS:
(k) Reflects historical financial position of the Company and Smileage
Dental Services, Inc. at December 31, 1995.
(l) Reflects assumed adjustment based upon the purchase price for the
Smileage Dental Services, Inc. acquisition, including the elimination
of assets and liabilities not in place as of the date of the
acquisition, the allocation of the purchase price over the fair values
of the net assets acquired and the elimination of Smileage Dental
Services, Inc. stockholders' equity.
