<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 event reported): DECEMBER 31, 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
organization) File Number) Identification No.)
444 NORTH WELLS STREET, SUITE 600, CHICAGO, IL 60610
----------------------------------------------------
(Address of principal executives 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>
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: March 14, 1997 FIRST COMMONWEALTH, INC.
(Registrant)
By: /s/ Christopher C. Multhauf
---------------------------
Christopher C. Multhauf
Chairman and Chief Executive Officer
<PAGE>
Item 2. Acquisition or Disposition of Assets.
On December 31, 1996, First Commonwealth, Inc., a Delaware corporation
(the "Registrant"), acquired (the "Acquisition") all of the issued and
outstanding capital stock (the "Champion Shares") of Champion Dental Services,
Inc., a Missouri corporation ("Champion"), pursuant to a Stock Purchase
Agreement, dated as of October 2, 1996 (the "Purchase Agreement"), among the
Registrant, Champion, Group Health Plan, Inc., a Missouri corporation
("Stockholder") and Coventry Corporation, a Delaware corporation ("Parent").
Champion had been engaged in the dental care management business and will
continue to conduct such business under ownership of the Registrant.
The Acquisition was completed through a taxable acquisition of stock for
cash. The purchase price for the Champion Shares was $5,500,000. Such
consideration was arrived at through arm's length negotiations between the
Stockholder and the Registrant. The source of such funds was cash on hand of the
Registrant.
There are no material relationships between the Registrant or any of the
Registrant's affiliates, any director or officer of Registrant, or any associate
of any such director or officer, on the one hand, and Champion, Stockholder and
Parent, on the other hand.
Additional information concerning the Acquisition is also contained in
the Purchase Agreement, is hereby incorporated by reference to Exhibit 10.1 to
the Registrant's Quarterly Report on Form 10-Q for the quarter ended September
30, 1996.
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 99.2 hereto:
Financial Statements of Champion 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 Operations for the years ended December 31, 1995 and 1994
Statements of Changes in Stockholder's Equity for the years ended
December 31, 1995 and 1994
Statements of Cash Flows for the years ended December 31, 1995 and 1994
Notes to Financial Statements
<PAGE>
(b) Pro Forma Financial Information. The following pro forma financial
statements of the registrant are filed as Exhibit 99.3 hereto:
Unaudited Pro Forma Condensed Consolidated Financial Statements of First
------------------------------------------------------------------------
Commonwealth, Inc. as of and for the nine months ended September 30,
--------------------------------------------------------------------
1996
----
Introduction to the Unaudited Pro Forma Condensed Consolidated Financial
Statements
Unaudited Pro Forma Condensed Consolidated Statement of Income for the
nine months ended September 30, 1996
Unaudited Pro Forma Consolidated Balance Sheet as of September 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
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
99.1 Press Release of Registrant, dated January 2, 1997 (previously
filed on Form 8-K on January 14, 1997)
99.2 Financial Statements of Champion Dental Services, Inc. and as of,
and for the years ended December 31, 1995 and 1994
99.3 Pro Forma Condensed Consolidated Financial Statements of First
Commonwealth, Inc. as of, and for the nine months ended September
30, 1996, and as of, and for the year ended December 31, 1995
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
23.1 Consent of Accountants
99.2 Financial Statements of Champion Dental Services, Inc. as of, and
for the years ended December 31, 1995 and 1994
99.3 Pro Forma Condensed Consolidated Financial Statements of First
Commonwealth, Inc. as of, and for the nine months ended September
30, 1996, and as of, and for the year ended December 31, 1995
<PAGE>
EXHIBIT 23.1
CONSENT OF ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation by reference of our report dated February 6, 1996 except with
respect to the sale of Champion Dental Services, Inc. discussed Note 6, as to
which the date is February 10, 1997 on the balance sheets of Champion Dental
Services, Inc. as of December 31, 1995 and 1994 and the related statements of
operations, shareholders' equity and cash flows for the years then ended, which
is included in the amendment to the Form 8-K of First Commonwealth, Inc. dated
December 31, 1996, into the previously filed Registration Statements of First
Commonwealth, Inc. on Form S-3 (Registration No. 333-1879) and on Form S-8
(Registration No. 333-00474).
/s/ Arthur Andersen, LLP
Arthur Andersen, LLP
St. Louis, Missouri
March 14, 1997
<PAGE>
EXHIBIT 99.2
Financial Statements of Champion Dental Services, Inc. as of, and for the years
ended December 31, 1995 and 1994
<PAGE>
CHAMPION DENTAL SERVICES, INC.
FINANCIAL STATEMENTS AS OF
DECEMBER 31, 1995 AND 1994
TOGETHER WITH AUDITORS' REPORT
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholder of
Champion Dental Services, Inc.:
We have audited the accompanying balance sheets of Champion Dental Services,
Inc. (a Missouri corporation and a wholly owned subsidiary of Group Health Plan,
Inc.) as of December 31, 1995 and 1994, and the related statements of
operations, shareholder's 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. Those 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 Champion Dental Services, Inc.
as of 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.
Arthur Andersen LLP
St. Louis, Missouri,
February 6, 1996 (except with respect to sale of
Champion Dental Services, Inc. discussed in
Note 6, as to which the date is February 10, 1997)
<PAGE>
CHAMPION DENTAL SERVICES, INC.
------------------------------
BALANCE SHEET AS OF DECEMBER 31, 1995 AND 1994
----------------------------------------------
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
ASSETS:
Cash and cash equivalent $ 487,725 $ 562,096
Due from affiliate 33,749 -
Fees receivable 1,843 1,180
Interest receivable 3,034 3,584
Prepaid expenses 167 136
Statuory deposits (at cost, which
approximates market) 50,120 54,651
------- -------
$ 576,638 $ 621,647
=========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY:
Liabilities-
Claims payable $ 11,700 $ 53,543
Accrued expenses 649 8,415
Due to affiliate - 82,562
------- -------
Total liabilities 12,349 144,520
------- -------
Stockholder's equity-
Common stock, $50 and $1 par value in 1995 and
1994, repectively, 30,000 shares authorized
1,000 shares issued and outstanding 50,000 1,000
Additional paid-in capital 150,000 199,000
Retained earnings 364,289 277,127
------- -------
Total stockholder's equity 564,289 477,127
------- -------
$ 576,638 $ 621,647
=========== ===========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
<PAGE>
CHAMPION DENTAL SERVICES, INC.
------------------------------
STATEMENTS OF OPERATIONS
------------------------
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
----------------------------------------------
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
OPERATING REVENUES:
Premiums earned $ 2,241,714 $ 2,306,518
--------- ---------
OPERATING EXPENSES:
Claims incurred 81,461 181,213
Administrative expenses incurred 935,528 916,334
Dental providers capitation 1,105,925 1,079,781
--------- ---------
Total operating expenses 2,122,914 2,177,328
--------- ---------
Income from operations 118,800 129,190
------- -------
OTHER INCOME:
Investment income 27,463 20,797
------- -------
Income before provision for Income taxes 146,263 149,987
PROVISION FOR INCOME TAXES 59,101 61,441
------- -------
Net Income $ 87,162 $ 88,546
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
CHAMPION DENTAL SERVICES, INC.
------------------------------
STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY
--------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
----------------------------------------------
<TABLE>
<CAPTION>
Additional
Common Paid-in Retained
Stock Capital Earnings Total
------- ---------- -------- ---------
<S> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1993 $ 1,000 $ 199,000 $ 188,581 $ 388,581
Net Income - - 88,546 88,546
----- ------- ------- -------
BALANCE, DECEMBER 31, 1994 1,000 199,000 277,127 477,127
Net Income - - 87,162 87,162
Increase in par value from $1 per share to
$50 per share 49,000 (49,000) - -
------ ------- ------- -------
BALANCE, DECEMBER 31, 1995 $ 50,000 $ 150,000 $ 364,289 $ 564,289
========= ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
CHAMPION DENTAL SERVICES, INC.
------------------------------
STATEMENTS OF CASH FLOWS
------------------------
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
----------------------------------------------
<TABLE>
<CAPTION>
1995 1994
-------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 87,162 $ 88,546
Changes in assets and liabilities-
Receivables (113) (2,768)
Prepaid expenses (31) 924
Claims payable (41,843) 50,743
Accrued expenses (7,766) 5,657
Amounts withheld for others - (17,410)
Amounts due to/from affiliate (116,311) (19,977)
-------- -------
Net cash (used in) provided by operating
activities (78,902) 105,715
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds on the sale of investments 4,531 -
Purchases of investments - (4,424)
-------- -------
Net cash provided by (used in) investing
activities 4,531 (4,424)
-------- -------
Net (decrease) increase in cash and cash
equivalents (74,371) 101,291
CASH AND CASH EQUIVALENTS, beginning of year 562,096 460,805
------- -------
CASH AND CASH EQUIVALENTS, end of year $ 487,725 $ 562,096
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
CHAMPION DENTAL SERVICES, INC.
------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
DECEMBER 31, 1995 AND 1994
--------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES:
-------------------------------------------------
Organization
- ------------
Champion Dental Services, Inc. ("Champion") was incorporated on October 18,
1988, for the purpose of owning, operating and promoting a prepaid dental plan
corporation. Champion is a wholly owned subsidiary of Group Health Plan, Inc.
("GHP"), which is wholly owned by Coventry Corporation, located in Nashville,
Tennessee. At December 31, 1995 and 1994, Champion had approximately 52,357 and
56,447 members, respectively.
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 revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Revenue Recognition
- -------------------
Premiums are recorded as revenue in the month for which subscribers are entitled
to service.
Cost Recognition
- ----------------
Champion contracts with various dental providers for the provision of certain
dental services to its members. Champion compensates these providers on a
capitation and fee-for-service basis.
Claims payable include claims reported as of the balance sheet date and
estimates of dental services provided but not reported. Estimates are
established by management, based on past experience and are reviewed by an
independent actuary. Reserves are continually monitored and reviewed and, as
settlements are made or reserves adjusted, differences for prior years are also
reflected in current operations.
Cash Equivalents
- ----------------
Champion considers highly liquid debt securities purchased with a remaining
maturity of three months or less to be cash equivalents.
Income Taxes
- ------------
Coventry Corporation files a consolidated tax return. Provisions for income
taxes were calculated based upon the estimated tax rate of Coventry Corporation,
and the resulting liability is recorded in due to affiliate.
2. STATUTORY DEPOSITS:
-------------------
Champion has been granted certificates of authority to conduct business as a
prepaid dental plan in the state of Missouri. Champion has placed required
deposits, consisting of marketable securities, with the Missouri Director of
Insurance.
<PAGE>
-2-
3. SAVINGS PLAN:
-------------
Champion participates in the GHP Savings Plan (the "Plan") wich is a program
jointly funded by GHP, Champion and covered employees. The Plan is established
in accordance with Internal Revenue Code Section 401(k) and covers substantially
all full-time employees. Employee contributions to the Plan are voluntary.
4. RELATED-PARTY TRANSACTIONS:
---------------------------
Champion pays a management fee to GHP which represents 15% of dental premiums.
Champion also participates in profit/(loss) sharing with GHP for which it
receives/(pays) 75% of the net profit/(loss) before income taxes from/(to) GHP.
These transactions resulted in payment of $772,000 and $793,000 for 1995 and
1994, respectively.
5. CHANGE IN PAR VALUE OF COMMON STOCK:
------------------------------------
On October 12, 1995, the sole shareholder of Champion approved an amendment to
the Articles of Incorporation increasing the par value of the common stock from
$1 per share to $50 per share. As a result of this increase in par value, common
stock was increased by $49,000 and additional paid-in capital was decreased by
the same amount.
6. SALE OF CHAMPION DENTAL:
------------------------
Effective December 31, 1996, GHP sold Champion to First Commonwealth, Inc. (a
Delaware Corporation) for $5.5 million in cash.
<PAGE>
EXHIBIT 99.3
Pro Forma Condensed Consolidated Financial Statements of First Commonwealth,
Inc. as of, and for the nine months ended September 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
September 30, 1996
The accompanying unaudited pro forma condensed consolidated financial statements
reflect the consolidated financial position of First Commonwealth, Inc. (the
Company) as of September 30, 1996, and the results of its consolidated
operations for the nine months then ended after giving pro forma effect to (i)
the purchase of Smileage Dental Services, Inc. ("Smileage") and (ii) associated
reinsurance arrangement, which was completed on July 18, 1996, and (iii) the
purchase of Champion Dental Services, Inc. ("Champion") which was completed on
December 31, 1996. The unaudited pro forma condensed consolidated financial
statements should be read in conjunction with the respective historical
financial statements of the Company, Smileage and Champion, 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 nine months ended September 30, 1996
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
Company
Smileage Pro Forma
Pro Forma Pro Forma Consolidated
Company (a) Adjustments Champion (a) Adjustments As Adjusted
------------ ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Subscriber Revenue $31,578 $4,199 (c) $1,870 $0 $37,647
Benefit Coverage Expenses 19,812 3,193 (c) 1,197 0 24,202
------------ ------------ ------------- ------------ ------------
Gross Margin 11,766 1,006 673 0 13,445
Selling, General and
Administrative Expense 8,380 706 (d) 633 (221)(h) 9,498
Depreciation and Amortization 456 76 (e) 0 87 (i) 619
------------ ------------ ------------- ------------ ------------
Operating Income 2,930 224 40 134 3,328
Interest Income, net 482 0 11 (206)(j) 287
------------ ------------ ------------- ------------ ------------
Income Before Income Taxes 3,412 224 51 (72) 3,615
Provision For Income Taxes 1,378 118 (f) 21 (29)(f) 1,488
------------ ------------ ------------- ------------ ------------
Net Income $2,034 $106 $30 ($43) $2,217
============ ============ ============= ============ ============
Weighted Average Common and Common
Equivalent Shares Outstanding (b) 3,564,831 165,676 (g) 3,730,507
============ ============ ============
Earnings Per Common and Common
Equivalent Share $0.57 $0.57
============ ============
</TABLE>
See notes to the unaudited pro forma condensed consolidated financial
statements.
<PAGE>
First Commonwealth, Inc.
Unaudited Pro Forma Condensed Consolidated Balance Sheet
September 30, 1996
(in thousands)
<TABLE>
<CAPTION>
Company
Champion Pro Forma
Dental Pro Forma Consolidated
Company (k) Services (k) Adjustments (l) As Adjusted
--------------- ---------------- ------------------- -----------------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents $10,820 $420 $(5,500) $5,740
Investments - Short Term 3,015 0 0 3,015
Accounts Receivable, Net 2,190 0 0 2,190
Related Party Receivable 0 134 0 134
Other Receivables 131 4 0 135
Deposit Under Reinsurance Agreement 542 0 0 542
Prepaid Expenses 1,269 0 0 1,269
Deferred Tax Asset 606 0 0 606
Income Taxes Receivable 131 0 0 131
--------------- ---------------- ------------------- -----------------
TOTAL CURRENT ASSETS 18,704 558 (5,500) 13,762
--------------- ---------------- ------------------- -----------------
Property & Equipment 3,131 0 0 3,131
Less: Accumulated Depreciation (1,579) 0 0 (1,579)
--------------- ---------------- ------------------- -----------------
Property & Equipment, Net 1,552 0 0 1,552
--------------- ---------------- ------------------- -----------------
OTHER ASSETS
Restricted Cash 1,147 50 0 1,197
Excess of purchase price over net assets acquired 5,574 0 4,961 10,535
Deposits & Other 99 0 (55) 44
--------------- ---------------- ------------------- -----------------
TOTAL OTHER ASSETS 6,820 50 4,906 11,776
--------------- ---------------- ------------------- -----------------
TOTAL ASSETS $27,076 $608 $(594) $27,090
=============== ================ =================== =================
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable-Trade $208 $2 $0 $210
Accounts Payable-Dental Service Providers 255 0 0 255
Claims Liability 1,259 12 0 1,271
Related Party Payable 0 0 0 0
Accrued Payroll and Related Costs 716 0 0 716
Other Accrued Expenses 603 0 0 603
Current Portion of Capital Lease Obligations 0 0 0 0
Current Portion of Long-Term Debt 0 0 0 0
Deferred Subscriber Revenue 4,204 0 0 4,204
Payable Under Reinsurance Agreement 480 0 0 480
Accrued Preferred Dividends 0 0 0 0
Income Taxes Payable 0 0 0 0
--------------- ---------------- ------------------- -----------------
TOTAL CURRENT LIABILITIES 7,725 14 0 7,739
--------------- ---------------- ------------------- -----------------
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 7,850 14 0 7,864
--------------- ---------------- ------------------- -----------------
REDEEMABLE PREFERRED STOCK 0 0 0 0
--------------- ---------------- ------------------- -----------------
STOCKHOLDERS' EQUITY
Common Stock 4 50 (50) 4
Capital in Excess of Par 13,172 150 (150) 13,172
Retained Earnings 6,060 394 (394) 6,060
Treasury Stock (10) 0 0 (10)
--------------- ---------------- ------------------- -----------------
TOTAL STOCKHOLDERS' EQUITY 19,226 594 (594) 19,226
--------------- ---------------- ------------------- -----------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $27,076 $608 $(594) $27,090
=============== ================ =================== =================
</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
September 30, 1996
(in thousands)
The unaudited pro forma condensed consolidated statement of operations for the
nine months ended September 30, 1996 gives effect to the consolidated results of
operations for the nine months ended September 30, 1996, as if the acquisition
of Smileage and associated reinsurance arrangement, and the acquisition of
Champion 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 at September
30, 1996, already gives effect to the acquisition of Smileage and the associated
reinsurance arrangement, and also gives effect to the acquisition of Champion as
if it had occurred at September 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.
Pro Forma adjustments for the unaudited pro forma condensed consolidated
statement of operations for the nine months ended September 30, 1996 are as
follows:
(a) Represents the historical condensed consolidated results of the
Company, and Champion, on a stand alone basis, for the nine months
ended September 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 associated reinsurance transactions for assuming the new
members.
(d) Reflects the addition of selling, general and administrative expenses
for employees who were retained as well as associated office expenses.
(e) Represents the net increase to amortization ($76) for the cost over
the fair value of the net assets acquired over a period of forty
years.
(f) Reflects applicable income tax effects of adjustments.
(g) Reflects the adjustment to the number of common shares and common
share equivalents issued as a result of the Smileage acquisition.
(h) Reflects the elimination of related-party transactions that would not
be incurred after the acquisition.
(i) Represents the net increase to amortization ($87) for the cost over
the fair value of the net assets acquired over a period of forty
years.
(j) Reflects the reduction in interest income from the use of the $5.5
million in cash for the purchase of Champion.
Pro Forma adjustments for the unaudited pro forma condensed consolidated balance
sheet at September 30, 1996 are as follows:
(k) Reflects historical condensed financial position of the Company on a
consolidated basis, and Champion, on a stand alone basis, at September
30, 1996.
(l) Reflects assumed adjustment based upon the purchase price for the
Champion acquisition, the allocation of the purchase price over the
fair values of the net assets acquired, and the elimination of
Champion's 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"), and the associated
reinsurance transaction, which was completed on July 18, 1996, and (iii) the
purchase of Champion Dental Services, Inc. ("Champion") which was completed on
December 31, 1996. The unaudited pro forma condensed consolidated financial
statements should be read in conjunction with the respective historical
financial statements of the Company, Smileage, Champion 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 twelve months ended December 31, 1995
(In thousands, except shares and per share data)
<TABLE>
<CAPTION>
Initial Company
Public Smilleage Smilleage Champion Champion ProForma
Offering Dental Pro Forma Dental Pro Forma Consolidated
Company (a) Adjustments Services (a) Adjustments Services (a) Adjustments As Adjusted
---------- ----------- ------------ ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Subscriber Revenue $33,315 $0 $5,709 $792 (f) $2,242 $0 $42,058
Benefit Coverage Expenses 20,286 0 2,615 2,343 (g) 1,187 0 26,431
---------- ----------- ------------ ---------- ------------ ----------- ------------
Gross Margin 13,029 0 3,094 (1,551) 1,055 0 15,627
Selling, General and
Administrative Expense 9,471 0 2,525 (1,601)(h) 936 (386)(k) 10,945
Depreciation and Amortization 412 0 101 126 (i) 0 125 (l) 764
---------- ----------- ------------ ---------- ------------ ----------- ------------
Operating Income 3,146 0 468 (76) 119 261 3,918
Interest income, net 194 303(b) 21 (21) 27 (275)(m) 249
---------- ----------- ------------ ---------- ------------ ----------- ------------
Income Before Income Taxes 3,340 303 489 (97) 146 (14) 4,167
Provision For Income Taxes (c) 1,336 121 210 2 59 (5) 1,723
---------- ----------- ------------ ---------- ------------ ----------- ------------
Net income $2,004 $182 $279 ($99) $87 ($9) $2,444
========== =========== ============ ========== ============ =========== ============
Weighted Average Common and
Common Equivalent Shares
Outstanding (d) 2,993,319 465,222 (e) 231,399 (j) 3,689,940
========== =========== ========== ============
Earnings Per Common and
Common Equivalent Share $0.67 $0.66
========== ============
</TABLE>
See notes to the unaudited pro forma condensed
consolidated financial statements.
<PAGE>
First Commonwealth, Inc.
Unaudited Pro Forma Condensed Consolidated Balance Sheet
December 31, 1995
(In thousands)
<TABLE>
<CAPTION>
Smileage
Dental Pro Forma
Company (n) Services (n) Adjustments (o)
-------------- --------------- ------------------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents $12,680 $473 ($404)
Investments - Short Term 0 0 0
Accounts Receivable, Net 1,751 17 (17)
Related Party Receivable 0 219 (219)
Other Receivables 52 2 (2)
Deposit Under Reinsurance Agreement 432 0 0
Prepaid Expenses 1,290 32 (32)
Deferred Tax Asset 665 34 (34)
Income Taxes Receivable 19 0 0
-------------- --------------- ------------------
TOTAL CURRENT ASSETS 16,889 777 (708)
-------------- --------------- ------------------
Property & Equipment 2,465 1,062 (924)
Less: Accumulated Depreciation (1,086) (716) 597
-------------- --------------- ------------------
Property & Equipment, Net 1,379 346 (327)
-------------- --------------- ------------------
OTHER ASSETS
Restricted Cash 799 0 0
Excess of purchase price over net assets acquired 0 0 5,530
Deposits & Other 44 6 (6)
-------------- --------------- ------------------
TOTAL OTHER ASSETS 843 6 5,524
-------------- --------------- ------------------
TOTAL ASSETS $19,111 $1,129 $4,489
============== =============== ==================
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable-Trade $365 $64 ($43)
Accounts Payable-Dental Service Providers 399 0 0
Claims Liability 1,258 0 0
Related Party Payable 0 1,100 (1,100)
Accrued Payroll and Related Costs 846 147 (127)
Other Accrued Expenses 720 156 (144)
Current Portion of Capital Lease Obligations 27 0 0
Current Portion of Long-Term Debt 0 223 (223)
Deferred Subscriber Revenue 3,283 0 0
Payable Under Reinsurance Agreement 389 0 0
Accrued Preferred Dividends 13 0 0
Income Taxes Payable 0 129 (84)
-------------- --------------- ------------------
TOTAL CURRENT LIABILITIES 7,280 1,819 (1,731)
-------------- --------------- ------------------
Capital Lease Less Current 0 0 0
Long-Term Debt Less Current 0 197 (197)
Deferred Tax Liability - Long-term 125 0 0
-------------- --------------- ------------------
TOTAL LONG-TERM LIABILITIES 125 197 (197)
-------------- --------------- ------------------
TOTAL LIABILITIES 7,405 2,016 (1,928)
-------------- --------------- ------------------
REDEEMABLE PREFERRED STOCK 0 0 0
-------------- --------------- ------------------
STOCKHOLDERS' EQUITY
Common Stock 3 1 1
Capital in Excess of Par 7,677 241 5,287
Retained Earnings 4,026 (553) 553
Treasury Stock 0 (576) 576
-------------- --------------- ------------------
TOTAL STOCKHOLDERS' EQUITY 11,706 (887) 6,417
-------------- --------------- ------------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $19,111 $1,129 $4,489
============== =============== ==================
<CAPTION>
Company
Champion Pro Forma
Dental Pro Forma Consolidated
Services (n) Adjustments (p) As Adjusted
-------------- ----------------- --------------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents $488 ($5,500) $ 7,737
Investments - Short Term 0 0 0
Accounts Receivable, Net 0 0 1,751
Related Party Receivable 33 0 33
Other Receivables 5 0 57
Deposit Under Reinsurance Agreement 0 0 432
Prepaid Expenses 0 0 1,290
Deferred Tax Asset 0 0 665
Income Taxes Receivable 0 0 19
-------------- ----------------- --------------
TOTAL CURRENT ASSETS 526 (5,500) 11,984
-------------- ----------------- --------------
Property & Equipment 0 0 2,603
Less: Accumulated Depreciation 0 0 (1,205)
-------------- ----------------- --------------
Property & Equipment, Net 0 0 1,398
-------------- ----------------- --------------
OTHER ASSETS
Restricted Cash 50 0 849
Excess of purchase price over net assets acquired 0 4,980 10,510
Deposits & Other 0 (44) 0
-------------- ----------------- --------------
TOTAL OTHER ASSETS 50 4,936 11,359
-------------- ----------------- --------------
TOTAL ASSETS $576 ($564) $24,741
============== ================= ==============
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable-Trade $0 $0 $386
Accounts Payable-Dental Service Providers 0 0 399
Claims Liability 12 0 1,270
Related Party Payable 0 0 0
Accrued Payroll and Related Costs 0 0 866
Other Accrued Expenses 0 0 732
Current Portion of Capital Lease Obligations 0 0 27
Current Portion of Long-Term Debt 0 0 0
Deferred Subscriber Revenue 0 0 3,263
Payable Under Reinsurance Agreement 0 0 389
Accrued Preferred Dividends 0 0 13
Income Taxes Payable 0 0 35
-------------- ----------------- --------------
TOTAL CURRENT LIABILITIES 12 0 7,380
-------------- ----------------- --------------
Capital Lease Less Current 0 0 0
Long-Term Debt Less Current 0 0 0
Deferred Tax Liability - Long-term 0 0 125
-------------- ----------------- --------------
TOTAL LONG-TERM LIABILITIES 0 0 125
-------------- ----------------- --------------
TOTAL LIABILITIES 12 0 7,505
-------------- ----------------- --------------
REDEEMABLE PREFERRED STOCK 0 0 0
-------------- ----------------- --------------
STOCKHOLDERS' EQUITY
Common Stock 50 (50) 5
Capital in Excess of Par 150 (150) 13,205
Retained Earnings 364 (364) 4,026
Treasury Stock 0 0 0
-------------- ----------------- --------------
TOTAL STOCKHOLDERS' EQUITY 564 (564) 17,236
-------------- ----------------- --------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $576 ($564) $24,741
============== ================= ==============
</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
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, Champion 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 and Champion 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, Smileage
and Champion 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, Smileage, and Champion 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 net increase in revenue for the associated reinsurance
transactions for assuming the new members which was partially offset
by the contracts that were not acquired as of the date of
acquisition.
(g) Reflects the net increase in benefit coverage expenses for the
associated reinsurance transactions for assuming the new members
which was partially offset by the contracts that were not acquired as
of the date of acquisition.
(h) Reflects the elimination of selling, general and administrative
expenses for employees who will not be replaced 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.
(k) Reflects the elimination of related-party transactions that would not
be incurred after the acquisition.
(l) Represents the net increase to amortization ($87) for the cost over
the fair value of the net assets acquired over a period of forty
years.
(m) Reflects the reduction in interest income from the use of the $5.5
million in cash for the purchase of Champion.
Pro Forma adjustments for the unaudited pro forma condensed consolidated balance
sheet at December 31, 1995 are as follows:
(n) Reflects historical financial position of the Company, Smileage
and Champion at December 31, 1995.
(o) Reflects assumed adjustment based upon the purchase price for the
Smileage 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 stockholders' equity.
(p) Reflects assumed adjustment based upon the purchase price for the
Champion acquisition, the allocation of the purchase price over the
fair values of the net assets acquired, and the elimination of
Champion's stockholders' equity.
