<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE
ACT OF 1934
Date of Report (Date of earliest event reported): September 15, 1997
HealthCare COMPARE Corp.
(Exact name of registrant as specified in its charter)
Delaware 0-15846 36-3307583
(State or other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
3200 Highland Avenue, Downers Grove, IL 60615
(Address of principal executive offices) (Zip Code)
(630) 241-7900
(Registrant's telephone number including area code)
Not Applicable
(Former name or former address, if changed since last report)
<PAGE> 2
Amendment No. 1
HealthCare COMPARE Corp. (the "Company") hereby amends the following items,
financial statements, exhibits or other portions of its Current Report on Form
8-K dated July 1, 1997 as follows:
Item 7. Financial statements and exhibits
Item 7(a): Financial statements of businesses acquired
FIRST HEALTH Companies ("FHC") audited combined balance sheets as of December
31, 1996 and 1995, and the related combined statements of operations,
stockholder's equity and of cash flows for each of the three years in the
period ended December 31, 1996 and related notes and report of independent
auditors.
FHC unaudited combined balance sheet as of June 30, 1997, the unaudited
combined statements of operations and of cash flows for the six month periods
ended June 30, 1997 and 1996 and the unaudited combined statement of
stockholder's equity for the six month period ended June 30, 1997.
Item 7(b): Pro forma financial information
Pro forma consolidated balance sheet of the Company as of June 30, 1997 and pro
forma consolidated statements of operations for the year ended December 31,
1996 and the six month period ended June 30, 1997.
Item 7(c): Exhibits
No. 23 Consent of independent auditors
Signatures
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HealthCare COMPARE Corp. (Registrant)
September 15, 1997 By:/s/Jospeh E. Whitters
---------------------------
Vice President, Finance and
Chief Financial Officer
(Principal Financial Officer
and Principal Accounting Officer)
<PAGE> 3
Item 7(a): Financial statements of businesses acquired
The FHC audited combined balance sheets as of December 31, 1996 and 1995 and
the related combined statements of operations, stockholder's equity and of cash
flows for each of the three years in the period ended December 31, 1996, and
the related notes and report of independent auditors, along with the FHC
unaudited combined balance sheet as of June 30, 1997, the unaudited combined
statements of operations and of cash flows for the six month periods ended June
30, 1997 and 1996 and the unaudited statement of stockholder's equity for the
six months ended June 30, 1997, are all included herein.
<PAGE> 4
Report of Independent Auditors
FIRST HEALTH Companies,
Its Board of Directors and Stockholder:
We have audited the combined balance sheets of the FIRST HEALTH Companies
(wholly-owned subsidiaries of First Data Corporation)(the "Company") as of
December 31, 1996 and 1995, and the related combined statements of operations,
stockholder's equity, and of cash flows for each of the three years in the
period ended December 31, 1996. These combined financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these combined 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 combined financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the combined 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, such combined financial statements present fairly, in
all material respects, the combined financial position of the FIRST HEALTH
Companies as of December 31, 1996 and 1995, and the results of their combined
operations and their combined cash flows for each of the three years in the
period ended December 31, 1996 in conformity with generally accepted accounting
principles.
As explained in Note 1, the FIRST HEALTH Companies are wholly-owned operating
units of First Data Corporation and the results of their combined operations
are not necessarily indicative of those which may have resulted had the
combined operations been a stand alone company.
Deloitte & Touche LLP
August 29, 1997
Chicago, Illinois
<PAGE> 5
FIRST HEALTH Companies
(wholly-owned subsidiaries of First Data Corporation)
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, 1997 DECEMBER 31,
ASSETS (UNAUDITED) 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 12,758,000 $ 6,987,000 $ 14,101,000
Accounts receivable 45,545,000 43,618,000 42,900,000
(less allowance for doubtful
accounts of $7,663,000, $5,860,000,
and $6,619,000, respectively)
Other current assets 10,380,000 11,059,000 12,638,000
---------------------------------------
Total current assets 68,683,000 61,664,000 69,639,000
Marketable debt security 5,063,000
Property and equipment:
Buildings and improvements 3,867,000 3,726,000 3,735,000
Computer equipment and software 58,414,000 59,081,000 40,306,000
Office furniture and equipment 29,746,000 29,460,000 34,077,000
---------------------------------------
92,027,000 92,267,000 78,118,000
Less accumulated depreciation and
amortization (55,984,000) (53,854,000) (46,092,000)
---------------------------------------
Total property and equipment, net 36,043,000 38,413,000 32,026,000
Goodwill 159,305,000 161,615,000 165,765,000
(net of accumulated amortization of
$25,463,000, $23,153,000, and
$19,110,000, respectively)
Software development costs 63,824,000 53,883,000 35,485,000
Other assets 10,327,000 9,395,000 8,554,000
(net of accumulated amortization of
$5,247,000, $3,999,000, and
$2,624,000, respectively)
- -------------------------------------- ---------------------------------------
TOTAL ASSETS $338,182,000 $324,970,000 $316,532,000
- -------------------------------------- ---------------------------------------
LIABILITIES AND STOCKHOLDER'S EQUITY
- --------------------------------------
Current liabilities:
Accounts payable $ 15,073,000 $ 12,733,000 $ 10,598,000
Accrued compensation 6,545,000 7,716,000 5,609,000
Accrued expenses 16,884,000 16,753,000 21,599,000
---------------------------------------
Total current liabilities 38,502,000 37,202,000 37,806,000
Amounts due to affiliates 22,827,000 14,313,000 25,850,000
Non-current liabilities:
Deferred tax liability, net 25,196,000 25,667,000 23,267,000
Other 1,350,000 852,000 781,000
- -------------------------------------- ---------------------------------------
Total liabilities 87,875,000 78,034,000 87,704,000
- -------------------------------------- ---------------------------------------
Commitments and contingencies
Stockholder's equity:
Common stock 2,000,000 2,000,000 2,000,000
Additional paid-in capital 70,713,000 70,001,000 67,623,000
Retained earnings 177,594,000 174,935,000 159,229,000
Unrealized holding loss on marketable
debt security (24,000)
- -------------------------------------- ---------------------------------------
Total stockholder's equity 250,307,000 246,936,000 228,828,000
- -------------------------------------- ---------------------------------------
- -------------------------------------- ---------------------------------------
Total liabilities and stockholder's
equity $338,182,000 $324,970,000 $316,532,000
- -------------------------------------- ---------------------------------------
</TABLE>
See Notes to Combined Financial Statements
<PAGE> 6
FIRST HEALTH Companies
(wholly-owned subsidiaries of First Data Corporation)
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, YEARS ENDED DECEMBER 31,
1997 1996 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues $ 145,639,000 $ 161,094,000 $ 311,630,000 $ 292,210,000 $ 289,185,000
Operating expenses:
Cost of services 99,128,000 102,776,000 198,942,000 182,594,000 178,674,000
Selling and marketing 17,853,000 18,689,000 43,963,000 23,778,000 21,327,000
General and administrative 11,885,000 11,723,000 23,177,000 22,534,000 23,118,000
Depreciation and amortization 7,520,000 6,745,000 15,150,000 12,553,000 11,850,000
Interest expense (income), net (652,000) 773,000 1,477,000 1,000 (22,000)
Restructuring charge 3,388,000
Write down of software development costs 18,000,000
- --------------------------------------------------------------------------------------------------------------------------
139,122,000 140,706,000 282,709,000 259,460,000 234,947,000
- --------------------------------------------------------------------------------------------------------------------------
Income before income taxes 6,517,000 20,388,000 28,921,000 32,750,000 54,238,000
Income taxes 3,858,000 9,256,000 13,215,000 14,876,000 23,527,000
- --------------------------------------------------------------------------------------------------------------------------
Net income $ 2,659,000 $ 11,132,000 $ 15,706,000 $ 17,874,000 $ 30,711,000
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Combined Financial Statements
<PAGE> 7
FIRST HEALTH Companies
(WHOLLY-OWNED SUBSIDIARIES OF FIRST DATA CORPORATION)
COMBINED STATEMENTS OF STOCKHOLDERS EQUITY
<TABLE>
<CAPTION>
Common Stock Unrealized Holding
---------------------- Additional Retained Loss on
Shares Amount Paid-in-Capital Earnings Marketable Debt Security
----------------------------------------------------------------------------------
<S> <S> <C> <C> <C> <C>
Balance, January 1, 1994 200,000 $ 2,000,000 $ 59,815,000 $ 110,644,000
Additional investment by FFMC 1,345,000
Tax benefits of FFMC stock options exercised 1,606,000
Net Income 30,711,000
- ----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1994 200,000 $ 2,000,000 62,766,000 141,355,000
Change in unrealized holding loss on $ (24,000)
marketable securities
Tax benefits of FFMC stock options exercised 4,857,000
Net Income 17,874,000
- ----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995 200,000 $ 2,000,000 67,623,000 159,229,000 (24,000)
Change in unrealized holding loss on
marketable securities $ 24,000
Tax benefits of FFMC stock options exercised 2,378,000
Net Income 15,706,000
- ----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 200,000 $ 2,000,000 70,001,000 174,935,000
Tax benefits of FDC stock options exercised
(unaudited) 712,000
Net Income (unaudited) 2,659,000
- ----------------------------------------------------------------------------------------------------------------------------------
Balance, June 30, 1997 (unaudited) 200,000 $ 2,000,000 $ 70,713,000 $ 177,594,000
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Combined Financial Statements
<PAGE> 8
FIRST HEALTH Companies
(WHOLLY-OWNED SUBSIDIARIES OF FIRST DATA CORPORATION)
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, YEARS ENDED DECEMBER 31,
1997 1996 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income $ 2,659,000 $ 11,132,000 $ 15,706,000 $ 17,874,000 $ 30,711,000
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 7,520,000 6,745,000 15,150,000 12,553,000 11,850,000
Write-down of software development costs 18,000,000
Loss on disposal of equipment 1,885,000
Tax benefits from stock options exercised 712,000 1,189,000 2,378,000 4,857,000 1,606,000
Deferred income taxes 66,000 2,334,000 4,667,000 6,736,000 7,367,000
Changes in assets and liabilities, net of
effects of merger of EBP Health Plans
and Prime Extra into FIRST HEALTH:
Accounts receivable (1,927,000) (78,000) (718,000) 13,612,000 (6,392,000)
Other current assets 142,000 (2,177,000) (688,000) 1,765,000 (1,037,000)
Other assets (2,180,000) (2,720,000) (3,394,000) (8,818,000) 4,114,000
Accounts payable and accrued expenses 1,300,000 8,518,000 (604,000) (13,066,000) 6,632,000
Amounts due to affiliates 8,514,000 (7,988,000) (11,537,000) (29,267,000) (36,858,000)
Other non-current obligations 498,000 39,000 71,000 (251,000) 222,000
- ----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 17,304,000 16,994,000 21,031,000 23,995,000 20,100,000
- ----------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Investment in software development costs (8,187,000) (7,323,000) (15,521,000) (16,893,000) (15,131,000)
Purchases of property and equipment (3,346,000) (6,311,000) (17,711,000) (11,353,000) (9,883,000)
Cash received in push down of EBP subsidiaries 5,087,000
Proceeds from sale of long term investment 5,087,000
Proceeds from the sale of property and equipment 11,656,000
- ----------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (11,533,000) (13,634,000) (28,145,000) (23,159,000) (13,358,000)
- ----------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities - 1,345,000
Additional investment by FFMC
- ----------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 5,771,000 3,360,000 (7,114,000) 836,000 8,087,000
Cash and cash equivalents at beginning of period 6,987,000 14,101,000 14,101,000 13,265,000 5,178,000
- ----------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $12,758,000 $ 17,461,000 $ 6,987,000 $ 14,101,000 $ 13,265,000
==================================================================================================================================
</TABLE>
See Notes to Combined Financial Statements.
<PAGE> 9
FIRST HEALTH COMPANIES
(WHOLLY-OWNED SUBSIDIARIES OF FIRST DATA CORPORATION)
NOTES TO COMBINED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The combined financial statements include the accounts of FIRST HEALTH
Services and its wholly owned subsidiaries First Mental Health, Inc. and
Viable Information Processing Systems, Inc. ("Services"), FIRST HEALTH
Strategies ("Strategies"), EBP Health Plans, and Prime Extra,
(collectively, "FIRST HEALTH" or the "Company"). The Company is a group
of health care administration companies which are owned by First Data
Corporation ("FDC"). FIRST HEALTH was originally formed by First
Financial Management Corporation ("FFMC") through the acquisitions of
Services in 1989, First Mental Health in 1991, Strategies in 1992 and
Employee Benefit Plans, Inc. ("EBP") in 1995, creating a fully-integrated
health care services firm, serving both private and public sector markets.
All significant intercompany balances, transactions and profits have been
eliminated.
2. NATURE OF OPERATIONS
The Company provides a full portfolio of health plan management solutions
to a broad customer base of private corporations and public agencies. The
Company's activities consist principally of claims processing, system
design and development and managed care administration in the health
services industry. The Company also provides services to other industries
in the areas of data processing facilities management and drug utilization
review.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INTERIM FINANCIAL INFORMATION: In the opinion of management, the
unaudited information presented as of June 30, 1997 and for the six month
periods ended June 30, 1997 and 1996 reflect all adjustments, which
consist of normal recurring adjustments, necessary for a fair presentation
of the interim period financial statements. Operating results for interim
periods are not necessarily indicative of the results that may be expected
for a full year.
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, disclosure of
<PAGE> 10
contingent assets and liabilities and reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
these estimates.
CASH AND CASH EQUIVALENTS: The Company is included in FDC's combined cash
management program, whereby cash generated by FDC's subsidiaries is
consolidated daily for concentration and investment. Pursuant to an
agreement between FDC and the Company, cash and cash equivalents at
December 31, 1996 and 1995 include amounts due on a demand basis from
FDC's combined cash balances.
Cash and cash equivalents are defined as all highly liquid investments
with original maturities of three months or less at date of purchase.
MARKETABLE DEBT SECURITY: The long-term investment at December 31, 1995
is a U.S. Treasury Note due in 1996, bearing interest at 4.375 percent,
with an amortized cost of $5,093,000. This investment, which is
classified as available for sale, is reported at fair value, based upon
quoted market price.
PROPERTY AND EQUIPMENT: Property and equipment are recorded at cost.
Expenditures for the maintenance and repair of property and equipment are
charged to expense as incurred. Expenditures for major replacement or
betterment are capitalized.
Depreciation is provided over the estimated useful lives of the related
assets using the straight-line method. These lives range from three years
to eight years for computer equipment and software and five years for
office furniture and equipment. Leasehold improvements are amortized over
the shorter of the lease term or estimated useful life of the asset.
Amounts charged to expense for the depreciation and amortization of
property and equipment were $8,554,000 in 1996, $5,675,000 in 1995 and
$5,764,000 in 1994. Capitalized depreciation associated with software
development is excluded from the above totals.
LONG-LIVED ASSETS: The carrying amount of all long-lived assets is
evaluated periodically to determine if adjustment to the depreciation and
amortization period or to the unamortized asset balance is warranted.
Such evaluation is based principally on the expected utilization of the
long-lived assets and the projected, undiscounted cash flows of the
operations in which the long-lived assets are deployed. During 1995, an
evaluation of the carrying amount of the capitalized software development
costs determined that an adjustment to the carrying value was warranted.
Based upon management's calculation of future cash flows, an impairment
charge of $18,000,000 was recorded to reduce the carrying amount of the
asset to its estimated net realizable value. No such write-down or
adjustment was required in 1996.
GOODWILL: FFMC acquired FIRST HEALTH Services in 1989, First Mental
Health in 1991 and FIRST HEALTH Strategies in 1992. These acquisitions
were accounted for by the purchase method of accounting. The excess of
cost over fair value of assets
<PAGE> 11
acquired and liabilities assumed, which was recorded as goodwill,
represents the excess of the cost of acquired businesses over the value
assigned to tangible and identifiable intangible assets and the
liabilities assumed. Goodwill is being amortized on a straight-line basis
over 40 years.
The Company periodically assesses the recoverability of goodwill by
comparing its carrying value to expected future operating results of the
applicable acquired business. If estimates of future operating results
were insufficient to recover future charges of goodwill amortization, then
the unamortized balance of goodwill would be reduced.
In October 1995, FFMC acquired Employee Benefit Plans, Inc. a health
claims processor and plan administrator with a life insurance subsidiary
selling insurance products. Simultaneous with the acquisition, FFMC
pushed down the EBP Health Plans and Prime Extra subsidiaries of EBP to
the Company. The push down was effected through the intercompany account
between the Company and FFMC. The push down of EBP Health Plans and Prime
Extra did not result in an increase in goodwill as no goodwill had been
allocated to the acquisition of these companies. The assets received and
liabilities assumed related to EBP Health Plans and Prime Extra are
disclosed in Note 4.
SOFTWARE DEVELOPMENT COSTS: The Company has capitalized costs incurred in
the development of a technologically advanced claims adjudication system
to be utilized as the primary platform for future claims processing
activities. Both internal and external costs directly related to this
project have been capitalized. Capitalization of development costs
related to this project began when technological feasibility was
established and will end when the software is ready for its intended use.
Amortization of these development costs will begin when the software is
placed into service. The amount of software development costs capitalized
net of any impairment charges were $18,398,000 in 1996, $345,000 in 1995
and $16,326,000 in 1994. Included in these amounts are capitalized
depreciation associated with equipment used in the development and testing
of the software of $2,877,000 in 1996, $1,452,000 in 1995 and $1,195,000
in 1994. As previously discussed, the Company wrote-off $18,000,000 of
capitalized software development costs in 1995 to reduce the carrying
amount of the asset to its estimated net realizable value.
OTHER ASSETS: Other assets consist principally of costs incurred in
developing software products for sale and costs incurred in the design and
implementation of applications systems which service new customer
contracts. Software development costs are amortized on a straight line
basis over five years. Design and implementation costs are amortized on a
straight line basis over the life of the associated contract, which
typically range from one to five years.
<PAGE> 12
AMOUNTS DUE TO AFFILIATES: The intercompany balance with affiliates,
principally FDC, represents cash transferred to FDC under its combined
cash management program, net of payments by FDC on behalf of the Company
(such as amounts related to acquisitions, employee benefits,
telecommunications, legal, etc.), see Note 8.
FAIR VALUE OF FINANCIAL INSTRUMENTS: The carrying amounts of cash and
cash equivalents, accounts receivable and accounts payable are reasonable
estimates of their fair value.
REVENUE RECOGNITION: Claims processing revenue and managed care service
revenue are recognized as earned. Revenue generated from system
programming services is recognized based on the percentage of the project
completed within the accounting period. Drug formulary rebate revenue is
recorded on an accrual basis when earned and adjusted based on subsequent
receipt of cash payments.
NEW ACCOUNTING STANDARD: In June 1997, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards ("SFAS") No. 130
"Reporting Comprehensive Income" which establishes standards for reporting
and display of comprehensive income and its components (revenues,
expenses, gains, and losses) in a full set of general purpose financial
statements.
SFAS No. 130 is effective for fiscal years beginning after December 15,
1997. Reclassification of financial statements for earlier periods
provided for comparative purposes is required. The impact of the adoption
of SFAS No. 130 has not yet been fully determined.
4. SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
Six Months Ended June 30, Years Ended December 31,
------------------------- -----------------------------
1997 1996 1996 1995 1994
---- ---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash payments for:
Interest $652,000 $ 773,000 $1,475,000 $ 95,000
Income taxes 3,085,000 6,169,000 3,178,000 $14,440,000
</TABLE>
<PAGE> 13
Cash payments for interest and income taxes are paid (settled)
through the intercompany account with FDC and FFMC.
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING ACTIVITIES: In 1995, FFMC
pushed down the EBP Health Plans and Prime Extra subsidiaries of EBP to
the Company. The Company received assets and assumed liabilities in
connection with this transaction as follows:
<TABLE>
<S> <C>
Assets received $(15,486,000)
Liabilities assumed 7,063,000
Amount due to affiliate 13,510,000
------------
Cash received in push down $ 5,087,000
============
</TABLE>
5. LEASES
The Company leases data processing equipment, office equipment and office
space under operating leases through 2009. Future minimum annual rental
commitments under these noncancelable operating leases at December 31,
1996 were as follows:
Years ending December 31,
<TABLE>
<S> <C>
1997 $15,673,000
1998 10,517,000
1999 6,187,000
2000 3,965,000
2001 3,412,000
Thereafter 11,155,000
-----------
Total minimum lease payments $50,909,000
===========
</TABLE>
Total rental expense for operating leases approximated $21,583,000 in
1996, $19,145,000 in 1995 and $18,017,000 in 1996.
<PAGE> 14
6. INCOME TAXES
<TABLE>
<CAPTION>
Components of the provision for
income taxes are as follows: Years Ended December 31,
----------------------------------------
1996 1995 1994
----------- ----------- ------------
<S> <C> <C> <C>
Currently payable:
Federal $ 7,035,000 $ 6,699,000 $ 13,300,000
State and local 1,513,000 1,441,000 2,860,000
----------- ----------- ------------
8,548,000 8,140,000 16,160,000
Deferred taxes:
Federal 3,840,000 5,544,000 6,063,000
State and local 827,000 1,192,000 1,304,000
----------- ----------- ------------
4,667,000 6,736,000 7,367,000
----------- ----------- ------------
Provision for income
taxes $13,215,000 $14,876,000 $ 23,527,000
=========== =========== ============
</TABLE>
A reconciliation of the U.S. federal statutory rate to the effective tax
rate is presented below:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
U.S. federal statutory rate 35.0% 35.0% 35.0%
State income taxes, net of
federal benefit 5.3% 5.2% 5.1%
Nondeductible expenses 4.9% 4.6% 2.9%
Other 0.5% 0.6% 0.4%
----- ----- -----
Effective tax rate 45.7% 45.4% 43.4%
===== ===== =====
</TABLE>
<PAGE> 15
Deferred tax assets and (liabilities) comprise the following as of
December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 2,106,000 $ 2,106,000
Bad debt reserve 1,664,000 1,821,000
Acquisition reserve 2,009,000 2,082,000
Other intangible assets 1,468,000
Other 2,252,000 3,929,000
------------ ------------
Total deferred tax assets 9,499,000 9,938,000
Deferred tax liabilities:
Software development costs 24,745,000 15,795,000
Depreciation 2,390,000 2,320,000
Other intangible assets 4,310,000
Other 360,000 842,000
------------ ------------
Total deferred tax liabilities 27,495,000 23,267,000
------------ ------------
Total deferred tax (liability) (17,996,000) (13,329,000)
Valuation allowance (2,106,000) (2,106,000)
------------ ------------
Net deferred tax (liability) $(20,102,000) $(15,435,000)
============ ============
</TABLE>
Income tax benefits associated with the exercise of FDC and FFMC stock
options were $2,378,000 in 1996, $4,857,000 in 1995 and $1,606,000 in
1994. Such amounts are credited to paid-in capital.
A valuation allowance has been provided for those net operating loss
("NOL") carryforwards and temporary differences which are estimated to
expire before they are utilized.
At December 31, 1996, the Company had approximately $5,444,000 of NOL
carryforwards attributed to EBP Health Plans which were pushed down to the
Company in 1995. Such carryforwards reflect income tax losses incurred
which will begin to expire in 2003.
7. EMPLOYEE BENEFIT PLANS
The Company's employees participate in FDC's profit sharing and savings
plans which allow eligible employees to allocate up to 15% of their salary
through payroll deductions. The Company matches 25% of the employee's
contributions, up to 6% of his or her salary. The Company's cost of
these plans approximated $1,422,000 in 1996, $2,332,000 in 1995 and
$2,379,000 in 1994.
<PAGE> 16
The Company has a defined benefit pension plan covering certain employees.
The benefits under this plan are based on years of service and final
average compensation levels. The following table sets forth the plan's
funded status, reconciled with amounts recognized in the Company's
combined balance sheet at December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Accumulated benefit obligation $ 5,397,000 $ 5,020,000
============ ===========
Projected benefit obligation $ 5,397,000 $ 5,020,000
Fair value of plan assets
(primarily fixed income
securities) 6,049,000 6,080,000
------------ -----------
Funded status at December 31 652,000 1,060,000
Asset at transition date (1,131,000) (1,225,000)
Unrecognized net loss 768,000 592,000
------------ -----------
Prepaid pension cost $ 289,000 $ 427,000
============ ===========
</TABLE>
Net retirement plan expense for the years ended December 31, 1996, 1995
and 1994 consists of the following:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Interest cost on the
accumulated benefit obligation $ 364,000 $ 333,000 $ 313,000
Net deferral and amortization (94,000) (94,000) (94,000)
Expected return on plan assets (474,000) (438,000) (447,000)
--------- --------- ---------
Net defined benefit pension income $(204,000) $(199,000) $(228,000)
========= ========= =========
</TABLE>
The weighted average discount rate used in determining the actuarial
present value of the projected benefit obligation was 7.5% in both 1996
and 1995. The expected long term rate of return on plan assets was 8.0 %
in 1996, 1995 and 1994.
<PAGE> 17
8. TRANSACTIONS WITH AFFILIATES
Transactions with affiliates were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Revenues from affiliates $13,709,000 $5,056,000 $1,866,000
Cost of services to affiliates 1,099,000 1,247,000 1,095,000
Expenses incurred for
products and services
provided by affiliates 1,324,000 1,953,000 1,946,000
</TABLE>
The Company does not maintain corporate treasury, legal, tax, internal
audit, and other similar corporate support functions. These services were
provided to the Company by FDC in 1996 and FFMC in 1995 and 1994. During
1996, FDC charged the Company $7,868,000 for these services. Included in
the $7,868,000 charge was approximately $1,477,000 of interest expense on
the intercompany balances between FIRST HEALTH and affiliates, principally
FDC. The interest expense was calculated monthly based on the average
monthly intercompany balance multiplied by an interest rate which
approximated 7% in 1996. In 1995 and 1994, FFMC did not charge the
Company for corporate support services or charge interest on the
intercompany balance as FFMC did not allocate or charge these types of
costs to its subsidiaries, nor did their systems provide sufficient
information to develop a reasonable cost allocation.
9. REVENUE CONCENTRATION
The Company had no customers which individually accounted for 10% or more
of revenue in 1996, 1995 or 1994.
10. COMMITMENTS AND CONTINGENCIES
The Company is party to a number of contracts with state agencies and non-
governmental business entities. These contracts are subject to audit by
such agencies and business entities or their representatives. Such audits
could result in requests for reimbursement to the state agencies and
business entities for expenditures disallowed under the terms of the
contracts or for damages for nonperformance of agreed upon standards.
Management believes that disallowed expenditures or damages for
nonperformance, if any, would not be significant.
In the normal course of business, the Company is subject to claims and
litigation. Management of the Company believes that current or threatened
claims and litigation with a reasonably possible chance of loss would not,
individually or in the aggregate,
<PAGE> 18
result in a materially adverse effect on the Company's results of
operations, liquidity or financial condition.
11. SUBSEQUENT EVENTS
RESTRUCTURING CHARGES: In March 1997, the Company recorded a restructuring
charge of approximately $3,388,000. This charge was for employee
severance associated with a companywide reduction-in-force implemented to
streamline operating efficiencies. The restructuring plan affected
approximately 6% of the Company's employees.
ACQUISITION OF CERTAIN SUBSIDIARIES OF FIRST HEALTH: On July 1, 1997,
HealthCare COMPARE Corp. ("HCC") completed the acquisition of all of the
outstanding shares of common stock of Strategies and Services from FFMC
and FDC (collectively, the "Sellers") for a purchase price of
approximately $202,000,000 in cash, subject to certain post-closing
adjustments. The acquisition excluded the stock of Viable Information
Processing Systems, Inc., a wholly-owned subsidiary of Services. The
acquisition was effected pursuant to the terms of a Stock Purchase
Agreement, dated as of May 22, 1997, among HCC and the Sellers, and will
be accounted for as a purchase of the acquired FIRST HEALTH Companies by
HCC.
<PAGE> 19
Item 7 (b): Pro forma financial information
The accompanying unaudited pro forma consolidated balance sheet as of June 30,
1997 and unaudited pro forma statements of operations for the year ended
December 31, 1996 and the six month period ended June 30, 1997 are presented to
reflect the acquisition of all of the outstanding shares of capital stock of
FIRST HEALTH Strategies, Inc. ("Strategies") and FIRST HEALTH Services
Corporation ("Services") (collectively, "FHC"), excluding the stock of Viable
Information Processing Systems, Inc., a wholly-owned subsidiary of Services,
from First Financial Management Corporation and First Data Corporation
(collectively, the "Sellers") by HealthCare COMPARE Corp. (the "Company") (the
"Acquisition") for a purchase price of $202 million in cash, subject to certain
working capital adjustments which, when finalized, will result in a reduction
of the purchase price to approximately $196 million. The Acquisition was
effected pursuant to the terms of a Stock Purchase Agreement, dated as of May
22, 1997, among the Company and the Sellers. The Acquisition was accounted for
under the purchase method of accounting. The accompanying unaudited pro forma
consolidated financial statements reflect the effects of a preliminary
allocation of the purchase price.
The accompanying unaudited pro forma consolidated financial statements should
be read in conjunction with the respective companies' historical consolidated
or combined financial statements and notes thereto. The unaudited pro forma
consolidated financial statements are presented for informational purposes only
and are not necessarily indicative of actual results had the foregoing
transaction occurred as described in the preceding paragraph, nor do they
purport to represent results of future operations of the merged companies.
The pro forma consolidated balance sheet assumes the Acquisition occurred on
June 30, 1997. The pro forma consolidated statements of operations present the
Company's historical consolidated statements of operations for the fiscal year
ended December 31, 1996 and the six months ended June 30, 1997, along with
FHC's statements of operations for the same periods adjusted to give effect to
the Acquisition as if the Acquisition had occurred on January 1, 1996.
Unaudited pro forma consolidated financial information presented herein
reflects adjustments for (i) the estimated allocation of purchase price to the
fair value of assets acquired, including goodwill, and liabilities assumed,
(ii) the effect of recurring charges related to the Acquisition, primarily the
amortization of goodwill, recording of interest expense on borrowings to
finance the Acquisition and the reduction of depreciation expense due to the
write-down to fair value of fixed assets, (iii) the estimated liability for
restructuring and integration costs, and (iv) removal of revenues and related
cost of services and expenses for acquired businesses that are held for sale.
The unaudited pro forma consolidated financial statements do not reflect an
expected material non recurring charge for the portion of the purchase price
which will be allocated to in-process research and development as a result of
the Acquisition, or any allocation of a portion of the purchase price to
intangible assets other than goodwill. In addition, the Company has not
finalized all aspects of its merger and integration plan for FHC. The Company
is currently performing a valuation of FHC's in-process research and
development related to existing technology and technology in-process. The fair
market value of FHC's technology will be
<PAGE> 20
estimated using a discounted cash flow approach. A charge will be
recorded for in-process research and development equal to its estimated current
fair value of specifically identified technologies for which an alternative
future use does not exist.
The preliminary allocation of the purchase price resulted in approximately $158
million of goodwill. The actual amount of goodwill recorded will vary based
upon the final purchase price allocation resulting from settlement of the
working capital adjustment, and completion of the merger and integration plan
and the asset and technology valuations discussed above. Changes in goodwill
and the related amortization expense resulting from these plans and assessments
may be material.
<PAGE> 21
HEALTHCARE COMPARE CORP.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
JUNE 30, 1997
(Dollars in thousands)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
FIRST HEALTH COMPANIES
HEALTHCARE ---------------------------------------- PRO FORMA
COMPARE BUSINESS NOT ACQUIRED PURCHASE ADJUSTED
CORP. HISTORICAL PURCHASED FIRST HEALTH ADJUSTMENTS BALANCE
(a) (a) (b)
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
CURRENT ASSETS:
Cash and cash equivalents $ 64,537 $ 12,758 $ (202) $ 12,960 $ 77,497
Short term investments 22,680 22,680
Accounts receivable, less 29,351 45,545 2,760 42,785 $(4,153) (d) 67,983
allowances for doubtful accounts
Other current assets 7,251 10,380 987 9,393 11,567 (f),(g) 28,211
Net current assets of businesses 2,012 (d),(e) 2,012
held for sale
--------- ---------- ---------- ---------- ---------- ----------
TOTAL CURRENT ASSETS 123,819 68,683 3,545 65,138 9,426 198,383
LONG-TERM INVESTMENTS:
Marketable securities 96,923 96,923
Other 25,030 25,030
--------- ---------- ---------- ---------- ---------- ----------
121,953 121,953
PROPERTY AND EQUIPMENT:
Buildings and improvements 50,846 3,867 42 3,825 (3,249) (h) 51,422
Computer equipment and software 44,683 58,414 3,679 54,735 (51,379) (h) 48,039
Office furniture and equipment 19,740 29,746 1,624 28,122 (23,764) (h) 24,098
--------- ---------- ---------- ---------- ---------- ----------
115,269 92,027 5,345 86,682 (78,392) 123,559
Less accumulated depreciation
and amortization (54,636) (55,984) (3,448) (52,536) 52,536 (h) (54,636)
--------- ---------- ---------- ---------- ---------- ----------
PROPERTY AND EQUIPMENT, NET 60,633 36,043 1,897 34,146 (25,856) 68,923
GOODWILL 159,305 21,407 137,898 19,754 (i) 157,652
SOFTWARE DEVELOPMENT COSTS 63,824 63,824 (63,824) (j)
OTHER ASSETS 4,859 10,327 10,115 212 13,685 (g) 18,756
--------- ---------- ---------- ---------- ---------- ----------
TOTAL ASSETS $311,264 $338,182 $36,964 $301,218 $(46,815) $565,667
========= ========== ========== ========== ========= ==========
</TABLE>
See notes to unaudited pro forma consolidated financial statements.
<PAGE> 22
HEALTHCARE COMPARE CORP.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET (CONTINUED)
JUNE 30, 1997
(Dollars in thousands)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
FIRST HEALTH COMPANIES
HEALTHCARE -------------------------------------- PRO FORMA
COMPARE BUSINESS NOT ACQUIRED PURCHASE ADJUSTED
CORP. HISTORICAL PURCHASED FIRST HEALTH ADJUSTMENTS BALANCE
<S> <C> <C> <C> <C> <C> <C>
LIABILITIES & STOCKHOLDERS' EQUITY: (a) (a) (b)
CURRENT LIABILITIES:
Accounts payable $ 6,807 $ 15,073 $ 157 $ 14,916 $ 393(c) $ 22,116
Accrued expenses 12,553 23,429 1,457 21,972 13,718(k) 48,243
Treasury stock purchases payable 855 855
Claims reserves 8,075 8,075
Income taxes payable 747 747
--------- ---------- ---------- ---------- ---------- ----------
TOTAL CURRENT LIABILITIES 29,037 38,502 1,614 36,888 14,111 80,036
NON-CURRENT LIABILITIES:
Amounts due to affiliates 22,827 16,879 5,948 (5,948)(l)
Long-term debt 202,000 (m) 202,000
Deferred tax liability, net 25,196 3,407 21,789 (21,789)(g)
Other non-current liabilities 1,902 1,350 1,350 54 (d) 3,306
--------- ---------- ---------- ---------- ---------- ----------
TOTAL NON-CURRENT LIABILITIES 1,902 49,373 20,286 29,087 174,317 205,306
--------- ---------- ---------- ---------- ---------- ----------
TOTAL LIABILITIES 30,939 87,875 21,900 65,975 188,428 285,342
STOCKHOLDERS' EQUITY:
Common stock 373 2,000 2,000 (2,000)(n) 373
Additional paid-in capital 144,794 70,713 70,713 (70,713)(n) 144,794
Retained earnings 331,343 177,594 15,064 162,530 (162,530)(n) 331,343
Unrealized holding gain on marketable
securities 1,120 1,120
Treasury stock, at cost (197,305) (197,305)
--------- ---------- ---------- ---------- ---------- ----------
TOTAL STOCKHOLDERS' EQUITY 280,325 250,307 15,064 235,243 (235,243) 280,325
--------- ---------- ---------- ---------- ---------- ----------
TOTAL LIABILITIES & STOCKHOLDERS' $311,264 $338,182 $36,964 $301,218 $(46,815) $565,667
EQUITY ========= ========== ========== ========== ========== ==========
</TABLE>
See notes to unaudited pro forma consolidated financial statements.
<PAGE> 23
HEALTHCARE COMPARE CORP.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
FIRST HEALTH COMPANIES
HEALTHCARE ---------------------------------------- PRO FORMA
COMPARE BUSINESS NOT ACQUIRED PURCHASE ADJUSTED
CORP. HISTORICAL PURCHASED FIRST HEALTH ADJUSTMENTS BALANCE
(a) (a) (b)
<S> <C> <C> <C> <C> <C> <C>
REVENUES $247,804 $311,630 21,285 $290,345 $(31,828) (o) $506,321
OPERATING EXPENSES:
Cost of services 72,284 198,942 10,473 188,469 (24,076) (o) 236,677
Selling and marketing 29,148 43,963 2,667 41,296 (6,406) (o) 64,038
General and administrative 13,745 23,177 2,404 20,773 (3,020) (o) 31,498
Healthcare benefits 5,479 5,479
Depreciation and amortization 12,334 15,150 1,825 13,325 (2,690) (p) 22,969
Interest (income) expense, net (13,581) 1,477 819 658 10,512 (q) (2,411)
--------- ---------- --------- --------- -------- --------
119,409 282,709 18,188 264,521 (25,680) 358,250
--------- ---------- --------- --------- -------- --------
INCOME BEFORE INCOME TAXES 128,395 28,921 3,097 25,824 (6,148) 148,071
INCOME TAXES 49,400 13,215 1,415 11,800 (491) 60,709 (r)
--------- ---------- --------- --------- -------- --------
NET INCOME $ 78,995 $ 15,706 $ 1,682 $ 14,024 $(5,657) $ 87,362
========= ========== ========= ========= ======== ========
NET INCOME PER COMMON SHARE $ 2.24 $ 2.48
======== ========
WEIGHTED AVERAGE COMMON AND
COMMON SHARE EQUIVALENTS 35,244 35,244
======== ========
</TABLE>
See notes to unaudited pro forma consolidated financial statements.
<PAGE> 24
HEALTHCARE COMPARE CORP.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1997
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
FIRST HEALTH COMPANIES
HEALTHCARE ---------------------------------------- PRO FORMA
COMPARE BUSINESS NOT ACQUIRED PURCHASE ADJUSTED
CORP. HISTORICAL PURCHASED FIRST HEALTH ADJUSTMENTS BALANCE
(a) (a) (b)
<S> <C> <C> <C> <C> <C> <C>
REVENUES $133,755 $145,639 $10,283 $135,356 $(15,914) (o) $253,197
OPERATING EXPENSES:
Cost of services 39,095 99,128 4,925 94,203 (12,038) (o) 121,260
Selling and marketing 14,638 17,853 1,218 16,635 (3,203) (o) 28,070
General and administrative 7,372 11,885 1,571 10,314 (1,510) (o) 16,176
Healthcare benefits 4,127 4,127
Depreciation and amortization 6,392 7,520 1,193 6,327 (957) (p) 11,762
Restructuring charge 3,388 3,388 3,388
Interest (income) expense, net (6,701) (652) (44) (608) 5,256 (q) (2,053)
--------- ---------- ---------- ---------- ---------- ----------
64,923 139,122 8,863 130,259 (12,452) 182,730
--------- ---------- ---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES 68,832 6,517 1,420 5,097 (3,462) 70,467
INCOME TAXES 26,554 3,858 840 3,018 (681) 28,891 (r)
--------- ---------- ---------- ---------- ---------- ----------
NET INCOME $ 42,278 $ 2,659 $ 580 $ 2,079 $(2,781) $ 41,576
========= ========== ========== ========== ========== ==========
NET INCOME PER COMMON SHARE $ 1.25 $ 1.23
========= =========
WEIGHTED AVERAGE COMMON AND
COMMON SHARE EQUIVALENTS 33,757 33,757
========= =========
</TABLE>
See notes to unaudited pro forma consolidated financial statements.
<PAGE> 25
HEALTHCARE COMPARE CORP.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1996 AND THE SIX MONTHS ENDED JUNE 30, 1997
The unaudited pro forma consolidated balance sheet as of June 30, 1997 reflects
the adjustments necessary to record the Acquisition as though it had occurred
on June 30, 1997.
The unaudited pro forma consolidated statements of operations for the year
ended December 31, 1996 and the six month period ended June 30, 1997 have been
prepared assuming the Acquisition had occurred on January 1, 1996 and reflect
the effects of certain adjustments to the historical consolidated financial
statements that result from the Acquisition between the Company and the
Sellers.
Based upon the terms of the Acquisition, the transaction is accounted for as a
purchase of FHC by the Company for financial reporting and accounting purposes.
Accordingly, the Company revalued the basis of FHC's acquired assets and
assumed liabilities to fair value. The purchase price of FHC is calculated as
the cash paid, net of an estimated working capital adjustment, plus the
Company's transaction costs. The difference between the purchase price and the
fair value of the identifiable tangible and intangible assets acquired and
liabilities assumed is recorded as goodwill and will be amortized over a period
of 30 years. The preliminary allocation of the purchase price is subject to
completion of certain valuations relating to in-process research and
development and tangible and intangible assets, and the completion of the
Company's integration and merger plan. Changes to the preliminary purchase
price allocation resulting from the finalization of the valuations and merger
plan may be material. The preliminary allocation of the purchase price to the
fair value of assets acquired and liabilities assumed is as follows:
<TABLE>
<S> <C>
Purchase price $202,000
Less: due from Sellers for working capital adjustment (6,000)
Transaction costs 3,000
-----------
Total estimated purchase price $ 199,000
-----------
Purchase price has been allocated as follows:
Fair value of assets acquired $ 90,751
Goodwill 157,652
Liabilities assumed (38,431)
Liability for restructuring and integration costs (10,972)
-----------
$ 199,000
-----------
</TABLE>
<PAGE> 26
(a) Pursuant to the terms of the Stock Purchase Agreement, the Company will not
acquire the stock of Viable Information Processing Systems, Inc. ("VIPS"),
a wholly-owned subsidiary of Services. The historical combined
financial statements of FHC have been adjusted to reflect the assets and
liabilities and results of operations of VIPS. The column "Acquired FIRST
HEALTH" represents the historical combined financial position and results
of operations that were acquired by the Company.
(b) The "Pro Forma Adjusted Balance" column represents the sum of the amounts
included in the following columns: "HealthCare COMPARE Corp.", "Acquired
FIRST HEALTH", and "Purchase Adjustments".
THE UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1997 GIVES
EFFECT TO THE FOLLOWING PRO FORMA ADJUSTMENTS:
(c) Primarily represents the accrual of debt issuance costs relating to the
establishment of the credit agreement used to finance the Acquisition.
(d) Includes the reclassification of the net assets of certain
acquired businesses of FHC that are currently held for sale to "Net
current assets of businesses held for sale."
(e) Includes the adjustment to write down the net current assets of the
businesses held for sale to their fair value.
(f) Includes the write-down of prepaid expenses to conform with the Company's
accounting policy, which is to expense such costs as incurred.
(g) Includes the adjustments to the deferred tax balances for the tax effects
of the pro forma adjustments, primarily the write-down to fair value of
property and equipment, the write-down to fair value of capitalized
software, and the recording of additional accrued expenses relating to the
Acquisition.
(h) Represents the write-down of property and equipment to its estimated fair
value at the balance sheet date.
(i) Represents the write-off of goodwill previously recorded by FHC of
$137,898,000 and the recording of $157,652,000 of goodwill resulting from
the Acquisition which will be amortized over 30 years.
(j) Represents the write-off of capitalized software costs relating to either
technology which the Company does not intend to further develop or which
would not be capitalized in conformity with the Company's accounting
policies.
(k) The Company expects to incur costs of approximately $10,972,000 in
connection with the implementation of a formal plan to reduce duplicative
operating expenses of the acquired company. The estimated adjustment
primarily relates to costs associated with combining the
<PAGE> 27
operations of the two companies and includes severance benefits and
closure costs of duplicative and excess facilities of FHC. As all portions
of the merger and integration plan have not been finalized, the amount
recorded is subject to adjustment. In addition, the adjustment includes an
accrual of approximately $3,000,000 for transaction costs incurred by the
Company relating to the Acquisition.
(l) Represents the elimination of amounts due to FHC's parent and related
affiliated companies.
(m) Represents borrowings under the credit agreement used to finance the
Acquisition.
(n) Represents the elimination of FHC's common stock, additional paid-in
capital, and retained earnings.
THE UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEAR
ENDED DECEMBER 31, 1996 AND THE SIX MONTHS ENDED JUNE 30, 1997 GIVE EFFECT TO
THE FOLLOWING PRO FORMA ADJUSTMENTS:
(o) Represents the removal of revenues, cost of services, selling and
marketing expense, and general and administrative expense of certain
acquired businesses of FHC that are held for sale. The earnings or loses
of these businesses from date of acquisition are excluded from operations
and are recorded as adjustments to the carrying amount of their net assets
in the purchase price allocation.
(p) Represents the following for both the year ended December 31, 1996
and the six-months ended June 30, 1997: (i) an increase in goodwill
amortization expense, calculated as of January 1, 1996, over an estimated
useful life of 30 years. Goodwill and other intangibles and the related
amortization expense are subject to adjustment resulting from the
completion of the final purchase price allocation; (ii) amortization of
debt issuance costs relating to the credit agreement used to finance the
Acquisition; and (iii) a reduction in depreciation expense resulting from
both the write-down of property and equipment to its fair value and the
amount allocated to certain acquired businesses of FHC that are held for
sale. The net adjustment is computed as follows:
<TABLE>
<S> <C> <C>
1996 1997
Increase in goodwill amortization $1,212,000 $563,000
Reduction in depreciation expense (3,969,000) (1,553,000)
Amortization of debt issuance costs 67,000 33,000
----------- ----------
Net adjustment ($2,690,000) ($957,000)
=========== ==========
</TABLE>
(q) Represents the adjustment to interest expense related to debt acquired to
finance the Acquisition calculated as average borrowings of $202 million
multiplied by an average interest rate of 6%, less interest expense
allocated to certain acquired businesses held for sale.
(r) Represents the estimated income tax expense of the Company, including the
pro forma effects of the Acquisition, at an estimated rate of 41%.
<PAGE> 28
Item 7 (c): Exhibits
No. 23: Consent of Deloitte & Touche LLP
<PAGE> 1
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
HealthCare COMPARE Corp.:
We consent to the incorporation by reference in the Registration Statements of
HealthCare COMPARE Corp. on Form S-8, (file numbers 33-26639, 33-26640,
33-42902, 33-43806, 33-43807, 33-87986, 33-62747 and 333-31893) of our report,
dated August 29, 1997 of the FIRST HEALTH Companies (wholly-owned subsidiaries
of First Data Corporation) for each of the three years in the period ended
December 31, 1996.
DELOITTE & TOUCHE LLP
Chicago, Illinois
September 15, 1997
