<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 EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported)
May 8, 1996
COMPDENT CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation)
0-26090 04-3185995
(Commission file number) (IRS employer identification no.)
8800 ROSWELL ROAD, ATLANTA, GEORGIA 30350
(Address of principal executive offices) (Zip Code)
(770) 998-8936
(Registrant's telephone number, including area code)
<PAGE> 2
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 exhibits hereto:
EXHIBIT 99.1 - FINANCIAL STATEMENTS OF DENTAL CARE PLUS MANAGEMENT, CORP.
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
Report of Independent Accountants
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 Shareholder's Equity (Deficit) 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
EXHIBIT 99.2 - FINANCIAL STATEMENTS OF I.H.C.S., INC. AS OF AND FOR THE
YEARS ENDED DECEMBER 31, 1995 AND 1994
Report of Independent Accountants
Balance Sheets as of December 31, 1995 and 1994
Statements of Income for the years ended December 31, 1995 and 1994
Statements of Changes in Shareholders' 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
EXHIBIT 99.3 - FINANCIAL STATEMENTS OF DENTAL CARE PLUS MANAGEMENT, CORP.
AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 1996
Balance Sheet as of March 31, 1996
Statement of Operations for the three months ended March 31, 1996
Statements of Cash Flows for the three months ended March 31, 1996
Notes to Financial Statements
<PAGE> 3
EXHIBIT 99.4 - FINANCIAL STATEMENTS OF I.H.C.S., INC. AS OF AND FOR THE
THREE MONTHS ENDED MARCH 31, 1996
Balance Sheet as of March 31, 1996
Statement of Income for the three months ended March 31, 1996
Statement of Cash Flows for the three months ended March 31, 1996
Notes to Financial Statements
(b) PRO FORMA FINANCIAL INFORMATION. The following pro forma financial
statements of the registrant are filed as an exhibit hereto:
EXHIBIT 99.5 - UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS OF COMPDENT CORPORATION AS OF AND FOR THE THREE MONTHS ENDED
MARCH 31, 1996 AND FOR THE YEAR ENDED DECEMBER 31, 1995
Unaudited Pro Forma Condensed Consolidated Balance Sheet as of March 31,
1996
Unaudited Pro Forma Condensed Consolidated Statement of Income for the
three months ended March 31, 1996
Unaudited Pro Forma Condensed Consolidated Statement of Income for the year
ended December 31, 1995
Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements
(c) EXHIBITS.
99.1 Financial Statements of Dental Care Plus Management, Corp. as of and
for the years ended December 31, 1995 and 1994.
99.2 Financial Statements of I.H.C.S., Inc. as of and for the years ended
December 31, 1995 and 1994.
99.3 Financial Statements of Dental Care Plus Management, Corp. as of and
for the three months ended March 31, 1996.
99.4 Financial Statements of I.H.C.S. as of and for the three months ended
March 31, 1996.
99.5 Unaudited Pro Forma Condensed Consolidated Financial Statements of
CompDent Corporation as of and for the three months ended March 31,
1996 and for the year ended December 31, 1995.
<PAGE> 4
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.
COMPDENT CORPORATION
Date: July 22, 1996 By: /s/ Sharon S. Graham
-------------------------------------
Sharon S. Graham, DBA, CFA, Treasurer
<PAGE> 5
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Sequential
Number Description Page No.
- ------ ----------- ----------
<S> <C> <C>
99.1 Financial Statements of Dental Care Plus Management, Corp. as of and
for the years ended December 31, 1995 and 1994
99.2 Financial Statements of I.H.C.S., Inc. as of and for the years ended
December 31, 1995 and 1994
99.3 Financial Statements of Dental Care Plus Management, Corp. as of and
for the three months ended March 31, 1996
99.4 Financial Statements of I.H.C.S. as of and for the three months ended
March 31, 1996
99.5 Unaudited Pro Forma Condensed Consolidated Financial Statements of
CompDent Corporation as of and for the three months ended March 31,
1996 and for the year ended December 31, 1995
</TABLE>
<PAGE> 1
EXHIBIT 99.1
[LOGO KPMG]
The Global Leader
DENTAL CARE PLUS
MANAGEMENT, CORP.
Financial Statements
December 31, 1995 and 1994
(With Independent Auditors' Report Thereon)
<PAGE> 2
[KPMG LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Dental Care Plus Management, Corp.:
We have audited the accompanying balance sheets of Dental Care Plus Management,
Corp. (DCP) as of December 31, 1995 and 1994, and the related statements of
operations, shareholder's equity (deficit), and cash flows for the years then
ended. These financial statements are the responsibility of DCP'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 Dental Care Plus Management,
Corp. as of December 31, 1995 and 1994, and the results of its operations and
its cash flows for the years then ended in conformity with generally accepted
accounting principles.
/s/ KPMG Peat Marwick
February 23, 1996
1
<PAGE> 3
DENTAL CARE PLUS MANAGEMENT, CORP.
Balance Sheets
December 31, 1995 and 1994
<TABLE>
<CAPTION>
===================================================================================
ASSETS 1995 1994
- -----------------------------------------------------------------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 42,830 311,525
Premiums receivable 42,276 48,874
Prepaid expenses 237,653 71,325
Other receivables 73,257 2,434
Due from affiliates - 8,035
Deferred current tax asset - 38,065
Income taxes receivable 104,500 -
- -----------------------------------------------------------------------------------
Total current assets 500,516 480,258
- -----------------------------------------------------------------------------------
Property and equipment, net of
accumulated depreciation 338,909 536,809
Intangibles, net of accumulated amortization of
$57,000 in 1995 and $21,000 in 1994 123,000 159,000
Other assets 36,045 38,045
Deferred noncurrent tax asset - 45,814
- -----------------------------------------------------------------------------------
Total assets $ 998,470 1,259,926
===================================================================================
LIABILITIES AND SHAREHOLDER'S EQUITY (DEFICIT)
- -----------------------------------------------------------------------------------
Current liabilities:
Current portion of notes payable 713,809 239,839
Short-term borrowings 100,000 49,495
Claims payable - 55,000
Accounts payable 293,225 104,806
Accrued expenses 111,507 162,021
Due to affiliates 103,859 -
Income taxes payable - 38,505
- -----------------------------------------------------------------------------------
Total current liabilities 1,322,400 649,666
- -----------------------------------------------------------------------------------
Notes payable, net of current portion - 215,061
- -----------------------------------------------------------------------------------
Shareholder's equity (deficit):
Common stock, no par value;
10,000 shares authorized; 1,000 shares
issued and outstanding 1,000 1,000
Additional paid-in capital 250,000 250,000
Retained earnings (deficit) (574,930) 144,199
- -----------------------------------------------------------------------------------
Total shareholder's equity (deficit) (323,930) 395,199
- -----------------------------------------------------------------------------------
Total liabilities and shareholder's equity (deficit) $ 998,470 1,259,926
===================================================================================
</TABLE>
See accompanying notes to financial statements.
2
<PAGE> 4
DENTAL CARE PLUS MANAGEMENT, CORP.
Statements of Operations
Years ended December 31, 1995 and 1994
<TABLE>
<CAPTION>
====================================================================================
1995 1994
- ------------------------------------------------------------------------------------
<S> <C> <C>
Revenue:
Premiums $ 3,645,917 3,620,665
Administrative fees 2,050,746 2,441,618
Administrative and other fees from affiliates 4,322,277 3,906,721
Investment income and other 19,372 -
- ------------------------------------------------------------------------------------
Total revenue 10,038,312 9,969,004
- ------------------------------------------------------------------------------------
Expenses:
Selling, general, and administrative 5,731,805 4,345,422
Administrative and other expenses to affiliates 3,093,900 3,578,500
Professional services 1,524,437 1,551,539
Depreciation and amortization 326,298 304,615
Provision for uncollectible accounts 1,143 24,061
Interest 32,251 67,151
Other 51,184 31,302
- ------------------------------------------------------------------------------------
Total expenses 10,761,018 9,902,590
- ------------------------------------------------------------------------------------
Income (loss) before income taxes (722,706) 66,414
Income tax expense (benefit) (3,577) 3,386
- ------------------------------------------------------------------------------------
Net income (loss) $ (719,129) 63,028
====================================================================================
Earnings (loss) per share $ (719.13) 63.03
====================================================================================
Weighted average number of common shares outstanding 1,000 1,000
====================================================================================
</TABLE>
See accompanying notes to financial statements.
3
<PAGE> 5
DENTAL CARE PLUS MANAGEMENT, CORP.
Statements of Changes in Shareholder's Equity (Deficit)
Years ended December 31, 1995 and 1994
<TABLE>
<CAPTION>
=====================================================================================
Total
Additional Retained shareholder's
Common paid-in earnings equity
stock capital (deficit) (deficit)
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balances at December 31, 1993 $1,000 250,000 81,171 332,171
Net income - - 63,028 63,028
- -------------------------------------------------------------------------------------
Balances at December 31, 1994 1,000 250,000 144,199 395,199
Net loss - - (719,129) (719,129)
- -------------------------------------------------------------------------------------
Balances at December 31, 1995 $1,000 250,000 (574,930) (323,930)
=====================================================================================
</TABLE>
See accompanying notes to financial statements.
4
<PAGE> 6
DENTAL CARE PLUS MANAGEMENT, CORP.
Statements of Cash Flows
Years ended December 31, 1995 and 1994
<TABLE>
<CAPTION>
=================================================================================
1995 1994
- ---------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $(719,129) 63,028
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 326,298 304,615
Provision for uncollectible accounts 1,143 24,061
Deferred tax assets 83,879 (48,054)
Changes in assets and liabilities:
Premiums receivable 5,455 (5,210)
Other receivables (70,823) 2,434
Prepaid expenses (166,328) 13,888
Other assets 2,000 (2,000)
Claims payable (55,000) 11,000
Accounts payable 188,419 33,907
Accrued expenses (50,514) (1,231)
Income taxes payable/receivable (143,005) 38,505
Due from/to affiliates 111,894 82,482
- ---------------------------------------------------------------------------------
Net cash provided by (used in) operating activities (485,711) 517,425
- ---------------------------------------------------------------------------------
Cash flows used in investing activities - acquisition
of property and equipment (92,398) (130,492)
- ---------------------------------------------------------------------------------
Cash flows from financing activities:
Net change in short-term borrowings 50,505 49,495
Proceeds from issuance of notes payable 258,909 -
Repayment of notes payable - (250,101)
- ---------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 309,414 (200,606)
- ---------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (268,695) 186,327
Cash and cash equivalents at beginning of year 311,525 125,198
- ---------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 42,830 311,525
=================================================================================
Supplemental disclosure of cash flow information -
cash paid during the year for:
Interest $ 31,854 66,811
Income taxes 63,675 -
=================================================================================
</TABLE>
See accompanying notes to financial statements.
5
<PAGE> 7
DENTAL CARE PLUS MANAGEMENT, CORP.
Notes to Financial Statements
December 31, 1995 and 1994
(1) ORGANIZATION AND OPERATIONS
DCP is a for-profit corporation organized for the purpose of developing and
maintaining managed care programs for dental services. DCP is licensed
with the State of Illinois as a Third Party Administrator (TPA) and
registered as a Preferred Provider Administrator (PPA). DCP provides
administrative and marketing services for dental care programs operated by
affiliated entities. DCP also provides TPA services for various
self-funded dental plans. Certain plans administered by DCP incorporate
fixed monthly premium payments in exchange for DCP to arrange for the
provision of dental services to enrollees and their eligible dependents.
Premiums are generally fixed for 12-month periods under these contracts.
DCP does not reinsure any of its dental care services risk.
On July 15, 1994, an option purchase agreement was entered into between the
shareholder of DCP and an outside party. The option allowed the holder to
acquire all outstanding shares of DCP stock. A voting proxy for all
outstanding shares was given to the option holder for the duration of the
option's exercise period. During 1995, the holder of the option purchase
agreement exercised the option to purchase all outstanding shares of DCP
stock.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Significant accounting policies of DCP are as follows:
- Cash and cash equivalents consists of all cash on deposit with
financial institutions and also all short-term investments with
original or remaining maturities at purchase of 90 days or less.
- DCP considers all highly liquid debt instruments purchased with
maturities of three months or less to be cash equivalents. At
December 31, 1995 and 1994, approximately 100% and 77%, respectively,
of DCP's cash and cash equivalents were maintained with one financial
institution and consist of demand deposits and a certificate of
deposit.
- Premium revenue is recorded over the term of the contract
period for which coverage relates. Retroactive changes in subscriber
membership are recorded in the period in which DCP is notified of
such changes. Administrative fees are recognized over the terms of
administrative services contracts for which administrative and
marketing services are provided.
- Professional services expense represents payments made to
dental providers under contractual arrangements with DCP and costs
associated with referral services provided by dental specialists.
Professional service costs are recognized as services are rendered.
- Claims payable represent an actuarially determined estimate of
liability based upon DCP's known claims and an amount, based on past
experience, for claims incurred but not reported.
(Continued)
6
<PAGE> 8
DENTAL CARE PLUS MANAGEMENT, CORP.
Notes to Financial Statements
- DCP makes monthly supplemental payments to dentists providing services
to members covered under certain administrative services contracts.
Payments are determined in accordance with minimum performance
standards and vary based on the individual contracts between DCP and
the respective providers. Supplemental payments are charged to
professional services expense based on estimates which incorporate
historical trends and experience. Any differences between estimated
supplemental payments and subsequent actual payments are recorded in
the period in which actual payments are determined. Estimated
amounts owed to providers of $9,782 and $12,375, respectively, for
supplemental payments at December 31, 1995 and 1994 are included in
accrued expenses.
- Property and equipment are recorded at cost. Depreciation is
calculated on the straight-line method over the estimated useful
lives of the assets. Amortization of leasehold improvements is
provided over the term of a lease held by an affiliated entity.
- Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss and tax
credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income
in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
- Earnings (loss) per share is computed by dividing net income
(loss) by the weighted average number of common shares outstanding
during the year.
- 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. Estimates also affect the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
(3) RELATED-PARTY TRANSACTIONS
DCP serves as administrator of managed dental care programs provided by
Health Care Systems, Inc. (HCS) and I.H.C.S., Inc. (IHCS), both of which
are affiliated entities. Included in administrative and other fees from
affiliates at December 31, 1995 and 1994 is $4,137,277 and $3,906,721,
respectively, of revenue recognized from administrative and marketing
services provided to HCS and IHCS. Such revenue is recognized based on a
specified percentage of each entity's total subscription premium revenue.
The administrative and marketing services contracts with HCS and IHCS are
subject to automatic renewal on an annual basis.
(Continued)
7
<PAGE> 9
DENTAL CARE PLUS MANAGEMENT, CORP.
Notes to Financial Statements
During 1994, DCP forgave a receivable totaling $180,000 from a related
party in exchange for a five-year covenant not to compete. The covenant is
being amortized for book purposes on the straight-line basis over five
years and for tax purposes on the straight-line basis over 15 years. The
covenant not to compete, less accumulated amortization of $57,000 and
$21,000, respectively, at December 31, 1995 and 1994, is included with
intangibles in the accompanying balance sheets.
DCP obtains administrative and support services through various contractual
arrangements with related entities. Terms of the respective administrative
contracts are for 6-month periods. The contracts are subject to termination
upon 30 days written notice or upon the mutual agreement of the parties.
During 1995 and 1994, approximately $2,325,000 and $3,074,000,
respectively, was recognized as expense under these contracts and is
included within administrative and other expenses to affiliates in the
accompanying statements of operations. Contractual payment terms are
specified within each of the respective contracts.
DCP entered into two consulting agreements dated May 1, 1994 and July 1,
1994, respectively, with related parties to obtain assistance in the
maintenance and expansion of DCP's network of managed care dental service
providers. The term of the contract dated May 1, 1994 is indefinite so
long as the agreements for providing dental services by DCP and affiliated
entities to employees of specified clients remain in effect. The
consulting agreement dated May 1, 1994 provides for annual payments of
$360,000. The term of the contract dated July 1, 1994 is for three years
and requires annual payments of $172,200. During 1995 and 1994,
approximately $532,000 and $310,000, respectively, was recognized under
these contracts and is included in administrative and other expenses to
affiliates in the accompanying statements of operations.
DCP obtains consulting and brokerage services from entities controlled by
the president of DCP. During 1995 and 1994, approximately $56,900 and
$89,500, respectively, was recognized for these services and is included in
administrative and other expenses to affiliates in the accompanying
statements of operations.
DCP made payments during 1995 and 1994 of $180,000 and $105,000,
respectively, for consulting services provided by the holder of the DCP
option purchase agreement pursuant to a personal services agreement.
Payments under the personal services agreement of $15,000 per month began
June 1, 1994 and extend for a period of 36 months. Such payments are
included within administrative and other expenses to affiliates in the
accompanying statements of operations.
During 1995, DCP charged HCS and IHCS for their proportionate usage of
various office equipment based upon each respective entity's level of
incurred dental costs. Amounts received from HCS and IHCS for office
equipment usage amounted to approximately $185,000 and is included with
administrative and other fees from affiliates.
(Continued)
8
<PAGE> 10
DENTAL CARE PLUS MANAGEMENT, CORP.
Notes to Financial Statements
(4) PROPERTY AND EQUIPMENT
A summary of property and equipment at December 31, 1995 and 1994 follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
1995 1994
----------------------- -----------------------------
Accumulated Accumulated
depreciation depreciation
and and
Cost amortization Cost amortization
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Vehicles $ 40,293 35,255 40,293 32,992
Computer equipment 608,813 471,172 516,219 364,077
Furniture and fixtures 336,384 289,856 313,792 241,618
Equipment and leasehold improvements 748,982 599,280 849,610 544,418
$ 1,734,472 1,395,563 1,719,914 1,183,105
- ------------------------------------------------------------------------------------------------------
</TABLE>
(Continued)
9
<PAGE> 11
DENTAL CARE PLUS MANAGEMENT, CORP.
Notes to Financial Statements
(5) NOTES PAYABLE
A summary of notes payable at December 31, 1995 and 1994 follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
1995 1994
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Note payable to Cole Taylor Bank in monthly installments of
$5,000 through December 19, 1996, plus interest at the prime
rate. The prime rate at December 31, 1995 and 1994 was 8.5%.
The note is collateralized by substantially all of DCP's assets $ 49,355 120,000
Note payable to Cole Taylor Bank for the purchase of equipment,
dated November 1, 1994, payable in 23 monthly principal installments
beginning December 1, 1994 of $9,422 with final payment of
$9,485 due November 1, 1996, plus interest at the prime rate.
The prime rate at December 31, 1995 and 1994 was 8.5%. The note
is collateralized by substantially all of DCP's assets 103,644 207,288
Note payable to Cole Taylor Bank in six monthly installments beginning
January 15, 1996 of $50,000 with final payment of $200,000 due
July 15, 1996 plus interest at the prime rate. The prime rate at
December 31, 1995 was 8.5%. The note is collateralized by
substantially all of IHCS' assets 500,000 -
Note payable to First M & I, payable in monthly installments of
$3,960 through December 1996, including interest at 7.23% 60,810 102,189
Other - 25,423
- -----------------------------------------------------------------------------------------------------------------------
Total notes payable 713,809 454,900
Less current portion 713,809 239,839
- -----------------------------------------------------------------------------------------------------------------------
Notes payable, net of current portion $ - 215,061
=======================================================================================================================
</TABLE>
DCP has pledged substantially all of its assets as security under a revolving
line of credit agreement beetween IHCS and a commercial bank. The line of
credit is in the amount of $300,000 with an standing balance of $100,000 at
December 31, 1995. No amounts have been paid or accrued pursuant to this
guarantee as of December 1995.
(Continued)
10
<PAGE> 12
DENTAL CARE PLUS MANAGEMENT, CORP.
Notes to Financial Statements
(6) SHORT-TERM BORROWINGS
DCP maintains a revolving line of credit with a commercial bank having a
maximum credit capacity of $100,000. Amounts drawn under the line of
credit bear interest at the prime rate (8.5% at December 31, 1995 and 1994)
and are secured by substantially all of DCP's assets. The line expires on
June 15, 1996 with all outstanding draws plus accrued interest due in full.
(7) LEASE COMMITMENTS
DCP leases various office space and equipment under the terms of operating
leases expiring through December 1999. Rental expense recognized under the
terms of operating leases amounted to approximately $250,000 and $274,000
for the years ended December 31, 1995 and 1994, respectively. Future
minimum rental payments under noncancelable operating leases with terms in
excess of one year as of December 31, 1995 are as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------
Year ending
December 31, Amount
- ----------------------------------------------------
<S> <C>
1996 $ 63,057
1997 41,448
1998 24,220
1999 10,316
- ----------------------------------------------------
$139,041
- ----------------------------------------------------
</TABLE>
DCP held the operating lease in 1994 for the primary office space utilized
by DCP, HCS, and IHCS. During 1995, this lease was assumed by HCS in
conjunction with an office relocation. HCS charged DCP with a
proportionate share of rent for common office space in 1995 based upon the
level of dental costs incurred by DCP. Rent paid to HCS amounted to
approximately $11,000 and is reflected as part of selling, general, and
administrative expenses in the accompanying 1995 statement of operations
and retained earnings.
(Continued)
11
<PAGE> 13
DENTAL CARE PLUS MANAGEMENT, CORP.
Notes to Financial Statements
(8) INCOME TAXES
Components of income tax expense (benefit) for the years ended December 31,
1995 and 1994 are as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
1995 1994
------------------------- ------------------------
Current Deferred Total Current Deferred Total
<S> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------
Federal $ - (3,143) (3,143) 40,487 (40,824) (337)
State - (434) (434) 10,953 (7,230) 3,723
- -----------------------------------------------------------------------------------
$ - (3,577) (3,577) 51,440 (48,054) 3,386
- -----------------------------------------------------------------------------------
</TABLE>
The following reconciles income tax expense and the amounts obtained by
applying the statutory U.S. federal income tax rate to earnings before
income tax expense, using a statutory rate of 34% for the years ended
December 31, 1995 and 1994.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
1995 1994
- -----------------------------------------------------------------------------------
<S> <C> <C>
Income tax expense (benefit) computed
at the statutory rate $(245,720) 22,581
Phase in of federal income tax brackets - (5,977)
Change in valuation allowance 271,803 -
Nondeductible political contributions 2,142 2,142
Nondeductible meal and entertainment expenses 3,377 1,502
State income taxes, net of federal tax benefit (34,689) 7,228
Change in estimate for previously provided taxes - (24,090)
Other (490) -
- -----------------------------------------------------------------------------------
$ (3,577) 3,386
- -----------------------------------------------------------------------------------
</TABLE>
(Continued)
12
<PAGE> 14
DENTAL CARE PLUS MANAGEMENT, CORP.
Notes to Financial Statements
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets at December 31, 1995 and 1994 are presented
below:
- -----------------------------------------------------------------------------------
1995 1994
- -----------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 191,000 -
Claims incurred but not reported - 17,765
Book depreciation in excess of tax depreciation 62,499 39,932
Accrued liabilities not deductible for tax purposes - 15,080
Other 18,304 11,102
Valuation allowance (271,803) -
- -----------------------------------------------------------------------------------
Total deferred tax assets $ - 83,879
===================================================================================
</TABLE>
In assessing the reliability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the
deferred tax assets will not be realized. The ultimate realization of
deferred tax assets is dependent upon the generation of future taxable
income during the periods in which those temporary differences become
deductible. DCP management has provided a valuation allowance at December
31, 1995 equivalent to total deferred tax assets.
(9) MAJOR CUSTOMERS
DCP has two major administrative services customers, excluding related
parties. Revenue from these contracts represented approximately 19% and
29%, respectively, and 17% and 21%, respectively, of total revenue for the
years ended December 31, 1995 and 1994. No other unrelated customer
accounted for 10% or more of total revenues for either year.
(10) LIQUIDITY AND ECONOMIC DEPENDENCY
DCP has a working capital deficit of approximately $800,000 at December
31, 1995, a shareholder's deficit of approximately $325,000 at December
31, 1995, and incurred a net loss of approximately $720,000 for 1995. DCP
is economically dependent upon related parties and affiliated entities as
of December 31, 1995 for continued operations. DCP management's ability
to modify the terms and conditions of services obtained from/provided to
related parties and affiliated entities as described in note 3, as well as
obtain guarantees for the incurrence of indebtedness as disclosed in note
5, will likely be required for DCP to maintain a level of liquidity
necessary for continued operations.
(Continued)
13
<PAGE> 15
DENTAL CARE PLUS MANAGEMENT, CORP.
Notes to Financial Statements
(11) SUBSEQUENT EVENT (UNAUDITED)
On May 8, 1996, DCP and IHCS were sold to CompDent Corporation for
aggregate consideration of approximately $38,000,000. Pursuant to the
sale, administrative and support services contracts with related parties,
except for IHCS and HCS, were all terminated effective as of the sale date.
14
<PAGE> 1
EXHIBIT 99.2
[LOGO KPMG]
The Global Leader
I.H.C.S., INC.
Financial Statements
December 31, 1995 and 1994
(With Independent Auditors' Report Thereon)
<PAGE> 2
[KPMG Letterhead]
INDEPENDENT AUDITORS' REPORT
The Board of Directors
I.H.C.S., Inc.
We have audited the accompanying balance sheets of I.H.C.S., Inc. (IHCS) as of
December 31, 1995 and 1994, and the related statements of income, shareholders'
equity, and cash flows for the years then ended. These financial statements are
the responsibility of IHCS' 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 IHCS as of December 31, 1995
and 1994, and the results of its operations and its cash flows for the years
then ended in conformity with generally accepted accounting principles.
KPMG Peat Markwick LLP
February 23, 1996
1
<PAGE> 3
I.H.C.S., INC.
Balance Sheets
December 31, 1995 and 1994
<TABLE>
<CAPTION>
=============================================================================
ASSETS 1995 1994
- -----------------------------------------------------------------------------
<S> <C> <C>
Current assets:
Cash $ 737,874 102,346
Premiums receivable 568,511 524,049
Prepaid expenses 15,331 -
Other receivables 815 3,958
- -----------------------------------------------------------------------------
Total current assets 1,322,531 630,353
- -----------------------------------------------------------------------------
Computer equipment, net of accumulated
depreciation of $76,557 in 1994 - 3,608
Investments 176,984 243,981
- -----------------------------------------------------------------------------
Total assets $1,499,515 877,942
=============================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term bank debt 100,000 249,935
Claims payable 220,487 151,254
Due to affiliates 134,522 5,013
Accrued expenses 325,086 221,886
Unearned premiums 30,648 36,784
- -----------------------------------------------------------------------------
Total current liabilities 810,743 664,872
- -----------------------------------------------------------------------------
Subordinated debt 57,817 52,817
Shareholders' equity:
Common stock, no par value, 1,000 shares
authorized, issued and outstanding 100,000 100,000
Retained earnings 530,955 60,253
- -----------------------------------------------------------------------------
Total shareholders' equity 630,955 160,253
- -----------------------------------------------------------------------------
Total liabilities and shareholders' equity $1,499,515 877,942
=============================================================================
</TABLE>
See accompanying notes to financial statements.
2
<PAGE> 4
I.H.C.S., INC.
Statements of Income
Years ended December 31, 1995 and 1994
<TABLE>
<CAPTION>
===============================================================================
1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C>
Revenue:
Premiums $9,205,785 8,026,882
Investment income, net 16,839 5,504
- -------------------------------------------------------------------------------
9,222,624 8,032,386
- -------------------------------------------------------------------------------
Expenses:
Selling, general and administrative 223,787 295,546
Administrative and other expenses
to affiliates 2,112,302 1,523,746
Professional services 6,361,156 6,088,820
Interest 17,101 25,775
Depreciation and amortization 3,608 11,071
- -------------------------------------------------------------------------------
8,717,954 7,944,958
- -------------------------------------------------------------------------------
Income before income taxes 504,670 87,428
Income tax expense 9,292 -
- -------------------------------------------------------------------------------
Net income $ 495,378 87,428
===============================================================================
Earnings per share $ 495.38 87.43
===============================================================================
Weighted average number of common
shares outstanding 1,000 1,000
===============================================================================
</TABLE>
See accompanying notes to financial statements.
3
<PAGE> 5
I.H.C.S., INC.
Statements of Changes in Shareholders' Equity
Years ended December 31, 1995 and 1994
<TABLE>
<CAPTION>
========================================================================================
Retained Total
Common earnings shareholders'
stock (deficit) equity
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balances at December 31, 1993 $100,000 (27,175) 72,825
Net income - 87,428 87,428
- ----------------------------------------------------------------------------------------
Balances at December 31, 1994 100,000 60,253 160,253
Subchapter S distribution to
shareholders ($24.68 per share) - (24,676) (24,676)
Net income - 495,378 495,378
- ----------------------------------------------------------------------------------------
Balances at December 31, 1995 $100,000 530,955 630,955
========================================================================================
</TABLE>
4
<PAGE> 6
I.H.C.S., INC.
Statements of Cash Flows
Years ended December 31, 1995 and 1994
<TABLE>
<CAPTION>
===================================================================================
1995 1994
- -----------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Excess of revenue over expenses $ 495,378 87,428
Adjustments to reconcile excess of revenue over expenses
to net cash provided by operating activities:
Depreciation and amortization 3,608 11,071
Non-cash interest on subordinated debt 5,000 2,817
Changes in assets and liabilities:
Premiums receivable (44,462) 34,510
Prepaid expenses (15,331) -
Other receivables 3,143 (3,958)
Claims payable 69,233 63,254
Due to affiliates 129,509 (63,636)
Accrued expenses 103,200 103,311
Unearned premiums (6,136) 13,288
- -----------------------------------------------------------------------------------
Net cash provided by operating activities 743,142 248,085
- -----------------------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from maturities of investments 66,997 -
Purchase of investments - (140,157)
- -----------------------------------------------------------------------------------
Net cash provided by (used in) investing activities 66,997 (140,157)
- -----------------------------------------------------------------------------------
Cash flows from financing activities:
Repayment of short-term bank debt (149,935) (50,065)
Repayment of loan payable - (10,662)
Proceeds from issuance of subordinated debt - 50,000
Subchapter S distribution to shareholders (24,676) -
- -----------------------------------------------------------------------------------
Net cash used in financing activities (174,611) (10,727)
- -----------------------------------------------------------------------------------
Net increase in cash 635,528 97,201
Cash at beginning of year 102,346 5,145
- -----------------------------------------------------------------------------------
Cash at end of year $ 737,874 102,346
===================================================================================
Supplemental disclosure of cash flow information -
cash paid during the year for interest $ 17,122 24,637
===================================================================================
</TABLE>
See accompanying notes to financial statements.
5
<PAGE> 7
I.H.C.S., INC.
Notes to Financial Statements
December 31, 1995 and 1994
(1) ORGANIZATION AND OPERATIONS
I.H.C.S., Inc. (IHCS) is a Subchapter S corporation licensed by the State
of Illinois under the Limited Health Services Organization Act. During May
of 1994, a subordinated surplus note of $50,000 was executed with an
outside party to obtain additional capital for the company. At that time,
the maker of the subordinated surplus note was given control over the
appointment of IHCS' Board of Directors. On July 15, 1994 an option
purchase agreement was entered into between the shareholders of IHCS and
the maker of the subordinated surplus note. The option allowed the maker
of the subordinated surplus note to acquire all outstanding shares of IHCS
stock, subject to Department of Insurance (DOI) of the State of Illinois
approval. During 1995, the maker of the subordinated surplus note exercised
the option to purchase all outstanding shares of IHCS stock, which was
approved by the DOI.
IHCS contracts, on a risk basis, with employers, union groups, and
governmental entities to arrange for the provision of managed care dental
services to enrollees and their eligible dependents. Premiums are
generally fixed for 12-month periods under contracts with each subscriber
group. Contract expiration dates vary among subscriber groups. Members
must select a participating dental provider from IHCS' list of
participating providers as their primary care provider (PCP). All general
dental services must be performed by the PCP. The PCP receives monthly
capitation payments based upon the demographics of members associated with
the PCP. In exchange for the capitation fee, the PCP is responsible for
the diagnosis and treatment of all members assigned to such PCP. PCPs also
refer members in need of advanced levels of service to specialists and
provide or arrange for emergency care. PCPs may also be eligible for
reimbursement in addition to their capitation payments as specified in
their respective provider agreements. IHCS does not reinsure any of its
dental care services risk.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Significant accounting policies of IHCS are as follows:
- Premium revenue is recorded over the term of the contract
period for which coverage relates. Retroactive premium adjustments
for changes in subscriber membership are recorded in the period in
which IHCS is notified of such changes. Premiums billed and
collected in advance are recorded as unearned premiums.
- Professional services are provided primarily by dentists under
contractual arrangements with IHCS, and such costs are recognized as
services are rendered.
- Claims payable represent an actuarially determined estimate of
liability based upon IHCS' known claims and an amount, based on past
experience, for claims incurred but not reported.
(Continued)
6
<PAGE> 8
I.H.C.S., INC.
Notes to Financial Statements
- IHCS makes monthly supplemental and guarantee payments to
certain dental providers based on the level of services actually
performed. Payments are determined in accordance with minimum
performance standards and vary based on the individual contracts
between IHCS and the respective providers. Supplemental and
guarantee payments are charged to professional services expense based
on estimates which incorporate historical payment trends and
experience. Any differences between amounts estimated for
supplemental and guarantee payments and subsequent actual payments
are recorded in the period in which final payments are determined.
Estimated amounts owed to providers in the amount of $302,000 and
$172,118, respectively, for supplemental and guarantee payments at
December 31, 1995 and 1994 are included in accrued expenses.
- IHCS' shareholders have elected to be taxed as an S Corporation
under the provisions of the Internal Revenue Code. Amounts reported
as income tax expense represent accrued state tax liability.
- Investments consist of long-term certificates of deposit and a
long-term U.S. Treasury note. At December 31, 1994, IHCS also
maintained investments in municipal income trust funds. Investments
in certificates of deposit and the U.S. Treasury note are stated at
cost which approximates market value. The municipal income trust
funds were recorded at market value. Market value was determined
based on quoted market prices. Municipal income trust funds had a
market value of $43,417 and a cost basis of $54,520 at December 31,
1994. The increase in the unrealized net loss on municipal income
trust funds during 1994 of $8,912 was recorded as a reduction of
investment income. At December 31, 1995, the contractual maturities
of IHCS' investments are as follows: due in one year - $150,000; due
after one year through five years - $26,984.
- Computer equipment is recorded at cost. Depreciation is
calculated on the straight-line method over a five-year period.
- Earnings per share is computed by dividing net income by the
weighted average number of common shares outstanding during the year.
- 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. Estimates also affect the
reported amounts of revenue and expenses during the reporting period.
Actual results could differ from those estimates.
(3) ADMINISTRATIVE FEES
Under the terms of a service agreement with a related entity, IHCS is
charged a monthly fee for the administration and marketing of the various
dental service plans offered. The amount of fees charged is based on total
subscription premium revenue earned by IHCS. Effective May 1, 1994, a
negotiated monthly administrative and marketing fee was formalized by IHCS
to be a combined 20% of subscription premium revenue earned each month.
Effective July 1, 1995, the negotiated
(Continued)
7
<PAGE> 9
I.H.C.S. INC.
Notes to Financial Statements
monthly administrative and marketing fee was formally amended to be a
combined 25% of subscription premium revenue earned each month.
Administrative and marketing fees pursuant to the original and amended
service agreements of $2,071,302 in 1995 and $1,523,746 in 1994 are
included in administrative and other expenses to affiliates in the
accompanying statements of income.
During 1995, Health Care Systems, Inc. (HCS), an affiliated entity,
charged IHCS their proportionate share of rent for common office space
based upon the level of dental costs incurred by IHCS. Rent paid to HCS
amounted to approximately $41,000 and is reflected as part of
administrative and other expenses to affiliates in the accompanying 1995
statement of income.
(4) SHORT-TERM BANK DEBT
IHCS maintains a revolving line of credit with a commercial bank having a
maximum credit capacity of $300,000. Amounts drawn under the line of
credit bear interest at the prime rate (8.5% at December 31, 1995 and
1994) and are secured by substantially all of Dental Care Plus Management,
Corp.'s (DCP) (an affiliated entity) assets. The line of credit expires
on June 15, 1996. The line of credit agreement requires IHCS to maintain
tangible net worth of $150,000 and a stated net worth ratio.
IHCS has pledged substantially all of its assets as security under a note
payable between DCP and a commercial bank. The principal balance
outstanding under this note at December 31, 1995 is $500,000. No amounts
have been paid or accrued pursuant to this guarantee as of December 31,
1995.
(5) SUBORDINATED DEBT
IHCS issued subordinated debt during 1994 in the form of a surplus note in
the amount of $50,000. The surplus note was executed to enable IHCS to
enhance the level of its statutory net worth pursuant to the Limited
Health Services Organization Act. The principal amount, together with
interest accruing at the prime rate plus 2% (not to exceed 10%), is not
repayable without prior authorization of the DOI, and is payable only if
after such payment IHCS' statutory net worth is equal to or greater than
the statutory net worth of IHCS on the original date of issuance of the
surplus note.
(6) MAJOR SUBSCRIBERS
IHCS has two major subscribers for services. Premium revenue from these
subscribers represented approximately 36% and 54%, respectively, and 35%
and 48%, respectively, of total premium revenue for the years ended
December 31, 1995 and 1994. No other subscriber accounted for 10% or more
of premium revenue for either year.
(Continued)
8
<PAGE> 10
I.H.C.S., INC.
Notes to Financial Statements
(7) REGULATORY REQUIREMENTS
Under Illinois law, IHCS is required to maintain a minimum statutory net
worth not less than $100,000 or 2% of gross premium income, up to a maximum
of $500,000. In addition, IHCS is required to maintain a deposit of
securities with the DOI equal to this minimum statutory net worth, not to
exceed $150,000. The securities maintained on deposit with the DOI consist
of a U.S. Treasury note with a carrying value of $150,000 which is included
with investments in the accompanying balance sheets.
Illinois law provides that dividends from IHCS may be paid only to the
extent that IHCS has surplus in excess of statutory minimums as reported in
the most recent financial statements filed with the Illinois Department of
Insurance and may be paid only out of earned surplus. In addition,
Illinois law requires Department of Insurance approval of any dividend from
IHCS exceeding the greater of (i) 10% of surplus (as of the preceding
December 31) or (ii) net income for the prior year. The Department of
Insurance also is empowered to require to suspend or reduce dividends in
order to increase the surplus retained.
(8) SUBSEQUENT EVENT (UNAUDITED)
On May 8, 1996, IHCS and DCP were sold to CompDent Corporation for
aggregate consideration of approximately $38,000,000.
9
<PAGE> 1
EXHIBIT 99.3
DENTAL CARE PLUS MANAGEMENT, CORP.
Balance Sheet
March 31, 1996
(Unaudited)
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents $ (321,563)
Premiums receivable 648,535
Prepaid expenses 40,673
Other receivables 85,605
Income taxes receivable 104,500
----------
Total current assets 557,750
----------
Property and equipment, net of accumulated depreciation 329,416
Intangibles, net of accumulated amortization 114,000
Other assets 58.947
----------
$1,060,113
==========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current portion of notes payable $ 404,701
Short-term borrowings 100,000
Claims payable
Accounts payable 305,397
Accrued expenses 209,302
Due to affiliates 777,907
----------
Total current liabilities $1,797,307
----------
Shareholders' equity:
Common stock 1,000
Additional paid-in capital 250,000
Retained earnings (deficit) (988,194)
----------
Total shareholders' equity (deficit) (737,194)
----------
$1,060,113
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 2
DENTAL CARE PLUS MANAGEMENT, CORP.
Statements of Operations
For the Three Months Ended March 31, 1996
(Unaudited)
<TABLE>
<S> <C>
Revenues:
Premiums $ 195,767
Administrative fees 553,149
Administrative and other fees from affiliates 1,622,317
----------
Total revenue 2,371,233
----------
Expenses:
Selling, general, and administrative 1,776,955
Administrative and other expenses to affiliates 917,329
Depreciation and amortization 44,979
Interest 15,234
----------
Total expenses 2,784,497
----------
Income before income taxes (413,264)
Income tax expense (benefit) -
----------
Net income (loss) $ (413,264)
==========
Earnings (loss) per share $ (413.26)
==========
Weighted average common shares outstanding 1,000
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 3
DENTAL CARE PLUS MANAGEMENT, CORP.
Statement of Cash Flows
For the Three Months Ended March 31, 1996
(Unaudited)
<TABLE>
<S> <C>
Cash flows from operating activities:
Net loss $(413,264)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 44,979
Changes in assets and liabilities:
Premiums receivable (606,259)
Other receivables (12,348)
Prepaid expenses 196,980
Other assets (22,902)
Accounts payable 12,172
Accrued expenses 97,795
Due from/to affiliates 674,048
---------
Net cash used in operating activities (28,799)
---------
Net cash used in investing activities--acquisition of property
and equipment (26,486)
---------
Net cash used in financing activities--repayment of notes payable (309,108)
---------
Decrease in cash and cash equivalents (364,393)
Cash and cash equivalents, beginning of period 42,830
---------
Cash and cash equivalents, end of period $(321,563)
=========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 15,234
=========
Income taxes $ 0
=========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 4
DENTAL CARE PLUS MANAGEMENT, CORP.
Notes to Financial Statements
March 31, 1996
1. BASIS OF PRESENTATION
The unaudited balance sheet as of March 31, 1996 and the unaudited
statement of operations and cash flows for the three months ended March 31,
1996, in the opinion of management, have been prepared on the same basis as the
audited financial statements and include all significant adjustments,
consisting of normal recurring adjustments, necessary for the fair presentation
of the results of the interim periods. The data disclosed in these notes to
the financial statements for these periods are also unaudited. The financial
statements and notes thereto should be read in conjunction with the financial
statements and notes thereto for the years ended December 31, 1995 and 1994,
and the years then ended. Operating results of Dental Care Plus Management,
Corp. for the three months ended March 31, 1996 are not necessarily indicative
of the results that may be expected for the entire year ending December 31,
1996.
2. SUBSEQUENT EVENT
On May 8, 1996, Dental Care Plus Management, Corp. and its affiliate,
I.H.C.S., Inc. were sold to CompDent Corporation for aggregate consideration of
approximately $38 million.
<PAGE> 1
EXHIBIT 99.4
I.H.C.S., INC.
Balance Sheet
March 31, 1996
(Unaudited)
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 300,129
Premiums receivable 722,886
Due from affiliates 531,158
----------
Total current assets 1,554,173
Investments
177,279
----------
$1,731,452
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term bank debt $ 100,000
Claims payable 220,487
Due to affiliates 202,725
Accounts payable 12,913
Accrued expenses 338,100
Income taxes payable 44,902
Unearned premiums 54,736
----------
Total current liabilities 973,863
----------
Subordinated debt 59,063
----------
Shareholders' equity:
Common stock 100,000
Retained earnings 598,525
----------
Total shareholders' equity 698,525
----------
$1,731,452
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 2
I.H.C.S., INC.
Statements of Operations
For the Three Months Ended March 31, 1996
(Unaudited)
<TABLE>
<S> <C>
Revenues:
Premiums $3,228,115
Investment income, net 2,069
----------
Total revenue 3,230,184
----------
Expenses:
Selling, general, and administrative 100,574
Administrative and other expenses to affiliate 968,434
Professional services 2,044,951
Interest 3,360
----------
Total expenses 3,117,320
----------
Income before income taxes 112,864
Income tax expense 45,294
----------
Net income $ 67,570
==========
Earnings per share $ 67.57
==========
Weighted average common shares outstanding 1,000
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 3
I.H.C.S., INC.
Statement of Cash Flows
For the Three Months Ended March 31, 1996
(Unaudited)
<TABLE>
<S> <C>
Cash flows from operating activities:
Net Income $ 67,570
Adjustments to reconcile net income to net cash
provided by operating activities:
Non-cash interest on subordinated debt 1,246
Changes in assets and liabilities:
Premiums receivable (154,375)
Other assets 15,851
Accounts payable 12,913
Accrued expenses 13,015
Income taxes payable 44,902
Unearned revenue 24,088
Due from/to affiliates (462,955)
---------
Decrease in cash and cash equivalents (437,745)
Cash and cash equivalents, beginning of period 737,874
---------
Cash and cash equivalents, end of period $ 300,129
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 2,114
=========
Income taxes $ 392
=========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 4
I.H.C.S., INC.
Notes to Financial Statements
March 31, 1996
1. BASIS OF PRESENTATION
The unaudited balance sheet as of March 31, 1996 and the unaudited
statement of operations and cash flows for the three months ended March 31,
1996, in the opinion of management, have been prepared on the same basis as the
audited financial statements and include all significant adjustments,
consisting of normal recurring adjustments, necessary for the fair presentation
of the results of the interim periods. The data disclosed in these notes to
the financial statements for these periods are also unaudited. The financial
statements and notes thereto should be read in conjunction with the financial
statements and notes thereto for the years ended December 31, 1995 and 1994,
and the years then ended. Operating results of I.H.C.S., Inc. for the three
months ended March 31, 1996 are not necessarily indicative of the results that
may be expected for the entire year ending December 31, 1996.
2. SUBSEQUENT EVENT
On May 8, 1996, I.H.C.S., Inc. and its affiliate, Dental Care Plus
Management, Corp., were sold to CompDent Corporation for aggregate
consideration of approximately $38 million.
<PAGE> 1
EXHIBIT 99.5
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
INTRODUCTION
The accompanying unaudited pro forma condensed consolidated financial
statements reflect the consolidated financial position of CompDent Corporation
(the Company) as of March 31, 1996, and the results of its consolidated
operations for the year ended December 31, 1995 and the three months ended
March 31, 1996 after giving pro forma effect to (i) the purchase of CompDent
Corporation (CompDent), Texas Dental Plan, Inc. and Affiliates (Texas Dental),
and Dental Care Plus Management, Corp. and its Affiliate, I.H.C.S., Inc.
(Dental Care Plus), (ii) the initial public offering of common stock that was
completed June 1, 1995, and (iii) the second offering of common stock that was
completed August 25, 1995. The unaudited pro forma condensed consolidated
financial statements should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the respective historical financial statements of the Company, Texas Dental,
and Dental Care Plus, 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 acquisitions and offerings actually been completed as of
the dates indicated on the following pages nor which may be achieved in the
future.
<PAGE> 2
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 31, 1996
(in thousands)
<TABLE>
<CAPTION>
Company
Pro Forma
Dental Pro Forma Consolidated
Company(s) Care Plus(s) IHCS(s) Adjustments(t) As Adjusted
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...................... $ 23,567 ($322) $ 300 $ 23,545
Premiums receivable............................ 4,352 648 723 ($712) 5,011
Dental indemnity premiums due and unpaid....... 716 716
Assets held for sale........................... 519 519
Deferred income taxes.......................... 2,223 2,977 5,200
Other current assets........................... 285 128 531 944
------------------------------------------------------------------
Total current assets........................ 31,662 454 1,554 2,265 35,935
------------------------------------------------------------------
Restricted funds................................. 1,463 1,463
Property and equipment, net...................... 2,059 329 (281) 2,107
Excess of purchase price over net assets acquired 96,426 39,027 135,453
Noncompetition agreements........................ 1,405 114 (101) 1,418
Deferred income taxes............................ 441 163 604
Reinsurance receivable........................... 5,432 5,432
Other assets..................................... 801 59 177 1,037
------------------------------------------------------------------
Total assets............................... $139,689 $ 956 $1,731 $41,073 $183,449
==================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Unearned revenue............................... $ 12,531 $ 12,531
Dental claims reserve.......................... 9,864 9,864
Accounts payable and accrued expenses.......... 1,810 $ 201 $ 278 $ 3,093 5,382
Other.......................................... 1,043 1,463 696 3,202
------------------------------------------------------------------
Total current liabilities.................. 25,248 1,664 974 3,093 30,979
------------------------------------------------------------------
Aggregate reserve for life policies and contracts 5,339 5,339
Notes payable.................................... 4,000 29 38,000 42,029
Other liabilities................................ 678 678
------------------------------------------------------------------
35,265 1,693 974 41,093 79,025
------------------------------------------------------------------
Stockholders' equity:
Common stock................................... 100 1 100 (101) 100
Additional paid-in capital..................... 95,718 250 59 (309) 95,718
Retained earnings.............................. 8,606 (988) 598 390 8,606
------------------------------------------------------------------
Total stockholders' equity................. 104,424 (737) 757 (20) 104,424
------------------------------------------------------------------
Total liabilities and stockholders' equity. $139,689 $ 956 $1,731 $41,073 $183,449
==================================================================
</TABLE>
Page 1
<PAGE> 3
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
for the three months ended March 31, 1996
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
Company
Pro Forma
Dental Pro Forma Consolidated
Company(m) Care Plus(m) IHCS(m) Adjustments As Adjusted
--------------------------------------------------------- ------------
<S> <C> <C> <C> <C> <C>
Revenues......................................... $31,385 $2,371 $3,228 ($968)(n) $36,016
----------------------------------------------------- ----------
Dental care providers' fees
and claim costs................................ 16,481 2,045 18,526
Commissions...................................... 3,013 116 27 3,156
Depreciation and amortization.................... 1,047 45 248 (o) 1,340
General and administrative....................... 7,030 2,608 1,042 (1,216)(p) 9,464
----------------------------------------------------- ----------
Operating income................................. 3,814 (398) 114 (0) 3,530
Interest expense................................. (107) 15 3 950 (q) 861
Other (income) expense, net...................... (10) (2) (12)
----------------------------------------------------- ----------
Income before provision for
income taxes................................... 3,931 (413) 113 (950) 2,681
Provision for income taxes....................... 1,694 45 (386)(r) 1,353
----------------------------------------------------- ----------
Net income....................................... $ 2,237 ($413) $ 68 ($564) $ 1,328
===================================================== ==========
Net income per common share...................... $ 0.22 $ 0.13
========== ==========
Weighted average number of common
shares outstanding............................. 10,156,064 10,156,064
========== ==========
</TABLE>
Page 1
<PAGE> 4
Unaudited Pro Forma Condensed Consolidated Statement of Operations
for the year ended December 31, 1995
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
Initial Public
Offering, Second
Offering And
Texas Pro Forma
Company(a) CompDent(b) Dental(a) Adjustments
--------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues......................................... $106,661 $17,167 $8,639
--------------------------------------------------------
Dental care providers' fees
and claim costs................................ 62,218 10,285
Commissions...................................... 10,763 862 2,067
Depreciation and amortization.................... 2,717 249 132 $ 992 (c)
General and administrative....................... 20,827 4,031 6,692 (1,659)(d)
-------------------------------------------------
Operating income................................. 10,136 1,740 (252) 667
Interest expense................................. 1,970 10 (1,980)(e)
Other (income) expense, net...................... (803) (71)
-------------------------------------------------
Income before provision for income
taxes and extraordinary item................... 8,969 1,740 (191) 2,647
Provision for income taxes....................... 3,765 767 40 1,247 (f)
-------------------------------------------------
Income before extraordinary item................. 5,204 973 (231) 1,400
Extraordinary loss, net of applicable
tax benefit of $305............................ (498)
-------------------------------------------------
Net income....................................... $ 4,706 $ 973 $ (231) $ 1,400
=================================================
Net income per common share (g):.................
Income before extraordinary item............... $ 0.68
Extraordinary item............................. $ (0.07)
Net income per common share...................... $ 0.61
=========
Weighted average number of common
shares outstanding (h)......................... 7,351,655
=========
<CAPTION>
Company
Pro Forma
Dental Pro Forma Consolidated
Pro Forma Care Plus(a) IHCS(a) Adjustments As Adjusted
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues......................................... $132,467 $10,038 $9,223 $(2,071)(i) $ 149,657
-------------------------------------------- ----------
Dental care providers' fees
and claim costs................................ 72,503 1,525 6,361 80,389
Commissions...................................... 13,692 13,692
Depreciation and amortization.................... 4,090 326 4 992 (j) 5,412
General and administrative....................... 29,891 8,827 2,337 (5,514)(k) 35,541
-------------------------------------------- ----------
Operating income................................. 12,291 (640) 521 2,451 14,623
Interest expense................................. - 32 17 3,800 (l) 3,849
Other (income) expense, net...................... (874) 51 (823)
-------------------------------------------- ----------
Income before provision for income
taxes and extraordinary item................... 13,165 (723) 504 (1,349) 11,597
Provision for income taxes....................... 5,819 (4) 9 (201)(r) 5,623
-------------------------------------------- ----------
Income before extraordinary item................. 7,346 (719) 495 (1,149) 5,973
Extraordinary loss, net of applicable
tax benefit of $305............................ (498) (498)
-------------------------------------------- ----------
Net income....................................... $ 6,848 $ (719) $ 495 $(1,149) $ 5,475
============================================ ==========
Net income per common share (g):
Income before extraordinary item............... $ 0.73 $ 0.59
Extraordinary item............................. $ (0.05) $ (0.05)
----------
Net income per common share...................... $ 0.68 $ 0.54
========== ==========
Weighted average number of common
shares outstanding (h)......................... 10,127,748 10,127,748
========== ==========
</TABLE>
Page 1
<PAGE> 5
NOTES TO THE UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(in Thousands)
The unaudited pro forma condensed consolidated statement of operations for the
year ended December 31, 1995 gives effect to the consolidated results of
operations for the year ended December 31, 1995, as if the acquisitions of
CompDent, Texas Dental, and Dental Care Plus and the offerings occurred at
January 1, 1995. The unaudited pro forma condensed consolidated statement of
operations for the three months ended March 31, 1996 gives effect to the
consolidated results of operations for the three months ended March 31, 1996,
as if the acquisitions of Texas Dental and Dental Care Plus occurred at January
1, 1996. These results are not necessarily indicative of the consolidated
results of operations 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 and 1996,
respectively. The unaudited pro forma condensed consolidated balance sheet
gives effect to the financial position at March 31, 1996, as if the acquisition
of Dental Care Plus occurred at March 31, 1996. Such consolidated financial
position is not necessarily indicative of the consolidated financial position
of the Company as it may be in the future, or as it might have been had these
events been effective at March 31, 1996. The unaudited pro forma condensed
consolidated financial information should be read in conjunction with the
historical financial statements of the Company, CompDent, Texas Dental, and
Dental Care Plus 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,
Texas Dental, and Dental Care Plus on a consolidated and combined basis,
respectively, for the year ended December 31, 1995.
(b) Represents the historical condensed consolidated results of CompDent for
the period January 1, 1995 to July 5, 1995 (the CompDent acquisition
date).
(c) Represents the net increase to amortization ($1,009) of the cost over the
fair value of net assets acquired over a period of forty years and the
increase to amortization ($13) for the noncompete agreements entered into
by the former owners of Texas Dental. Depreciation expense ($2) has also
been reduced to reflect the sale of certain assets to the former owners of
CompDent and to reflect the reduction of depreciation expense ($28) as a
result of preliminary purchase price adjustments.
(d) Reflects the elimination of salaries and benefits ($303) paid to the
former employee owners of CompDent who will not be replaced and the
elimination of salaries and
<PAGE> 6
benefits ($1,356) paid to the former employee owners of Texas Dental who
will not be replaced.
(e) Reflects the reduction in interest cost ($3,047) resulting from the
payment of debt with the net proceeds of the initial public offering and
the second public offering, the increase to interest costs ($1,067)
resulting from additional debt of $21,332 with interest at 10% associated
with the financing of the acquisition of CompDent.
(f) Reflects applicable income tax effects of adjustments.
(g) Net income per common share is calculated by dividing pro forma net income
by the weighted average number of common shares outstanding. Such pro
forma net income reflects the impact of the adjustments above. Pro forma
net income per common share has been computed after deducting $219 from
income attributable to redeemable preferred stock dividend accumulation
from the "Company" amounts.
(h) Weighted average number of common shares oustanding is calculated based
upon the relevant weighted average shares outstanding and options
outstanding and options outstanding (using the treasury stock method) for
each calculation presented.
(i) Reflects the reduction of revenues for an intercompany management fee
charged by Dental Care Plus Management, Corp. (DCP) to I.H.C.S., Inc.
(IHCS).
(j) Represents the net increase to amortization for the cost over the fair
value of the net assets acquired over a period of forty years.
(a) Reflects the reduction of general and administrative expense ($2,071) for
an intercompany management fee charged by DCP to IHCS and ($3,443) for
consulting costs incurred by DCP under various contractual arrangements
with related entities of DCP which were terminated upon the Company's
purchase of DCP.
(b) Represents the increase to interest costs resulting from additional debt of
$38,000 with interest at 10% associated with the financing of the
acquisition of DCP.
(c) Represents the historical condensed consolidated results of the Company and
Dental Care Plus, including its affiliate, I.H.C.S., Inc., on a
consolidated and combined basis, respectively, for the three months ended
March 31, 1996.
PRO FORMA ADJUSTMENTS FOR THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1996 ARE AS
FOLLOWS:
(n) Reflects the reduction of revenues for an intercompany management fee
charged by DCP to IHCS.
<PAGE> 7
(o) Represents the net increase to amortization for the cost over the fair
value of the net assets acquired over a period of forty years.
(p) Reflects the reduction of general and administrative expense ($968) for an
intercompany management fee charged by DCP to IHCS and ($248) for
consulting costs incurred by DCP under various contractual arrangements
with related entities of DCP which were terminated upon the Company's
purchase of DCP.
(q) Represents the increase to interest costs resulting from additional debt of
$38,000 with interest at 10% associated with the financing of the
acquisition of DCP.
(r) Reflects the applicable income tax effects of adjustments.
PRO FORMA ADJUSTMENTS FOR THE UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET AT
MARCH 31, 1996 ARE AS FOLLOWS:
(s) Reflects historical financial position of the Company, DCP, and IHCS at
March 31, 1996.
(t) Reflects assumed adjustment based upon a preliminary purchase price
allocation for the Dental Care Plus acquisition, including borrowings on the
Company's credit facility, the allocation of the purchase price over the
fair values of the net assets acquired and the elimination of Dental Care
Plus' stockholders' equity.
NOTE: THE USE OF INITIAL PUBLIC OFFERING PROCEEDS TO REPAY OUTSTANDING
INDEBTEDNESS RESULTED IN AN IMMEDIATE WRITE-OFF OF $803 ($498 NET OF
TAX) REPRESENTING UNAMORTIZED LOAN FEES EXISTING AT JUNE 1, 1995.
