<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
--------------------
AMENDMENT NUMBER 2 TO
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) July 1, 1996
------------
HEALTHPLAN SERVICES CORPORATION
(Exact Name of Registrant as Specified in Charter)
DELAWARE 1-13772 13-3787901
-------- ------- ----------
(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
3501 FRONTAGE ROAD, TAMPA, FLORIDA 33607
-------------------------------------- --------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (813) 289-1000
--------------
Not Applicable
--------------
(Former Name or Former Address, if Changed Since Last Report)
Exhibit Index on Page 29
<PAGE> 2
The registrant is hereby replacing Item 2. Acquisition or Disposition
of Assets, as filed in the registrant's Current Report on Form 8-K dated July
16, 1996, to specifically include additional information about the goodwill
accounting policy of the registrant.
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
(a) On July 1, 1996, the Registrant acquired all of the issued and
outstanding shares of capital stock of Harrington Services Corporation
("Harrington") for a purchase price consisting of (i) approximately
$32.5 million in cash, subject to a post-closing adjustment based on
the balance sheet of Harrington as of June 30, 1996, and (ii)
1,347,133 shares of common stock with a total market value at time of
issuance of approximately $28.8 million. The acquisition was
consummated pursuant to the terms of a certain Plan and Agreement of
Merger dated May 28, 1996 (the "Agreement") between the Registrant,
HealthPlan Services Alpha Corporation, Harrington, and Robert Chefitz
as representative of the Harrington shareholders. The purchase price
was determined through arms' length negotiation between the parties.
As of the date of the closing of this acquisition, there was no
material relationship between any of the shareholders of Harrington
and the Registrant or any of the Registrant's affiliates, directors,
officers or any associate thereof.
In connection with the acquisition of Harrington, the Company acquired
a significant number of contracts with varied lives, terms and
conditions. The fair value of these contracts are part of and
inseparable from the value of the businesses as a whole and
accordingly, no individual contract has been identified as a separately
acquired asset. This acquisition represented the acquisition of
substantial infrastructure and related industry experience and
operating history, rather than a new type of business. Additionally,
this treatment is consistent with the treatment applied to the
acquisition of the assets of the Company from The Dun & Bradstreet
Corporation in 1994.
Concurrently with the closing of the merger transaction, the
shareholders of Harrington and the Registrant entered into a
Registration Rights Agreement, dated July 1, 1996, pursuant to which
the Registrant agreed, among other things, to prepare and file with the
Securities and Exchange Commission a registration statement (the
"Continuous Offering Registration Statement") sufficient to permit the
public offering and sale of the Registrant's common stock delivered to
the Harrington shareholders as the stock consideration in the merger
transaction (the "Registrable Securities"), and to register and qualify
such Registrable Securities for sale under the securities or blue sky
laws of the jurisdictions which the shareholders may reasonably
request. Such Continuous Offering Registration Statement is to become
effective no later than October 31, 1996, unless a registration
statement with respect to an underwritten offering of the Registrant's
common stock (the "Underwritten Offering Registration Statement")
becomes effective prior to such date and the ninety (90) day lockup
period related thereto has not then expired, in which case the
Continuous Offering Registration Statement shall become effective
within fifty-five (55) days of the expiration of such lockup period. In
addition, if the Registrant proposes to file an Underwritten Offering
Registration Statement at any time during which the holders of
Registrable Securities hold in the aggregate more than 200,000 shares
of such securities, and such Registrable Securities have not become
saleable under Rule 144, the Registrant shall give advance notice to
the holders of such Registrable Securities of its intent to file an
Underwritten Offering Registration Statement and the holders of
Registrable Securities may request to include such Registrable
Securities in the Underwritten Offering, subject to certain
limitations.
A substantial part of the funds used to pay the cash portion of the
purchase price were provided to the Registrant under its line of
credit with a group of lenders for which First Union National Bank of
North Carolina acts as agent, pursuant to a renegotiation of such line
of credit under the terms of that certain Credit Agreement dated May
17, 1996, as amended by the First Amendment thereto dated July 1,
1996, by and among the Registrant, HealthPlan Services, Inc., Third
Party Management Claims Inc., Healthcare Informatics Corporation, the
lenders who are or may become a party thereto, and First Union
National Bank of North Carolina, as agent for the lenders. Under this
line of credit, the Registrant is permitted to borrow up to $85
million. Interest on funds drawn on this line is calculated on
a rolling four quarter pro forma basis. As of July 15, 1996, the
amount drawn on this line is $60 million.
(b) Harrington's principal business is the administration of medical
benefits for self-funded health care plans of primarily large groups,
and its assets are comprised of contracts for the provision of such
administration services. With the exception of office equipment, none
of the assets of Harrington as of the consummation of the merger
constituted plant, equipment or tangible property.
2
<PAGE> 3
This registrant is hereby replacing the financial statements as filed
in Item 7 on its Amendment Number 1 to the registrant's Current Report on Form
8-K dated July 16, 1996, which Amendment Number 1 was dated September 13, 1996.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
<TABLE>
<CAPTION>
<S> <C> <C>
(a) Financial statements of businesses acquired.
Report of Independent Auditors 4
Consolidated Balance Sheets December 31, 1995 and 1994 5
Consolidated Statements of Operations and Retained Earnings
for the years ended December 31, 1995, 1994, and 1993 6
Consolidated Statements of Cash Flows for the years ended
December 31, 1995, 1994, and 1993 7
Notes to Financial Statements 8
Consolidated Balance Sheets June 30, 1996 and 1995 (Unaudited) 18
Consolidated Statements of Income for the six months
ended June 30, 1996 and 1995 (Unaudited) 19
Consolidated Statement of Cash Flows for the six months ended
June 30, 1996 and 1995 (Unaudited) 20
Notes to Consolidated Financial Statements 21
(b) Pro forma financial information.
Introduction to Unaudited Pro Forma Consolidated Financial Statements 22
Pro Forma Consolidated Balance Sheet June 30, 1996 (Unaudited) 23
Notes to Pro Forma Consolidated Balance Sheet 24
Pro Forma Consolidated Statement of Income for the six months
ended June 30, 1996 (Unaudited) 25
Pro Forma Consolidated Statement of Income for the year ended
December 31, 1995 (Unaudited) 26
Notes to Pro Forma Consolidated Statements of Income 27
(c) Exhibits
See Exhibit Index on page 29.
</TABLE>
3
<PAGE> 4
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Harrington Services Corporation
Columbus, Ohio
We have audited the accompanying consolidated balance sheets of
Harrington Services Corporation and subsidiaries as at December 31, 1995 and
December 31, 1994, and the related consolidated statements of operations and
retained earnings and cash flows for each of the years in the three-year period
ended December 31, 1995. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements enumerated above present
fairly, in all material respects, the consolidated financial position of
Harrington Services Corporation and subsidiaries at December 31, 1995 and
December 31, 1994, and the consolidated results of their operations and their
consolidated cash flows for each of the years in the three-year period ended
December 31, 1995, in conformity with generally accepted accounting principles.
Richard A. Eisner & Company, LLP
New York, New York
February 16, 1996
4
<PAGE> 5
HARRINGTON SERVICES CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
---------------------------
A S S E T S 1995 1994
----------- -----------
(Note 5)
<S> <C> <C>
Current assets:
Cash and cash equivalents (Notes 1 and 9) . . . . . . . . . . $ 6,309,278 $ 3,434,478
Accounts receivable - net (Note 9) . . . . . . . . . . . . . 3,169,171 3,496,066
Refundable income taxes . . . . . . . . . . . . . . . . . . . 294,628
Prepaid expenses and other current assets . . . . . . . . . . 657,215 656,378
----------- -----------
Total current assets . . . . . . . . . . . . . . 10,430,292 7,586,922
Property and equipment - at cost, less accumulated
depreciation and amortization (Notes 1 and 3) . . . . . . . . 4,403,768 3,148,630
Intangible assets - at cost, less accumulated
amortization (Notes 1 and 4) . . . . . . . . . . . . . . . . 19,192,066 22,498,008
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . 1,319,285 1,538,522
----------- -----------
T O T A L . . . . . . . . . . . . . . . . . . . $35,345,411 $34,772,082
=========== ===========
L I A B I L I T I E S
Current liabilities:
Current portion of long-term debt (Notes 2 and 5) . . . . . . $ 3,957,003 $ 3,910,193
Current portion of obligations under capital
leases (Note 6) . . . . . . . . . . . . . . . . . . . . . . . 222,491
Accounts payable . . . . . . . . . . . . . . . . . . . . . . 1,383,826 1,060,110
Accrued payroll and related benefits . . . . . . . . . . . . 2,844,800 2,780,646
Income taxes payable . . . . . . . . . . . . . . . . . . . . 174,888
Other current liabilities . . . . . . . . . . . . . . . . . . 1,626,930 1,319,270
----------- -----------
Total current liabilities. . . . . . . . . . . . 10,035,050 9,245,107
Long-term debt, less current portion (Notes 2 and 5) . . . . . . 7,750,177 10,727,727
Obligations under capital leases, less current
portion (Note 6) . . . . . . . . . . . . . . . . . . . . . . 1,249,652
Deferred income taxes payable (Note 8) . . . . . . . . . . . . . 2,107,000 1,989,000
Other liabilities (Note 9) . . . . . . . . . . . . . . . . . . . 2,410,403 2,730,640
Put warrant (Note 7) . . . . . . . . . . . . . . . . . . . . . . 3,000,000 1,500,000
----------- -----------
Total liabilities. . . . . . . . . . . . . . . . 26,552,282 26,192,474
----------- -----------
Commitments, contingencies and other matters
(Notes 1, 7 and 9)
STOCKHOLDERS' EQUITY
Capital stock (Note 7):
10% cumulative preferred stock - authorized 200,000
shares; par value $.01 per share (liquidation
preference - $3,328,400); issued and outstanding
33,284 shares . . . . . . . . . . . . . . . . . . . . . . . 332 332
Common stock - authorized 2,200,000 shares; par value
$.01 per share; issued and outstanding 1,693,392
shares . . . . . . . . . . . . . . . . . . . . . . . . . . 16,934 16,934
Additional paid-in capital . . . . . . . . . . . . . . . . . . . 6,313,717 6,313,717
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . 2,462,146 2,248,625
----------- -----------
Total stockholders' equity . . . . . . . . . . . 8,793,129 8,579,608
----------- -----------
T O T A L . . . . . . . . . . . . . . . . . . . $35,345,411 $34,772,082
=========== ===========
</TABLE>
The accompanying notes to financial statements
are an integral part hereof.
5
<PAGE> 6
HARRINGTON SERVICES CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND
RETAINED EARNINGS
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Revenues from services (Note 9) . . . . . . . . . . . $71,869,284 $68,744,908 $57,772,859
----------- ----------- -----------
Payroll and related benefits . . . . . . . . . . . . 42,790,922 40,727,453 34,297,216
Other operating expenses . . . . . . . . . . . . . . 17,478,330 16,555,060 14,894,001
Depreciation and amortization (Note 1) . . . . . . . 4,800,810 4,812,958 3,733,967
----------- ----------- -----------
T o t a l . . . . . . . . . . . . . . . . . . . . 65,070,062 62,095,471 52,925,184
----------- ----------- -----------
Income from operations before items below . . . . . . 6,799,222 6,649,437 4,847,675
Interest expense - net of interest income
(Note 9) . . . . . . . . . . . . . . . . . . . . 1,058,345 1,175,089 1,155,798
----------- ----------- -----------
Income from operations before income taxes,
extraordinary charge and cumulative
effect . . . . . . . . . . . . . . . . . . . . . 5,740,877 5,474,348 3,691,877
----------- ----------- -----------
Provision (benefit) for income taxes
(Notes 1 and 8):
Current . . . . . . . . . . . . . . . . . . . . 3,576,516 2,620,290 1,630,709
Deferred . . . . . . . . . . . . . . . . . . . 118,000 (621,000) (64,000)
----------- ----------- -----------
3,694,516 1,999,290 1,566,709
----------- ----------- -----------
Income from operations before extraordinary
charge and cumulative effect of change
in method of accounting . . . . . . . . . . . . . 2,046,361 3,475,058 2,125,168
Extraordinary charge - early extinguishment
of debt (net of income tax benefit of
$469,000) (Note 5) . . . . . . . . . . . . . . . 619,363
Cumulative effect - change in accounting
for postretirement health care benefits
(net of income tax benefit of $412,000)
(Note 9) . . . . . . . . . . . . . . . . . . . . 673,288
----------- ----------- -----------
Net income . . . . . . . . . . . . . . . . . . . . . 2,046,361 3,475,058 832,517
Preferred dividends . . . . . . . . . . . . . . . . . (332,840) (332,840) (332,840)
Adjustment of put warrant . . . . . . . . . . . . . . (1,500,000) (750,000)
----------- ----------- -----------
Net income applicable to common
stockholders . . . . . . . . . . . . . . . . . . 213,521 2,392,218 499,677
Retained earnings - beginning of year . . . . . . . . 2,248,625 783,163 950,646
Difference between cumulative dividends and
dividends paid . . . . . . . . . . . . . . . . . (926,756) (667,160)
----------- ----------- -----------
RETAINED EARNINGS - END OF YEAR . . . . . . . . . . . $ 2,462,146 $ 2,248,625 $ 783,163
=========== =========== ===========
Net income per common share (Note 1):
Income before extraordinary charge and
cumulative effect of change in
method of accounting . . . . . . . . . . . . . $ .13 $ 1.41 $ 1.01
Extraordinary charge . . . . . . . . . . . . . . (.35)
Cumulative effect of change in method
of accounting . . . . . . . . . . . . . . . . . (.38)
----------- ----------- -----------
Net income . . . . . . . . . . . . . . . . . . . $ .13 $ 1.41 $ .28
=========== =========== ===========
</TABLE>
The accompanying notes to financial statements
are an integral part hereof.
6
<PAGE> 7
HARRINGTON SERVICES CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------
1995 1994 1993
----------- ----------- ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . $ 2,046,361 $ 3,475,058 $ 832,517
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization . . . . . . . . 4,800,810 4,812,958 3,733,967
Deferred income taxes . . . . . . . . . . . . 118,000 (621,000) (64,000)
Cumulative effect of change in
accounting for postretirement
health care benefits . . . . . . . . . . . 673,288
Accretion of discount on long-term
debt . . . . . . . . . . . . . . . . . . . 49,252 68,840 184,950
Loss on disposal of equipment . . . . . . . 57,312
Changes in operating assets and
liabilities:
(Increase) decrease in accounts
receivable - net . . . . . . . . . . . 326,895 (357,593) (108,463)
(Increase) in refundable income
taxes . . . . . . . . . . . . . . . . . (294,628)
(Increase) decrease in prepaid
expenses and other current
assets . . . . . . . . . . . . . . . . (837) (83,308) 170,163
(Increase) decrease in other
assets . . . . . . . . . . . . . . . . 219,236 (527,847) (427,487)
Increase (decrease) in accounts
payable, accrued payroll and
related benefits . . . . . . . . . . . 387,870 687,995 (858,070)
(Decrease) in income taxes
payable . . . . . . . . . . . . . . . . (174,888) (112,235) (209,276)
Increase (decrease) in other
current liabilities . . . . . . . . . . 307,660 (54,527) 242,505
Increase (decrease) in other
liabilities . . . . . . . . . . . . . . (320,237) 532,896 31,714
----------- ----------- ------------
Net cash provided by
operating activities . . . . . . . 7,522,806 7,821,237 4,201,808
----------- ----------- ------------
Cash flows from investing activities:
Property and equipment purchases . . . . . . . . (1,253,538) (1,181,938) (757,729)
Proceeds from disposal of equipment . . . . . . . 18,238
Acquisition of businesses, net of cash
acquired . . . . . . . . . . . . . . . . . . . (3,301,591) (5,794,108)
----------- ----------- ------------
Net cash (used in) investing
activities . . . . . . . . . . . . (1,235,300) (4,483,529) (6,551,837)
----------- ----------- ------------
Cash flows from financing activities:
Proceeds from credit and security
agreement . . . . . . . . . . . . . . . . . . . 900,000 15,996,604
Principal payments on long-term debt . . . . . . (3,879,991) (3,516,294) (13,140,885)
Principal payments on obligations
under capital leases . . . . . . . . . . . . . (99,875)
Payment of preferred dividends . . . . . . . . . (332,840) (1,259,596) (1,000,000)
Purchase and retirement of common stock . . . . . (232,375)
----------- ----------- ------------
Net cash provided by (used
in) financing activities . . . . . (3,412,706) (4,775,890) 1,623,344
----------- ----------- ------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS . . . . . . . . . . . . . . . . . . . 2,874,800 (1,438,182) (726,685)
Cash and cash equivalents - beginning of
year. . . . . . . . . . . . . . . . . . . . . . . 3,434,478 4,872,660 5,599,345
----------- ----------- ------------
CASH AND CASH EQUIVALENTS - END OF YEAR . . . . . . . $ 6,309,278 $ 3,434,478 $ 4,872,660
=========== =========== ============
Supplemental disclosures of cash flow
information:
Cash paid during the year for:
Interest . . . . . . . . . . . . . . . . . . $ 1,386,917 $ 1,242,816 $ 1,151,934
Taxes . . . . . . . . . . . . . . . . . . . . 4,127,647 2,726,055 1,388,354
</TABLE>
Note: Equipment under capitalized leases and related obligations of $1,572,018
were recorded during the year ended December 31, 1995.
The accompanying notes to financial statements
are an integral part hereof.
7
<PAGE> 8
HARRINGTON SERVICES CORPORATION
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE 1) - Significant Accounting Policies:
The Company:
The Company provides consulting and administrative services in
connection with domestic employee benefits programs.
Basis of preparation:
The accompanying consolidated financial statements include the
accounts of Harrington Services Corporation and its wholly owned subsidiaries
(collectively referred to as the "Company"). Intercompany accounts and
transactions are eliminated in consolidation.
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 at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
The Company reviews customer base and other long-lived assets for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Any future determination
of an impairment loss could adversely affect the financial position and results
of operations of the Company.
Property and equipment:
Office furniture and equipment are depreciated over the estimated
useful lives of the assets using the straight-line method. Leasehold
improvements are amortized over the estimated useful lives of the assets or the
lease term, whichever is shorter, using the straight-line method.
Customer base:
Customer contracts are being amortized over the estimated lives of the
contracts (8-15 years), based on historical experience, using the straight-line
method.
Leasehold interest:
Leasehold interest is being amortized over the remaining life of the
lease, including anticipated renewal periods (12 years), using the
straight-line method.
(continued)
8
<PAGE> 9
HARRINGTON SERVICES CORPORATION
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE 1) - Significant Accounting Policies: (continued)
Computer software:
Computer software is being amortized over the estimated useful lives
of the programs (3-5 years) using the straight-line method.
Covenants not to compete:
Covenants not to compete are being amortized over their terms (3 - 4
years) using the straight-line method.
Income taxes:
Deferred taxes are recognized for differences in the financial
reporting and income tax bases of certain assets purchased in acquisitions and
for differences in the timing of income and expenses for financial reporting
and income tax purposes, principally due to accelerated depreciation,
postretirement health care benefits and deferred compensation.
Net income per common share:
Net income per common share is based on the weighted average number of
common shares outstanding and, if dilutive, the number of additional shares of
common stock that would be issued upon exercise of the put warrant described in
Note 7, and gives effect to cumulative preferred stock dividends and changes in
redemption value of the put warrant. The weighted average number of common
shares and common share equivalents used in the calculation of earnings per
share was 1,777,992 in 1993 and 1,693,392 in 1994 and 1995.
Cash flow statements:
For purposes of the consolidated statements of cash flows, the Company
considers all highly liquid debt instruments purchased with a maturity of three
months or less to be cash equivalents.
(NOTE 2) - Acquisitions:
In October 1993, the Company acquired all of the outstanding shares of
common stock of Employee Benefit Services, Inc. ("EBS") for $4,058,000 of which
$1,863,000 was in noninterest bearing notes (face amount $2,003,000)
collateralized by letters of credit and payable in five equal semi-annual
installments beginning October 1, 1994. The acquisition was accounted for by
the purchase method of accounting. The excess ($5,676,000) of the purchase
price over the fair value of the acquired tangible assets was recorded as
customer base and is being amortized over ten years.
(continued)
9
<PAGE> 10
HARRINGTON SERVICES CORPORATION
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE 2) - Acquisitions: (continued)
In November 1993, the Company acquired all of the outstanding shares
of common stock of Beneplan Strategies, Inc. ("Beneplan") for $3,738,000. The
acquisition was accounted for by the purchase method of accounting. The excess
($3,255,000) of the purchase price over the fair value of the acquired tangible
assets was recorded as customer base and is being amortized over ten years.
In June 1994, the Company acquired the assets and business of
Brookfield, Inc. for $3,044,000. The acquisition was accounted for by the
purchase method of accounting. The excess ($2,317,000) of the purchase price
over the fair value of the acquired tangible assets was recorded as customer
base and is being amortized over ten years.
The following unaudited pro forma summary presents the consolidated
results of operations of the Company as if the above acquisitions had occurred
at the beginning of the 1993 fiscal year:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------
1994 1993
----------- -----------
<S> <C> <C>
Revenues from services . . . . . . . . . . $70,370,000 $67,701,000
Income from operations
before extraordinary
charge and cumulative
effect of change in
method of accounting . . . . . . . . . . 3,564,000 2,758,000
Net income . . . . . . . . . . . . . . . . . 3,564,000 1,466,000
Per common share:
Income before
extraordinary
charge and cumulative
effect of change in
method of accounting . . . . . . . . . $ 1.46 $ 1.37
Net income . . . . . . . . . . . . . . . . . 1.46 .64
</TABLE>
(continued)
10
<PAGE> 11
HARRINGTON SERVICES CORPORATION
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE 3) - Property and Equipment:
Property and equipment consist of the following:
<TABLE>
<CAPTION>
December 31,
-----------------------
1995 1994
---------- ----------
<S> <C> <C>
Furniture and equipment . . . . . . . . . . $6,254,782 $6,081,776
Equipment held under
capital leases . . . . . . . . . . . . . 1,572,018
Leasehold improvements . . . . . . . . . . . 693,109 1,158,906
---------- ----------
T o t a l . . . . . . . . . . . . 8,519,909 7,240,682
Accumulated depreciation
and amortization
(including $129,208
for equipment held under
capital leases at
December 31, 1995) . . . . . . . . . . . 4,116,141 4,092,052
---------- ----------
B a l a n c e . . . . . . . . . . $4,403,768 $3,148,630
========== ==========
</TABLE>
(NOTE 4) - Intangible Assets:
Intangible assets consist of the following:
<TABLE>
<CAPTION>
December 31,
------------------------
1995 1994
----------- -----------
<S> <C> <C>
Customer base . . . . . . . . . . . . . . . $33,983,484 $33,983,484
Leasehold interest . . . . . . . . . . . . . 1,050,000 1,050,000
Computer software . . . . . . . . . . . . . 6,359,022 5,916,149
Covenants not to compete . . . . . . . . . . 3,111,435 3,111,435
----------- -----------
T o t a l . . . . . . . . . . . . 44,503,941 44,061,068
Accumulated amortization . . . . . . . . . . 25,311,875 21,563,060
----------- -----------
B a l a n c e. . . . . . . . . . $19,192,066 $22,498,008
=========== ===========
</TABLE>
(continued)
11
<PAGE> 12
HARRINGTON SERVICES CORPORATION
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE 5) - Long-Term Debt:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31,
------------------------
1995 1994
----------- -----------
<S> <C> <C>
Credit and security
agreement - 1.5% below
prime . . . . . . . . . . . . . . . . . . $10,449,348 $12,136,014
Notes payable related to
acquisitions - 7.5% to 8.5% . . . . . . . 1,257,832 2,501,906
----------- -----------
T o t a l . . . . . . . . . . . 11,707,180 14,637,920
Less current portion . . . . . . . . . . . . 3,957,003 3,910,193
----------- -----------
B a l a n c e . . . . . . . . . $ 7,750,177 $10,727,727
=========== ===========
</TABLE>
Pursuant to the credit and security agreement, the Company has
$8,000,000 available for additional borrowings through January 31, 1997.
Principal repayments are due as follows:
<TABLE>
<CAPTION>
Year Ending
December 31,
------------
<S> <C>
1996 (net of discount of $21,472) . . . . . $ 3,957,003
1997 . . . . . . . . . . . . . . . . . . . . 2,699,170
1998 . . . . . . . . . . . . . . . . . . . . 2,699,170
1999 . . . . . . . . . . . . . . . . . . . . 2,101,837
2000 . . . . . . . . . . . . . . . . . . . . 150,000
Thereafter . . . . . . . . . . . . . . . . . 100,000
-----------
T o t a l . . . . . . . . . . . . $11,707,180
===========
</TABLE>
The credit and security agreement, among other matters, limits
borrowings and capital expenditures, prohibits payment of dividends on common
stock, and requires the Company to maintain certain financial ratios.
Borrowings are collateralized by all the assets of the Company.
The extraordinary charge of $1,088,000 in 1993 for the early
extinguishment of a term loan includes a loss of $780,000 on the settlement of
a related interest rate swap.
(continued)
12
<PAGE> 13
HARRINGTON SERVICES CORPORATION
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE 6) - Obligations Under Capital Leases:
Future minimum lease payments under capital leases together with the
present value of the net minimum lease payments are as follows:
<TABLE>
<CAPTION>
Year Ending
December 31,
------------
<S> <C>
1996 . . . . . . . . . . . . . . . . . . . . $ 332,272
1997 . . . . . . . . . . . . . . . . . . . . 332,272
1998 . . . . . . . . . . . . . . . . . . . . 332,272
1999 . . . . . . . . . . . . . . . . . . . . 332,272
2000 . . . . . . . . . . . . . . . . . . . . 227,883
Thereafter . . . . . . . . . . . . . . . . . 340,570
----------
Total minimum lease payments . . . 1,897,541
Less amount representing interest . . . . . (425,398)
----------
Present value of minimum lease payments. . . 1,472,143
Less current maturities . . . . . . . . . . (222,491)
----------
Long-term obligations at December 31,
1995 . . . . . . . . . . . . . . . . . . $1,249,652
==========
</TABLE>
(NOTE 7) - Capital Stock:
Preferred stock is redeemable at the option of the Company for $100
per share plus all accrued and unpaid dividends, which is the same amount as
its liquidation preference. Cumulative unpaid dividends aggregated $333,000 at
December 31, 1995.
The Company issued a put warrant for the purchase of approximately 4%
of the outstanding shares of the Company's common stock (71,600 shares),
subject to antidilutive provisions, at $.0025 per share through March 1, 1999.
The warrant, in whole or in part, can be put to the Company to about April 15,
1997 at fair value, as defined in the agreement. The put warrant liability is
reflected at estimated fair value.
If requested by holders of at least 40% of the outstanding shares of
common stock (including shares issuable upon exercise of the put warrant), the
Company is obligated to file a registration statement with the Securities and
Exchange Commission.
(continued)
13
<PAGE> 14
HARRINGTON SERVICES CORPORATION
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE 8) - Income Taxes:
The provision for income taxes includes the following elements:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Federal income tax
provision at 34%. . . . . . . . . . . . . $1,952,000 $1,861,000 $1,255,000
State tax provisions,
net of federal
income tax benefit. . . . . . . . . . . . 416,000 274,000 185,000
Income taxes
attributable to
adjustment of tax
basis of
intangibles . . . . . . . . . . . . . . . 1,264,000
Other . . . . . . . . . . . . . . . . . . . 63,000 (136,000) 127,000
---------- ---------- ----------
$3,695,000 $1,999,000 $1,567,000
========== ========== ==========
</TABLE>
Temporary differences which give rise to deferred tax assets and
liabilities are as follows:
<TABLE>
<CAPTION>
Asset/(Liability)
------------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Amortization of
intangibles not
deductible for tax
purposes . . . . . . . . . . . . . . . . $(2,935,000) $(3,060,000) $(3,238,000)
Deferred rent . . . . . . . . . . . . . . . 31,000 68,000 83,000
Deferred compensation . . . . . . . . . . . 287,000 254,000 238,000
Accrual for vacation
pay . . . . . . . . . . . . . . . . . . . 53,000 51,000 54,000
Postretirement health
care benefits . . . . . . . . . . . . . . 533,000 528,000 467,000
Other . . . . . . . . . . . . . . . . . . . (76,000) 170,000 (214,000)
----------- ----------- -----------
Net (liability) . . . . . . . . . . . . . . $(2,107,000) $(1,989,000) $(2,610,000)
=========== =========== ===========
</TABLE>
No valuation allowance is required as a reduction of the deferred tax
assets.
(continued)
14
<PAGE> 15
HARRINGTON SERVICES CORPORATION
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE 8) - Income Taxes: (continued)
During the year ended December 31, 1995, the Company recorded an
additional provision for income taxes of $1,264,000 attributable to adjustments
of the tax basis of certain acquired intangible assets negotiated as part of
the completion of a federal tax examination for the years 1989-1993.
(NOTE 9) - Commitments, Contingencies and Other Matters:
[a] The Company leases office premises and computer equipment pursuant
to operating leases expiring at various dates through 2011. Certain of the
leases contain renewal options. Minimum annual rentals are as follows:
<TABLE>
<CAPTION>
Year Ending
December 31,
-------------
<S> <C>
1996 . . . . . . . . . . . . . . . . . . . . $4,473,923
1997 . . . . . . . . . . . . . . . . . . . . 3,526,451
1998 . . . . . . . . . . . . . . . . . . . . 3,166,707
1999 . . . . . . . . . . . . . . . . . . . . 3,018,713
2000 . . . . . . . . . . . . . . . . . . . . 1,196,958
Thereafter . . . . . . . . . . . . . . . . . 6,498,367
</TABLE>
Rent expense amounted to approximately $5,491,000 in 1993, $5,582,000
in 1994 and $5,349,000 in 1995.
[b] The Company maintains a defined contribution pension plan for
eligible employees pursuant to Section 401(k) of the Internal Revenue Code.
Pursuant to the plan, employees contribute up to 15% of their salaries and the
Company contributes 50% of employee contributions up to 6% of their salaries.
Company contributions amounted to approximately $375,000 in 1993, $465,000 in
1994, and $472,000 in 1995.
[c] The Company provides certain health care benefits for retired
employees of a subsidiary. Effective January 1, 1993, the Company adopted the
provisions of Statement of Financial Accounting Standards No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions", which requires
employers to accrue the cost of such retirement benefits during the employees
service with the Company. Prior to 1993, the cost of providing these benefits
to retired employees was charged to expense as incurred. As of January 1,
1993, the Company recognized the full amount of its estimated accumulated
postretirement benefit obligation on that date. The effect of this change in
accounting was to reduce 1993 net income by $673,000.
(continued)
15
<PAGE> 16
HARRINGTON SERVICES CORPORATION
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE 9) - Commitments, Contingencies and Other Matters: (continued)
The Company funds the benefit costs on a current basis and there are
no plan assets.
The net periodic postretirement benefit cost includes the following
components:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------
1995 1994 1993
------- -------- --------
<S> <C> <C> <C>
Service cost - benefits earned during the
year . . . . . . . . . . . . . . . . . . $38,000 $ 79,000 $ 73,000
Interest cost on
accumulated
postretirement benefit
obligation . . . . . . . . . . . . . . . 45,000 92,000 81,000
------- -------- --------
Net postretirement health
care cost . . . . . . . . . . . . . . . . $83,000 $171,000 $154,000
======= ======== ========
</TABLE>
The status of the plan at December 31, 1995 is as follows:
<TABLE>
<S> <C>
Accumulated postretirement
benefit obligation . . . . . . . . . . $ 675,000
Unrecognized net gain, principally due
to reduction of benefits . . . . . . . 728,000
----------
Accrued postretirement healthcare
liability included in "other
liabilities" in the accompanying
balance sheet . . . . . . . . . . . . . $1,403,000
==========
</TABLE>
Actuarial assumptions used include a discount rate of 7.5% and a
health care cost trend rate of 9%, declining to 5% over 5 years. It is
estimated that a 1% increase in the health care cost trend rate would increase
the periodic cost by $15,000 and the accumulated obligation by $108,000.
[d] The Company is involved in litigation in the ordinary course of
business, the outcome of which is not expected to have a material effect on its
financial position.
(continued)
16
<PAGE> 17
HARRINGTON SERVICES CORPORATION
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE 9) - Commitments, Contingencies and Other Matters: (continued)
[e] Revenues from one customer represented approximately 11%, 10%, and
11%, respectively, of revenues from services for the years ended December 31,
1995, 1994 and 1993, respectively. Accounts receivable from employee benefit
trusts established to provide member benefits represented approximately 29%,
27% and 36% of accounts receivable at December 31, 1995, 1994, and 1993,
respectively.
[f] Substantially all of the Company's cash accounts are maintained at
one bank.
[g] Interest income amounted to approximately $179,000, $90,000 and
$90,000 for each of the years in the three-year period ended December 31,
1995.
17
<PAGE> 18
HARRINGTON SERVICES CORPORATION
CONSOLIDATED BALANCE SHEET
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,227 $ 6,309
Accounts receivable 4,676 3,169
Refundable income taxes - 295
Prepaid expenses and other current assets 1,103 657
-------- --------
Total current assets 9,006 10,430
Property and equipment, net 4,733 4,404
Investment in unconsolidated subsidiary 374 367
Intangible assets, net 23,128 20,144
-------- --------
Total assets $ 37,241 $ 35,345
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,740 $ 1,384
Accrued liabilities 4,079 4,472
Current portion of long-term debt 4,137 4,179
-------- --------
Total current liabilities 10,956 10,035
Note payable 8,039 7,750
Deferred taxes 3,240 2,107
Other long-term liabilities 4,121 6,660
-------- --------
Total liabilities 26,356 26,552
-------- --------
Common stockholders' equity:
Common stock 17 17
Additional paid-in capital 6,314 6,314
Retained earnings 4,554 2,462
-------- --------
Total stockholders' equity 10,885 8,793
-------- --------
Total liabilities and stockholders' equity $ 37,241 $ 35,345
======== ========
</TABLE>
18
<PAGE> 19
HARRINGTON SERVICES CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
(in thousands)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JUNE 30,
1996 1995
----------------------------
<S> <C> <C>
Operating revenues $ 40,377 $ 35,812
Interest income 90 63
-------- --------
Total revenues 40,467 35,875
-------- --------
Expenses:
Personnel expenses 25,001 21,920
General and administrative 9,781 8,722
Depreciation and amortization 2,733 2,339
-------- --------
Total expenses 37,515 32,981
-------- --------
Income before interest expense and income taxes 2,952 2,894
Interest expense 488 514
-------- --------
Income before income taxes 2,464 2,380
Provision for income taxes 1,039 952
-------- --------
Net income $ 1,425 $ 1,428
======== ========
Dividends on Preferred Stock $ 166 $ 166
======== ========
Net income attributable to common
stock $ 1,259 $ 1,262
======== ========
</TABLE>
19
<PAGE> 20
HARRINGTON SERVICES CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
For the Six Months Ended June 30,
---------------------------------
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,425 $ 1,428
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,733 2,339
Deferred income taxes (369) 109
Accretion of discount on long-term debt 14 28
Changes in assets and liabilities net of effect from acquisitions:
Accounts receivable (1,180) 221
Prepaid expenses and other current assets (241) (366)
Refundable income taxes 295 (671)
Accounts payable and accrued liabilities 496 (1,181)
Other liabilities (121) (66)
-------- --------
Net cash provided by operating activities 3,052 1,841
-------- --------
Cash flows from investing activities:
Purchases of property and equipment (706) (414)
Acquisitions of businesses, net of cash acquired (3,180) -
-------- --------
Net cash used in investing activities (3,886) (414)
-------- --------
Cash flows from financing activities:
Proceeds from credit and security agreement 2,000 -
Principal payments on long-term debt (1,915) (1,677)
Payments of preferred dividends (333) (333)
Payment of put warrant (2,000) -
-------- --------
Net cash used in financing activities (2,248) (2,010)
-------- --------
Net decrease in cash and cash equivalents (3,082) (583)
Cash and cash equivalents at beginning of period 6,309 3,434
-------- --------
Cash and cash equivalents at end of period $ 3,227 $ 2,851
======== ========
Supplemental disclosure of cash flow information:
Cash paid for interest $ 488 $ 106
======== ========
Cash paid for income taxes $ 1,061 $ 1,808
======== ========
</TABLE>
The accompany notes are an integral part of these consolidated financial
statements.
20
<PAGE> 21
HARRINGTON SERVICES CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. THE COMPANY:
The Company provides consulting and administrative services in connection
with domestic employee benefits programs.
2. SIGNIFICANT ACCOUNTING POLICIES:
Basis of preparation:
The accompanying consolidated financial statements include the accounts of
Harrington Services Corporation and its wholly owned subsidiaries (collectively
referred to as the "Company"). Intercompany accounts and transactions are
eliminated in consolidation.
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 at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Interim results are not necessarily indicative of results for a full year.
Income taxes:
Deferred taxes are recognized for differences in the financial reporting
and income tax bases of certain assets purchased in acquisitions and for
differences in the timing of income and expenses for financial reporting and
income tax purposes, principally due to accelerated depreciation,
postretirement health care benefits, and deferred compensation.
3. SUBSEQUENT EVENTS:
On July 1, 1996, all of the issued and outstanding stock of the Company
was acquired by HealthPlan Services Corporation ("HPS"), for $32.5 million cash
and 1,400,110 shares of HPS common stock.
HPS, a company whose shares of common shares are presently traded on the
New York Stock Exchange, provides distribution, enrollment, billing and
collection, claims administration, and information reports and analysis on
behalf of health care payors and providers. HPS is headquartered in Tampa,
Florida.
21
<PAGE> 22
INTRODUCTION TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS
The following Unaudited Pro Forma Consolidated Financial Statements ("Pro Forma
Statements") include the accounts of HealthPlan Services Corporation ("the
Company") and its subsidiaries and the accounts of Harrington Services
Corporation ("Harrington"). On July 1, 1996, the Company acquired all of the
issued and outstanding shares of capital stock of Harrington in a transaction
accounted for as a purchase. The Pro Forma Statements also include the accounts
of Consolidated Group, Inc., Consolidated Group Claims, Inc., Consolidated
Health Coalition, Inc., and Group Benefit Administrators Insurance Agency, Inc.
(collectively, the "Consolidated Group") which was acquired by the Company in a
transaction accounted for as a purchase on July 1, 1996, as reported on Current
Report on Form 8-K as filed with the Securities and Exchange Commission on July
15, 1996, Current Report on Form 8-K/A filed on September 12, 1996 and Current
Report on Form 8-K/A as filed concurrently with this Current Report on
Form 8-K/A.
The Pro Forma Consolidated Balance Sheet as of June 30, 1996, assumes that the
Company acquired Harrington and Consolidated Group on June 30, 1996. The Pro
Forma Consolidated Statements of Income for the six months ended June 30, 1996,
and the year ended December 31, 1995 assume that the Company acquired Harrington
and Consolidated Group on January 1, 1995.
The Pro Forma Statements are presented for comparative purposes only. The Pro
Forma Statements are not intended to be indicative of what the actual results
of operations would have been had the transactions occurred as of the beginning
of the respective periods, nor do they purport to indicate the results which
may be obtained in the future.
The purchase price allocations for Harrington and Consolidated Group are based
on preliminary appraisals, estimates of useful lives, estimates of expenses,
and estimates of liabilities. The actual allocation of the purchase price will
be adjusted based on final appraisals, actual expenditures, and estimates made
after various studies have been completed. Accordingly, the actual recording
of the purchase could differ from the Pro Forma amounts reflected herein.
Management believes that there are synergistic opportunities which can be
derived from the consolidation of certain parts of the operations of the newly
acquired companies. Though these actions are in the process of being qualified
and quantified, it is not unreasonable to believe that the Company will make
future restructuring charges to accomplish such savings.
22
<PAGE> 23
HEALTHPLAN SERVICES CORPORATION
PRO FORMA CONSOLIDATED BALANCE SHEET
JUNE 30, 1996
(Unaudited)
(in thousands except share amounts)
<TABLE>
<CAPTION>
CONSOLIDATED
HEALTHPLAN SERVICE HARRINGTON GROUP, INC. AND
CORPORATION SERVICES CORPORATION AFFILIATES PRO FORMA PRO FORMA
ACTUAL ACTUAL ACTUAL ADJUSTMENTS COMBINED
------ ------ ------ ----------- --------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
90,040 A
(52,690) B
Cash and cash equivalents $ 5,173 $ 3,227 $ 1,853 $ (32,500) C 15,103
Restricted cash 9,338 - - - 9,338
Short-term investments 30,040 - - (30,040) A -
Accounts receivable 8,189 4,676 3,050 - 15,915
Prepaid commissions 319 - - - 319
Prepaid expenses and other current assets 2,735 1,103 6,234 (5,458) B 4,614
Deferred taxes 127 - - - 127
--------- --------- -------- --------- --------
Total current assets 55,921 9,006 11,137 (30,648) 45,416
Property and equipment, net 9,833 4,733 5,343 - 19,909
Note receivable 6,900 - - - 6,900
61,850 B
61,300 C
Investment in unconsolidated subsidiary 2,056 374 - (123,150) E 2,430
9,000 D
Intangible assets, net 49,173 23,128 740 105,016 E 187,057
--------- --------- -------- --------- --------
Total assets $ 123,883 $ 37,241 $ 17,220 $ 83,368 261,712
========= ========= ======== ========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,178 $ 2,740 $ 1,914 $ - 5,832
Premiums payable to carriers 25,752 - 107 - 25,859
Commissions payable 3,105 - 1,805 - 4,910
Deferred revenue 716 - - - 716
Accrued liabilities 2,976 4,079 1,069 9,000 D 17,124
Income taxes payable 314 - - - 314
Current portion of long-term debt 70 4,137 1,621 - 5,828
--------- --------- -------- --------- --------
Total current liabilities 34,111 10,956 6,516 9,000 60,583
Note payable 1,186 8,039 3,455 60,000 A 72,680
Deferred taxes 631 3,240 - - 3,871
Other long-term liabilities 23 4,121 - - 4,144
--------- --------- -------- --------- --------
Total liabilities 35,951 26,356 9,971 69,000 141,278
--------- --------- -------- --------- --------
Common stockholders' equity:
2 B
13 C
Common stock 134 17 159 (176) E 149
3,700 B
28,787 C
Additional paid-in capital 71,870 6,314 - (6,314) E 104,357
Retained earnings 15,970 4,554 7,090 (11,644) E 15,970
--------- --------- -------- --------- --------
87,974 10,885 7,249 14,368 120,476
Less: Valuation allowance on
securities available for sale (42) - - - (42)
--------- --------- -------- --------- --------
Total stockholders' equity 87,932 10,885 7,249 14,368 120,434
--------- --------- -------- --------- --------
Total liabilities and
stockholders' equity $ 123,883 $ 37,241 $ 17,220 $ 83,368 261,712
========= ========= ======== ========= ========
</TABLE>
See notes to unaudited pro forma consolidated balance sheet.
23
<PAGE> 24
NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET
(A) To record the liquidation of the Company's $30.0 million short-term
investment portfolio and draw of $60.0 million on the Company's line
of credit.
(B) To record the cash paid for the stock of Consolidated Group of $61.9
million, Company stock sold to Consolidated Group shareholders of $3.7
million, and settlement of related party receivables of Consolidated
Group of $5.5 million on July 1, 1996.
(C) To record the cash paid for the stock of Harrington of $32.5 million
and Company stock issued to Harrington shareholders valued at
approximately $28.8 million.
(D) To record estimated costs relating to the Company's acquisitions of
Harrington and Consolidated Group.
(E) To eliminate the Company's investment in Harrington and Consolidated
Group.
24
<PAGE> 25
HEALTHPLAN SERVICES CORPORATION
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
(in thousands except per share data)
<TABLE>
<CAPTION>
CONSOLIDATED
HEALTHPLAN SERVICES HARRINGTON GROUP, INC. AND
CORPORATION SERVICES CORPORATION AFFILIATES PRO FORMA PRO FORMA
ACTUAL ACTUAL ACTUAL ADJUSTMENTS COMBINED
------ ------ ------ ----------- --------
<S> <C> <C> <C> <C>
Operating revenues 61,465 $ 40,377 $ 35,750 $ - $ 137,592
Interest income 1,405 90 170 (750) A 915
-------- --------- --------- --------- ---------
Total revenues 62,870 40,467 35,920 (750) 138,507
-------- --------- --------- --------- ---------
Expenses:
Agents commissions 19,952 - 11,641 - 31,593
Personnel expenses 16,850 25,001 13,758 - 55,609
General and administrative 11,676 9,781 9,499 - 30,956
Pre-operating and contract start-up costs 586 - - - 586
Depreciation and amortization 2,668 2,733 891 795 B 7,087
-------- --------- --------- --------- ---------
Total expenses 51,732 37,515 35,789 795 125,831
-------- --------- --------- --------- ---------
Income before interest expense and income taxes 11,138 2,952 131 (1,545) 12,676
Interest expense 33 488 142 1,586 C 2,249
-------- --------- --------- --------- ---------
Income before income taxes 11,105 2,464 (11) (3,131) 10,427
Provision for income taxes 4,331 1,039 22 (617) D 4,775
-------- --------- --------- --------- ---------
Net income $ 6,774 $ 1,425 $ (33) $ (2,514) $ 5,652
======== ========= ========= ========= =========
Dividends on Preferred Stock $ - $ 166 $ - $ (166) E $ -
======== ========= ========= ========= =========
Net income attributable to common
stock $ 6,774 $ 1,259 $ (33) $ (2,348) $ 5,652
======== ========= ========= ========= =========
Pro forma net income per share 0.50 $ 0.38
======== =========
Weighted average shares used in
pro forma computation 13,460 14,908
======== =========
</TABLE>
See notes to unaudited pro forma consolidated statements of income.
25
<PAGE> 26
HEALTHPLAN SERVICES CORPORATION
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1995
(UNAUDITED)
(in thousands except per share data)
<TABLE>
<CAPTION>
CONSOLIDATED
HEALTHPLAN SERVICES HARRINGTON GROUP, INC. AND
CORPORATION SERVICES CORPORATION AFFILIATES PRO FORMA PRO FORMA
ACTUAL ACTUAL ACTUAL ADJUSTMENTS COMBINED
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Operating revenues $ 98,187 $ 71,869 $ 73,914 $ -- $243,970
Interest income 2,063 179 455 (1,500) A 1,197
-------- -------- -------- -------- --------
Total revenues 100,250 72,048 74,369 (1,500) 245,167
-------- -------- -------- -------- --------
Expenses:
Agents commissions 36,100 -- 26,680 -- 62,780
Personnel expenses 25,433 42,791 19,798 -- 88,022
General and administrative 16,967 17,478 22,753 -- 57,198
Pre-operating and contract start-up costs 1,664 -- -- -- 1,664
Depreciation and amortization 4,386 4,801 1,668 1,764 B 12,619
-------- -------- -------- -------- --------
Total expenses 84,550 65,070 70,899 1,764 222,283
-------- -------- -------- -------- --------
Income before interest expense and income taxes 15,700 6,978 3,470 (3,264) 22,884
Interest expense 69 1,237 134 2,873 C 4,313
-------- -------- -------- -------- --------
Income before income taxes 15,631 5,741 3,336 (6,137) 18,571
Provision for income taxes 6,096 3,694 151 (1,437) D 8,504
-------- -------- -------- -------- --------
Income from continuing operations 9,535 2,047 3,185 (4,700) 10,067
Loss on discontinued business segment
net of tax benefit -- -- 3,170 -- 3,170
-------- -------- -------- -------- --------
Net income $ 9,535 $ 2,047 $ 15 $ (4,700) $ 6,897
======== ======== ======== ======== ========
Dividends on Preferred Stock $ -- $ 333 $ -- $ (333) E $ --
Adjustment of put warrant -- 1,500 -- (1,500) F --
-------- -------- -------- -------- --------
Net income attributable to common
stock $ 9,535 $ 214 $ 15 $ (2,867) $ 6,897
======== ======== ======== ======== ========
Pro forma net income per share $ 0.71 $ 0.46
======== ========
Weighted average shares used in
pro forma computation 13,414 14,903
======== ========
</TABLE>
See notes to unaudited pro forma consolidated statements of income.
26
<PAGE> 27
NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
(A) To eliminate interest income on short-term investments liquidated as a
result of the acquisitions.
(B) To eliminate historical amortization and to record pro forma
amortization of estimated goodwill of $75 million and $60 million
for Harrington and Consolidated Group, respectively, over a 25 year
period.
(C) To record estimated interest expense related to net borrowing on the
purchase of Harrington and Consolidated Group.
(D) To provide for consolidated income taxes at an estimated rate of 45.79%.
(E) To reverse dividends paid to Harrington preferred stockholders.
(F) To record the elimination of the accretion of the Harrington put
warrant as part of the transaction.
27
<PAGE> 28
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Report to be duly signed on its behalf by
the undersigned hereunto duly authorized, on February 14, 1997.
HEALTHPLAN SERVICES CORPORATION
(Registrant)
February 14, 1997 By: /s/ JAMES K. MURRAY, JR.
- ------------------ ---------------------------
Date James K. Murray, Jr.
President and Chief Executive Officer
28
<PAGE> 29
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NO.
- ------ ----------- --------
<S> <C> <C>
2 Plan and Agreement of Merger dated May 28, 1996 between HealthPlan *
Services Corporation, HealthPlan Services Alpha Corporation,
Harrington Services Corporation, and Robert Chefitz as Shareholders'
Representative
23 Consent of Richard A. Eisner & Co. LLP 30
</TABLE>
* filed with original 8-K
29
<PAGE> 1
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the inclusion of our report dated February 16, 1996 on
our audit of the financial statements of Harrington Services Corporation as at
December 31, 1995 and for the year then ended in the Form 8-K/A Amendment
Number 2 and incorporated by reference in the Registration Statement of
HealthPlan Services Corporation on Form S-3 Amendment Number 1. We also
consent to the reference to our firm under the caption "Experts".
/s/ RICHARD A. EISNER & COMPANY, LLP
New York, New York
February 14, 1997
30
