<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission file number 0-26688
UNITED DENTAL CARE, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 75-2309712
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation)
13601 PRESTON ROAD, SUITE 500 EAST
DALLAS, TEXAS 75240
(Address of principal executive offices)
(Zip Code)
(972) 458-7474
(Registrant's telephone number, including area code)
NONE
(Former name, former address and former fiscal year, if
changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
The number of shares outstanding of the issuer's only class of $.10 par value
common stock as of April 29, 1997 was 8,928,616.
<PAGE> 2
UNITED DENTAL CARE, INC.
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
o Consolidated Balance Sheets
December 31, 1996 and March 31, 1997 . . . . . . . . . . . . . . . . . . . . . . . . 3
o Consolidated Statements of Operations
for the three months ended March 31, 1996 and
1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
o Consolidated Statements of Cash Flows
for the three months ended March 31, 1996 and
1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security-Holders . . . . . . . . . . . . . . . . . . . . . . 11
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
</TABLE>
2 of 12
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
United Dental Care, Inc. and Subsidiaries
Consolidated Balance Sheets
(In thousands)
<TABLE>
<CAPTION>
December 31, March 31,
1996 1997
-------- --------
ASSETS Unaudited, Restated
<S> <C> <C>
Cash and cash equivalents . . . . . . . . . . . . . . . . . . $ 50,035 $ 19,342
Premiums receivable, net . . . . . . . . . . . . . . . . . . 11,016 13,870
Accrued interest and other current assets . . . . . . . . . . 832 1,569
Deferred taxes, current . . . . . . . . . . . . . . . . . . . 957 957
-------- --------
Total current assets . . . . . . . . . . . . . . . . . . . 62,840 35,738
Regulatory deposits . . . . . . . . . . . . . . . . . . . . . 3,433 3,705
Furniture and equipment, net . . . . . . . . . . . . . . . . 7,056 9,104
Intangible assets, net . . . . . . . . . . . . . . . . . . . 91,066 96,167
Pre-operational costs, net . . . . . . . . . . . . . . . . . 127 238
Other assets, net . . . . . . . . . . . . . . . . . . . . . . 856 43
Deferred taxes, noncurrent . . . . . . . . . . . . . . . . . 294 294
-------- --------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . $165,672 $145,289
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses . . . . . . . . . . . . $ 5,805 $ 6,752
Current portion of debt . . . . . . . . . . . . . . . . . . . 26,191 1,260
Claims reserve . . . . . . . . . . . . . . . . . . . . . . . 2,172 4,472
Unearned premiums . . . . . . . . . . . . . . . . . . . . . 3,177 3,012
Other current liabilities . . . . . . . . . . . . . . . . . . 75 ----
-------- --------
Total current liabilities . . . . . . . . . . . . . . . . 37,420 15,496
Long-term debt, net of current portion . . . . . . . . . . . 2,757 2,583
-------- --------
Total liabilities . . . . . . . . . . . . . . . . . . . . . 40,177 18,079
-------- --------
STOCKHOLDERS' EQUITY
Preferred stock, $.10 par value . . . . . . . . . . . . . . . ---- ----
Common stock, $.10 par value . . . . . . . . . . . . . . . . 891 893
Additional paid-in-capital . . . . . . . . . . . . . . . . . 108,223 108,484
Retained earnings . . . . . . . . . . . . . . . . . . . . . . 16,381 17,833
-------- --------
Total stockholders' equity . . . . . . . . . . . . . . . . 125,495 127,210
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY . . . . . . . . . . $165,672 $145,289
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3 of 12
<PAGE> 4
United Dental Care, Inc.
Consolidated Statements of Operations
(In thousands, except per share amounts and share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------
1996 1997
---------- ----------
As Restated
<S> <C> <C>
REVENUES:
Dental services revenues ...................... $ 24,582 $ 44,848
Interest income ............................... 212 175
---------- ----------
Total revenues ......................... 24,794 45,023
---------- ----------
COSTS AND EXPENSES:
Dental services expense ....................... 14,931 30,200
Sales and marketing ........................... 2,798 4,706
General and administrative .................... 4,282 6,326
Depreciation and amortization ................. 465 1,136
Interest expense .............................. 94 147
---------- ----------
Total costs and expenses ............... 22,570 42,515
---------- ----------
INCOME BEFORE INCOME TAXES ........................ 2,224 2,508
PROVISION FOR INCOME TAXES ........................ 813 1,056
---------- ----------
NET INCOME ........................................ $ 1,411 $ 1,452
========== ==========
NET INCOME PER COMMON SHARE ....................... $ 0.19 $ 0.16
WEIGHTED AVERAGE SHARES OUTSTANDING ............... 7,250,442 9,159,194
</TABLE>
The accompanying notes are an integral part of these financial statements.
4 of 12
<PAGE> 5
United Dental Care, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
For Three Months Ended
March 31,
----------------------
1996 1997
-------- --------
As Restated
<S> <C> <C>
OPERATING ACTIVITIES:
Net income ........................................................... $ 1,411 $ 1,452
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization .................................... 465 1,136
Changes in operating assets and liabilities:
Increase in premiums receivable ............................. (859) (2,607)
Increase in accrued interest and other current assets ....... (372) (590)
Increase (decrease) in accounts payable, accrued expenses
and claims reserve ..................................... (860) 4,729
Increase in deferred income tax assets ...................... (50) --
Decrease in other assets .................................... 311 597
Increase (decrease) in unearned premiums .................... 1,235 (295)
-------- --------
Net cash provided by operating activities .............. 1,281 4,422
INVESTING ACTIVITIES:
Purchases of furniture and equipment ................................. (962) (2,466)
Decrease in regulatory deposits ...................................... 12 28
Investment in new markets............................................. (30) (111)
Purchase of acquisitions (net of cash acquired) ...................... (13,575) (7,589)
-------- --------
Net cash used in investing activities .................. (14,555) (10,138)
FINANCING ACTIVITIES:
Repayment of indebtedness ............................................ (11,136) (25,080)
Stock options exercised .............................................. 15 103
-------- --------
Net cash used in financing activities .................. (11,121) (24,977)
NET DECREASE IN CASH AND CASH EQUIVALENTS .............................. (24,395) (30,693)
CASH AND CASH EQUIVALENTS:
Beginning of period ................................................. 46,940 50,035
-------- --------
End of period ....................................................... $ 22,545 $ 19,342
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest ......................................................... $ 142 $ 228
======== ========
Income taxes ..................................................... $ 272 $ 16
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5 of 12
<PAGE> 6
United Dental Care, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited, Restated)
1. Basis of Presentation
The Company's Form 10-Q for the period ended March 31, 1997 has been
restated to reflect an increase of approximately $2.0 million in
estimated dental services expense related to the Company's
fee-for-service products. The after-tax effect of such expense is a
reduction in earnings per share of $0.14. The adjustments to the
consolidated balance sheet of the Company as of March 31, 1997 are an
increase in the liability for claims reserve of $2.0 million and a
reduction in current taxes payable of $0.7 million. The combined
effect of these adjustments is a reduction in total stockholders'
equity of $1.3 million. The restatement of first quarter dental
services expense has been made primarily to reflect the membership of
the Company's point-of- service plans.
The financial statements included herein have been prepared by the
Registrant, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. Certain information and
footnote disclosures normally required under generally accepted
accounting principles have been omitted pursuant to such rules and
regulations. It is suggested that these financial statements be read
in conjunction with the consolidated financial statements and the
notes thereto contained in the Company's Annual Report on Form 10-K.
However, this information reflects all adjustments (consisting solely
of normal recurring adjustments) that are, in the opinion of
management, necessary for a fair statement of the results of the
interim periods. The results of operations for the year to date are
not necessarily indicative of the results to be expected for the full
year.
2. Acquisitions
Effective November 1, 1995, the Company completed the acquisition of
all of the outstanding common stock of U.S. Dental Management, Inc.
("US Dental") for $1.3 million in cash, deferred payments of $1.0
million (consulting and non-competition agreements) and a promissory
note, maturing January 18, 1996, in the amount of $10.3 million (the
"US Dental Promissory Note"). US Dental was a managed dental benefits
company that operated managed dental plans in Arizona, Colorado,
Nebraska and New Mexico, providing dental benefits to approximately
163,000 members.
Effective February 1, 1996, the Company completed the acquisition of
all of the outstanding capital stock of Associated Health Plans, Inc.
and Associated Companies, Inc. (collectively, "Associated") for $15.0
million, composed of $14.1 million in cash at closing, financed
through internal funds, $0.3 million in cash from escrow deposits and
additional monthly payments totaling $0.6 million for the three-year
period beginning February 1996. Associated was a managed dental
benefits company that operated managed dental plans in Arizona,
providing dental benefits to over 220,000 members.
Effective October 1, 1996, the Company completed the acquisitions of
all of the outstanding common stock of Independent Dental Plan, Inc.
("Independent") for $1.3 million in cash and of Association Dental
Plan, Inc. ("Association") for $3.2 million in cash. Independent
operated a prepaid dental plan in Michigan having approximately 10,000
members. Association operated a multi-state dental referral plan
having approximately 60,000 members.
6 of 12
<PAGE> 7
Effective November 1, 1996, the Company completed the acquisitions of
all of the outstanding common stock of Kansas City Dental Care, Inc.
("KCDC") for $12.5 million in cash and of OraCare DPO, Inc.
("OraCare") for $5.6 million in cash and a promissory note, maturing
January 2, 1997, in the amount of $24.9 million (the "OraCare
Promissory Note"). The OraCare Promissory Note was paid in full at
maturity on January 2, 1997. KCDC operated prepaid dental plans in
Missouri and Kansas having approximately 90,000 members in the
aggregate. OraCare was a New Jersey prepaid dental plan having
approximately 150,000 members and an affiliated dental management
company.
Effective January 1, 1997, the company completed the acquisition of
all of the outstanding common stock of United Dental Care, Inc., an
Oklahoma corporation ("United") for $7.6 million in cash. At the date
of acquisition, United had cash and regulatory deposits of $3.2
million. United, through an indemnity insurance company subsidiary,
operated a prepaid plan in Oklahoma having approximately 90,000
members.
3. Stockholders' Equity
In October 1996, the Company completed a public offering of 2,000,000
shares of its common stock for $30.00 per share (the "Offering"),
resulting in net proceeds of $56.2 million. The Company used a
portion of the proceeds to complete the acquisitions of Independent,
Association, OraCare and KCDC in 1996 and of United in 1997.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the attached
consolidated financial statements and notes thereto.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This document includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. All statements other than
statements of historical fact included in this document, including, without
limitation, statements under "Management's Discussion and Analysis of Financial
Condition and Results of Operations" regarding the Company's financial
position, business strategy and plans and objectives of management of the
Company for future operations are forward-looking statements. Although the
Company believes that the expectations reflected in such forward-looking
statements are reasonable, it can give no assurance that such expectations will
prove to have been correct. Important factors that could cause actual results
to differ materially from the Company's expectations are disclosed throughout
the Company's 1997 Form 10-K, including, without limitation, in conjunction
with the forward-looking statements included therein. All subsequent written
and oral forward-looking statements attributable to the Company or persons
acting on its behalf are hereby expressly qualified in their entirety.
7 of 12
<PAGE> 8
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentages of
revenues represented by the items reflected in the Company's consolidated
statements of operations:
<TABLE>
<CAPTION>
For three Months Ended
March 31
------------------
1996 1997
------- -------
As Restated
<S> <C> <C>
Revenues:
Managed benefits .............................. 83.6% 83.9%
Indemnity ..................................... 15.2 12.5
Dental centers ................................ -- 5.7
Less: Intercompany ....................... -- (2.5)
Interest ...................................... 1.2 0.4
------- -------
Total revenues .......................... 100.0 100.0
------- -------
Expenses:
Dental services:
Managed benefits ........................... 48.7 51.3
Less: Intercompany ..................... -- (2.5)
Indemnity .................................. 11.5 14.1
Dental centers ............................. -- 4.1
------- -------
Subtotal ................................ 60.2 67.0
------- -------
Sales and marketing expenses .................. 11.3 10.5
General and administrative expenses ........... 17.2 14.1
Depreciation and amortization ................. 1.9 2.5
Interest expense .............................. 0.4 0.3
------- -------
Total expenses .......................... 91.0 94.4
------- -------
Net income before income taxes ...................... 9.0 5.6
Provision for income taxes .......................... 3.3 2.3
------- -------
Net income .......................................... 5.7% 3.3%
======= =======
</TABLE>
Comparison of First Quarter of 1997 to First Quarter of 1996
Revenues. Total revenues for the quarter ended March 31,1997, increased by
$20.2 million, or 81.6% to $45.0 million from $24.8 million in the comparable
quarter of 1996. Managed benefits revenues increased $17.0 million to $37.8
million. Of this increase, $12.4 million was attributable to the members added
through the acquisitions of Associated (effective February 1, 1996),
Independent and Association (effective October 1, 1996), KCDC and OraCare
(effective November 1, 1996) and United (effective January 1, 1997). The
increase in managed benefits premium revenues was primarily a result of an
increase in the number of members rather than price increases. During the
three months ended March 31, 1997, members increased from 1,729,000 at
December 31, 1996, to 1,935,000 at March 31, 1997. The increase in the
comparable period from December 31, 1995 to March 31, 1996 was from 937,000 to
1,178,000. Historically, the Company's rate of premium increases on its
managed benefits products has been less than the rate of increase in the cost
of dental services in general. Indemnity revenues increased from $3.8 million
to $5.6 million. Approximately 3.2% of total revenues (after the elimination
of intercompany revenues in consolidation) were generated by the dental centers
acquired as part of the OraCare acquisition in November 1996.
Dental Services Expense. Dental services expense increased $15.3 million, or
102.3% to $30.2 million in 1997 from $14.9 million in 1996. Dental services
expense as a percentage of total revenues increased to 67.0% in 1997 from
8 of 12
<PAGE> 9
60.2% in 1996, primarily due to the higher dental services expense ratio on the
Company's indemnity products, including the increase of approximately $2.0
million in the claims reserve liability made by the restatement. Claims
payments in the period subsequent to March 31 indicated that the Company's
dental services expense during the quarter ended March 31, 1997 was
substantially higher than had been reported. Dental services expense for the
Company's managed benefits plans, which consist primarily of capitation
payments to general dentists, increased to 61.1% of managed benefits revenues
in 1997, from 58.3% in 1996. The Arizona Medicaid managed benefits plans pay
general dentists a significantly higher percentage of premiums than the average
of the Company's other managed benefits plans. Claims expense for the
indemnity business in the first quarter of 1997 was 77.8% of indemnity
revenues, up from 75.6% in the comparable quarter of 1996. Generally, it is
management's intention to continue to increase premiums in all markets over the
next several years, as market conditions permit, thereby increasing revenues.
In most markets, amounts paid to general dentists through capitation payments
will also be increased somewhat to maintain the Company's competitive position
and to improve the economics for managed care general dentists. Management
expects these actions to result in the dental services expense for the managed
dental benefits plans as a percentage of managed benefits revenues remaining
approximately the same as the percentage experienced in the first quarter of
1997. The dental centers' dental services expenses, as a percentage of total
revenues, exceeded the dental centers' contribution to revenues as a result of
the elimination in consolidation of intercompany revenues.
Sales and Marketing Expenses. Sales and marketing expenses increased $1.9
million, or 68.2% to $4.7 million in 1997 from $2.8 million in 1996. Sales and
marketing expenses as a percentage of revenue decreased to 10.5% in 1997 from
11.3% in 1996. A portion of the sales and marketing costs, such as base
salaries of field sales personnel and office rents, are fixed so that the
expenses as a percentage of revenues decline as revenues increase.
General and Administrative Expenses. General and administrative expenses
increased $2.0 million, or 47.7%, to $6.3 million in 1997 from $4.3 million in
1996. The decrease in general and administrative expenses as a percentage of
revenues from 17.2 % in 1996 to 14.1% in 1997 was primarily attributable to the
largely fixed nature of such costs, which generally do not vary in the short
term relative to changes in revenue.
Depreciation and Amortization. Depreciation and amortization expenses
increased $0.7 million, 144.3%, to $1.1 million in 1997 from $0.5 million in
1996. This increase was the result of amortization of the goodwill and the
consulting and non-competition agreements attributable to the acquisitions of
Associated, Independent, Association, KCDC, OraCare and United and depreciation
related to the Company's new computer systems.
Interest Expense. Interest expense remained essentially unchanged at about
$0.1 million. The $0.1 million was composed primarily of the imputed interest
on the consulting and non-competition agreements incurred to finance the
Company's acquisitions. The weighted average interest rates on the agreements
during the first quarter of 1997 was 7.9%. This weighted average interest rate
includes the fees for letters of credit related to the agreements. In
addition, the Company amortized the cost of its revolving credit agreement and
paid a fee equal to about 0.15% per annum on the amount remaining available to
be drawn under the credit facility for a total interest cost for the credit
facility of 0.26% per annum.
Taxes. The average tax rate was 42.1% and 36.6% in 1997 and 1996,
respectively. In 1997 the average tax rate was greater than the statutory
Federal tax rate of 34%, primarily as the result of the non-deductibility of
the amortization of goodwill incurred in the Company's acquisitions.
LIQUIDITY AND CAPITAL RESOURCES
General. The Company's historical operating cash requirements have been met
through cash provided by operations. Net cash provided by operating activities
was $4.4 million for the three months ended March 31, 1997. An increase in
accounts payable, accrued expenses and claims reserves provided net cash of
$4.7 million largely as a result of an increase of $2.3 million in claims
reserves, an increase in accrued income tax payable of $0.9 million and $0.5
due to the acquisition of United effective January 1, 1997.
9 of 12
<PAGE> 10
The Company's primary cash need after operations is for debt service on
consulting and non-competition agreements entered into in connection with
previous acquisitions. The principal amount of such indebtedness of the
Company at March 31, 1997 was $3.8 million. The various agreements have fixed
rates of interest ranging from 5.0% to 7.5% and require aggregate payments of
principal and interest of $1.4 million each year.
In January 1997, the company paid off the OraCare Promissory Note for $24.9
million as required by the OraCare acquisition agreement. The Company
completed the acquisition of United in January 1997. The United acquisition
agreement required the Company to pay $10.8 million at the closing. (See Note
2 above)
The Company completed the acquisition of Associated effective February 1, 1996.
The Associated acquisition agreement required the Company to pay $14.1 million
at the closing and to release $0.3 million from escrow deposits. In January,
the Company paid off the US Dental Promissory Note for $10.3 million as
required by the US Dental acquisition agreement (see Note 2 above).
Capital Expenditures. In June 1995, the Company entered into a contract to
acquire a new information system to replace its existing system. Management
has reviewed the status of the project and revised the projected capital cost
of the system and the related database conversion, including conversion of the
databases of the Company's recent acquisitions. The project is currently
expected to cost approximately $7.1 million and to be completed in 1998.
Capital expenditures, other than the cost of the new information system, were
$1.5 million during the three months ended March 31, 1997. Such expenditures
included approximately $0.6 million for computer equipment and $0.2 million for
a new telephone system. The remaining capital expenditures primarily consisted
of leasehold improvements and equipment purchased in connection with the
relocation of the company's headquarters to new office space at the end of
March. Capital expenditures for the remainder of the 1997 fiscal year,
excluding the costs associated with the new information system, are expected to
be approximately $2.5 million.
Credit Facility. On November 14, 1996, the Company signed a revolving credit
agreement providing a $35.0 million revolving credit facility with an
unaffiliated bank. The purpose of the revolving credit facility is to provide
(i) for funding future acquisition of managed dental benefits companies; (ii)
for the issuance of letters of credit; (iii) for capital expenditures; and (iv)
at the election of the Company, a working capital line of credit in an amount
up to $5.0 million out of the total amount available under the revolving credit
facility. The revolving credit facility has a term of four years, expiring
November 30, 2000. Outstanding indebtedness under the revolving line of credit
will bear interest payable quarterly, at the Company's option, at: (i) up to
0.25% over the base rate of the lender or (ii) up to 1.85% over LIBOR, with the
margin over the respective rates decreasing as the ratio of total funded debt
to earnings before interest, taxes, depreciation and amortization ("EBITDA")
decreases. The Company pays an annual fee of up to 0.25% of the amount
remaining available to be drawn under the credit facility and up to 0.85% of
the amount available to be drawn under letters of credit issued under the
credit facility.
The revolving credit facility is secured by the pledge of all the outstanding
capital stock of the direct and indirect subsidiaries of the Company and a
negative pledge on all other assets. The revolving credit facility contains
numerous covenants including, among other things, that the Company cannot,
except in certain permitted instances, (i) incur any additional indebtedness;
(ii) grant liens on any of the assets of the Company or its subsidiaries; (iii)
declare or pay any dividends; or (iv) merge or consolidate with any other
entity. In addition, the Company is required to satisfy on an ongoing basis
certain financial covenants. The Company's breach of any covenant would result
in an event of default under the revolving credit facility.
In 1994, the Company arranged for the issuance of two letters of credit in the
aggregate amount of $4.8 million. The letters of credit secure the obligations
of the Company under certain agreements executed in connection with an
acquisition. The letters of credit decline in amount annually and expire in
September 1998. The Company pays an annual fee of up to 0.85% of the amount
remaining to be drawn under the letters of credit.
Regulation. Under applicable insurance laws of most states in which the
Company conducts business, the Company's subsidiary operating in the particular
state is required to maintain a minimum level of net worth and
10 of 12
<PAGE> 11
reserves. In general, minimum capital requirements are more stringent for
insurance companies, such as United Dental Care Insurance Company ("UDCIC") and
UDC Life & Health Insurance Co. ("UDCLH"), the Company's indemnity dental
insurance subsidiaries. The Company may be required from time to time to
invest funds in one or more of its subsidiaries to meet regulatory capital
requirements. The implementation of risk-based capital regulations in states
having jurisdiction over UDCIC and UDCLH may require that the Company increase
its investment in such subsidiaries. However, the Company does not believe
that compliance with such regulations will adversely affect the Company's
ability to meet its operating cash requirements. The Company believes that
UDCIC and UDCLH will be able to satisfy such regulations without the need for
significant capital contributions by the Company. Applicable laws generally
limit the ability of the Company's subsidiaries to pay dividends to the extent
that required regulatory capital would be impaired.
Inflation. Management believes that the Company's operations are not
materially affected by inflation. The Company's principal costs, such as
dental services expense and part of sales and marketing expenses, are largely
related to membership levels and therefore generally vary with premium
revenues. Historically, the Company's rate of premium increases has been less
than the rate of increase in the cost of dental services in general.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
The only matter submitted to a vote of the stockholders of the Company during
the current fiscal year was the uncontested election of directors voted upon at
the Company's annual meeting of stockholders held on April 18, 1997. A total
of 7,425,725 shares were represented at the annual meeting in person or by
proxy, including 202 shares that abstained from voting for any director
nominee. The 1,499,691 (16.8% of the outstanding shares) non-votes (nominees
or beneficial holders that did not respond to the proxy solicitation) were not
considered as "represented" at the meeting and were not counted in tabulating
the results of the election. The following is a tabulation of the votes:
<TABLE>
<CAPTION>
VOTES REPRESENTED
AFFIRMATIVE VOTES PERCENTAGE OF VOTES AT MEETING BUT
RECEIVED FOR REPRESENTED AT WITHHELD OR
NAME OF NOMINEE NOMINEE MEETING ABSTAINED
- ----------------------------------------- ----------------- ------------------- -----------------
<S> <C> <C> <C>
Jack R. Anderson . . . . . . . . . . . . 7,425,523 99.997% 202
George E. Bello . . . . . . . . . . . . . 7,425,523 99.997% 202
James E. Buncher . . . . . . . . . . . . 7,425,483 99.997% 242
William H. Longfield . . . . . . . . . . 7,425,523 99.997% 202
Robert J. Nettinga . . . . . . . . . . . 7,423,783 99.974% 1,942
James Ken Newman . . . . . . . . . . . . 7,425,523 99.997% 202
Donald E. Steen . . . . . . . . . . . . . 7,425,458 99.996% 267
William H. Wilcox . . . . . . . . . . . . 7,425,083 99.991% 642
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) List of Exhibits
3.01* Restated Certificate of Incorporation of the Company (filed as
Exhibit 3.01 to the Company's Registration Statement on Form S-1,
Registration Number 33-94356 (the "1995 Registration Statement") and
incorporated herein by reference).
3.02* Amended and Restated Bylaws of the Company (filed as Exhibit 3.02 to
the 1995 Registration Statement and incorporated herein by
reference).
4.01* Specimen Common Stock Certificate (filed as Exhibit 4.01 to the 1995
Registration Statement and incorporated herein by reference).
11.** Statement regarding computation of per share earnings.
27.1** Financial Data Schedule
- ----------------
* Previously filed.
** Filed herewith.
(b) The Company filed a report on Form 8-K on January 31, 1997 to report the
acquisition of United.
11 of 12
<PAGE> 12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNITED DENTAL CARE, INC.
-----------------------------------
(Registrant)
Date: August 6, 1997
/s/ MARK E. PAPE
-----------------------------------
Mark E. Pape, Senior Vice President
Chief Financial Officer
12 of 12
<PAGE> 13
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ------- -------
<S> <C>
11 Statement Regarding Computation of Per Share Earnings
27.1 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 11
UNITED DENTAL CARE, INC. AND SUBSIDIARIES
COMPUTATION OF PER SHARE EARNINGS
(in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
For Three Months Ended
March 31,
----------------------------------
1996 1997
---------- ----------
As Restated
<S> <C> <C>
I. Reported net earnings
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,411 $ 1,452
========== ==========
II. Primary earnings per share
A. Shares outstanding
Weighted average number of shares outstanding during 6,901,823 8,917,863
period . . . . . . . . . . . . . . . . . . . . . . .
Shares potentially issuable upon the assumed exercise of
stock options, net of assumed repurchase using the
Treasury Stock Method . . . . . . . . . . . . . . . . 348,619 241,331
---------- ----------
Total common shares and common equivalent shares . . . . . 7,250,442 9,159,194
========== ==========
B. Computation of net earnings per share
Net income . . . . . . . . . . . . . . . . . . . $ 0.19 $ 0.16
========== ==========
III. Fully diluted earnings per share (see NOTE below)
A. Shares outstanding
Weighted average number of shares outstanding during
period . . . . . . . . . . . . . . . . . . . . . . . 6,901,823 8,917,863
Shares potentially issuable upon the assumed exercise of
stock options, net of assumed repurchase using the
Treasury Stock Method . . . . . . . . . . . . . . . . 348,679 241,331
---------- ----------
Total common shares and common equivalent shares . . . . 7,250,502 9,159,194
========== ==========
B. Computation of net earnings per share
Net income . . . . . . . . . . . . . . . . . . . $ 0.19 $ 0.16
========== ==========
</TABLE>
NOTE: The amounts of per share earnings on the fully diluted basis are not
required to be presented in the consolidated statements of operations under the
provisions of Accounting Principles Board Opinion No. 15 since there is no
significant difference between primary and fully diluted earnings per share.
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 19,342
<SECURITIES> 0
<RECEIVABLES> 13,870
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 35,738
<PP&E> 9,104
<DEPRECIATION> 0
<TOTAL-ASSETS> 145,289
<CURRENT-LIABILITIES> 15,496
<BONDS> 0
0
0
<COMMON> 893
<OTHER-SE> 126,317
<TOTAL-LIABILITY-AND-EQUITY> 145,289
<SALES> 0
<TOTAL-REVENUES> 45,023
<CGS> 0
<TOTAL-COSTS> 42,515
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 147
<INCOME-PRETAX> 2,508
<INCOME-TAX> 1,056
<INCOME-CONTINUING> 1,452
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,452
<EPS-PRIMARY> .16
<EPS-DILUTED> .16
</TABLE>
