-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TPTxxVKClmJXS7D9UEV/3htz5q08m3KG1MizaU2DD1zbyEP4gC/CRumwMNRC723y S2IuPYNYldHyi761q3E3wQ== 0000950137-97-003075.txt : 19970918 0000950137-97-003075.hdr.sgml : 19970918 ACCESSION NUMBER: 0000950137-97-003075 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970915 ITEM INFORMATION: FILED AS OF DATE: 19970915 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: HEALTHCARE COMPARE CORP/DE/ CENTRAL INDEX KEY: 0000812910 STANDARD INDUSTRIAL CLASSIFICATION: INSURANCE AGENTS BROKERS & SERVICES [6411] IRS NUMBER: 363307583 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: SEC FILE NUMBER: 000-15846 FILM NUMBER: 97680604 BUSINESS ADDRESS: STREET 1: 3200 HIGHLAND AVE CITY: DOWNERS GROVE STATE: IL ZIP: 60515 BUSINESS PHONE: 3122698000 MAIL ADDRESS: STREET 1: 3200 HIGHLAND AVENUE STREET 2: 3200 HIGHLAND AVENUE CITY: DOWNERS GROVE STATE: IL ZIP: 60515 8-K/A 1 AMENDMENT TO FORM 8-K 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K/A CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 Date of Report (Date of earliest event reported): September 15, 1997 HealthCare COMPARE Corp. (Exact name of registrant as specified in its charter) Delaware 0-15846 36-3307583 (State or other Jurisdiction (Commission (IRS Employer of Incorporation) File Number) Identification No.) 3200 Highland Avenue, Downers Grove, IL 60615 (Address of principal executive offices) (Zip Code) (630) 241-7900 (Registrant's telephone number including area code) Not Applicable (Former name or former address, if changed since last report) 2 Amendment No. 1 HealthCare COMPARE Corp. (the "Company") hereby amends the following items, financial statements, exhibits or other portions of its Current Report on Form 8-K dated July 1, 1997 as follows: Item 7. Financial statements and exhibits Item 7(a): Financial statements of businesses acquired FIRST HEALTH Companies ("FHC") audited combined balance sheets as of December 31, 1996 and 1995, and the related combined statements of operations, stockholder's equity and of cash flows for each of the three years in the period ended December 31, 1996 and related notes and report of independent auditors. FHC unaudited combined balance sheet as of June 30, 1997, the unaudited combined statements of operations and of cash flows for the six month periods ended June 30, 1997 and 1996 and the unaudited combined statement of stockholder's equity for the six month period ended June 30, 1997. Item 7(b): Pro forma financial information Pro forma consolidated balance sheet of the Company as of June 30, 1997 and pro forma consolidated statements of operations for the year ended December 31, 1996 and the six month period ended June 30, 1997. Item 7(c): Exhibits No. 23 Consent of independent auditors Signatures Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. HealthCare COMPARE Corp. (Registrant) September 15, 1997 By:/s/Jospeh E. Whitters --------------------------- Vice President, Finance and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) 3 Item 7(a): Financial statements of businesses acquired The FHC audited combined balance sheets as of December 31, 1996 and 1995 and the related combined statements of operations, stockholder's equity and of cash flows for each of the three years in the period ended December 31, 1996, and the related notes and report of independent auditors, along with the FHC unaudited combined balance sheet as of June 30, 1997, the unaudited combined statements of operations and of cash flows for the six month periods ended June 30, 1997 and 1996 and the unaudited statement of stockholder's equity for the six months ended June 30, 1997, are all included herein. 4 Report of Independent Auditors FIRST HEALTH Companies, Its Board of Directors and Stockholder: We have audited the combined balance sheets of the FIRST HEALTH Companies (wholly-owned subsidiaries of First Data Corporation)(the "Company") as of December 31, 1996 and 1995, and the related combined statements of operations, stockholder's equity, and of cash flows for each of the three years in the period ended December 31, 1996. These combined financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these combined financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the combined financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the combined financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such combined financial statements present fairly, in all material respects, the combined financial position of the FIRST HEALTH Companies as of December 31, 1996 and 1995, and the results of their combined operations and their combined cash flows for each of the three years in the period ended December 31, 1996 in conformity with generally accepted accounting principles. As explained in Note 1, the FIRST HEALTH Companies are wholly-owned operating units of First Data Corporation and the results of their combined operations are not necessarily indicative of those which may have resulted had the combined operations been a stand alone company. Deloitte & Touche LLP August 29, 1997 Chicago, Illinois 5 FIRST HEALTH Companies (wholly-owned subsidiaries of First Data Corporation) COMBINED BALANCE SHEETS
JUNE 30, 1997 DECEMBER 31, ASSETS (UNAUDITED) 1996 1995 - ------------------------------------------------------------------------------- Current assets: Cash and cash equivalents $ 12,758,000 $ 6,987,000 $ 14,101,000 Accounts receivable 45,545,000 43,618,000 42,900,000 (less allowance for doubtful accounts of $7,663,000, $5,860,000, and $6,619,000, respectively) Other current assets 10,380,000 11,059,000 12,638,000 --------------------------------------- Total current assets 68,683,000 61,664,000 69,639,000 Marketable debt security 5,063,000 Property and equipment: Buildings and improvements 3,867,000 3,726,000 3,735,000 Computer equipment and software 58,414,000 59,081,000 40,306,000 Office furniture and equipment 29,746,000 29,460,000 34,077,000 --------------------------------------- 92,027,000 92,267,000 78,118,000 Less accumulated depreciation and amortization (55,984,000) (53,854,000) (46,092,000) --------------------------------------- Total property and equipment, net 36,043,000 38,413,000 32,026,000 Goodwill 159,305,000 161,615,000 165,765,000 (net of accumulated amortization of $25,463,000, $23,153,000, and $19,110,000, respectively) Software development costs 63,824,000 53,883,000 35,485,000 Other assets 10,327,000 9,395,000 8,554,000 (net of accumulated amortization of $5,247,000, $3,999,000, and $2,624,000, respectively) - -------------------------------------- --------------------------------------- TOTAL ASSETS $338,182,000 $324,970,000 $316,532,000 - -------------------------------------- --------------------------------------- LIABILITIES AND STOCKHOLDER'S EQUITY - -------------------------------------- Current liabilities: Accounts payable $ 15,073,000 $ 12,733,000 $ 10,598,000 Accrued compensation 6,545,000 7,716,000 5,609,000 Accrued expenses 16,884,000 16,753,000 21,599,000 --------------------------------------- Total current liabilities 38,502,000 37,202,000 37,806,000 Amounts due to affiliates 22,827,000 14,313,000 25,850,000 Non-current liabilities: Deferred tax liability, net 25,196,000 25,667,000 23,267,000 Other 1,350,000 852,000 781,000 - -------------------------------------- --------------------------------------- Total liabilities 87,875,000 78,034,000 87,704,000 - -------------------------------------- --------------------------------------- Commitments and contingencies Stockholder's equity: Common stock 2,000,000 2,000,000 2,000,000 Additional paid-in capital 70,713,000 70,001,000 67,623,000 Retained earnings 177,594,000 174,935,000 159,229,000 Unrealized holding loss on marketable debt security (24,000) - -------------------------------------- --------------------------------------- Total stockholder's equity 250,307,000 246,936,000 228,828,000 - -------------------------------------- --------------------------------------- - -------------------------------------- --------------------------------------- Total liabilities and stockholder's equity $338,182,000 $324,970,000 $316,532,000 - -------------------------------------- ---------------------------------------
See Notes to Combined Financial Statements 6 FIRST HEALTH Companies (wholly-owned subsidiaries of First Data Corporation) COMBINED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, YEARS ENDED DECEMBER 31, 1997 1996 1996 1995 1994 - -------------------------------------------------------------------------------------------------------------------------- (UNAUDITED) Revenues $ 145,639,000 $ 161,094,000 $ 311,630,000 $ 292,210,000 $ 289,185,000 Operating expenses: Cost of services 99,128,000 102,776,000 198,942,000 182,594,000 178,674,000 Selling and marketing 17,853,000 18,689,000 43,963,000 23,778,000 21,327,000 General and administrative 11,885,000 11,723,000 23,177,000 22,534,000 23,118,000 Depreciation and amortization 7,520,000 6,745,000 15,150,000 12,553,000 11,850,000 Interest expense (income), net (652,000) 773,000 1,477,000 1,000 (22,000) Restructuring charge 3,388,000 Write down of software development costs 18,000,000 - -------------------------------------------------------------------------------------------------------------------------- 139,122,000 140,706,000 282,709,000 259,460,000 234,947,000 - -------------------------------------------------------------------------------------------------------------------------- Income before income taxes 6,517,000 20,388,000 28,921,000 32,750,000 54,238,000 Income taxes 3,858,000 9,256,000 13,215,000 14,876,000 23,527,000 - -------------------------------------------------------------------------------------------------------------------------- Net income $ 2,659,000 $ 11,132,000 $ 15,706,000 $ 17,874,000 $ 30,711,000 - --------------------------------------------------------------------------------------------------------------------------
See Notes to Combined Financial Statements 7 FIRST HEALTH Companies (WHOLLY-OWNED SUBSIDIARIES OF FIRST DATA CORPORATION) COMBINED STATEMENTS OF STOCKHOLDERS EQUITY
Common Stock Unrealized Holding ---------------------- Additional Retained Loss on Shares Amount Paid-in-Capital Earnings Marketable Debt Security ---------------------------------------------------------------------------------- Balance, January 1, 1994 200,000 $ 2,000,000 $ 59,815,000 $ 110,644,000 Additional investment by FFMC 1,345,000 Tax benefits of FFMC stock options exercised 1,606,000 Net Income 30,711,000 - ---------------------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1994 200,000 $ 2,000,000 62,766,000 141,355,000 Change in unrealized holding loss on $ (24,000) marketable securities Tax benefits of FFMC stock options exercised 4,857,000 Net Income 17,874,000 - ---------------------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1995 200,000 $ 2,000,000 67,623,000 159,229,000 (24,000) Change in unrealized holding loss on marketable securities $ 24,000 Tax benefits of FFMC stock options exercised 2,378,000 Net Income 15,706,000 - ---------------------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1996 200,000 $ 2,000,000 70,001,000 174,935,000 Tax benefits of FDC stock options exercised (unaudited) 712,000 Net Income (unaudited) 2,659,000 - ---------------------------------------------------------------------------------------------------------------------------------- Balance, June 30, 1997 (unaudited) 200,000 $ 2,000,000 $ 70,713,000 $ 177,594,000 - ----------------------------------------------------------------------------------------------------------------------------------
See Notes to Combined Financial Statements 8 FIRST HEALTH Companies (WHOLLY-OWNED SUBSIDIARIES OF FIRST DATA CORPORATION) COMBINED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, YEARS ENDED DECEMBER 31, 1997 1996 1996 1995 1994 - ---------------------------------------------------------------------------------------------------------------------------------- (UNAUDITED) Cash flows from operating activities: Net income $ 2,659,000 $ 11,132,000 $ 15,706,000 $ 17,874,000 $ 30,711,000 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 7,520,000 6,745,000 15,150,000 12,553,000 11,850,000 Write-down of software development costs 18,000,000 Loss on disposal of equipment 1,885,000 Tax benefits from stock options exercised 712,000 1,189,000 2,378,000 4,857,000 1,606,000 Deferred income taxes 66,000 2,334,000 4,667,000 6,736,000 7,367,000 Changes in assets and liabilities, net of effects of merger of EBP Health Plans and Prime Extra into FIRST HEALTH: Accounts receivable (1,927,000) (78,000) (718,000) 13,612,000 (6,392,000) Other current assets 142,000 (2,177,000) (688,000) 1,765,000 (1,037,000) Other assets (2,180,000) (2,720,000) (3,394,000) (8,818,000) 4,114,000 Accounts payable and accrued expenses 1,300,000 8,518,000 (604,000) (13,066,000) 6,632,000 Amounts due to affiliates 8,514,000 (7,988,000) (11,537,000) (29,267,000) (36,858,000) Other non-current obligations 498,000 39,000 71,000 (251,000) 222,000 - ---------------------------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 17,304,000 16,994,000 21,031,000 23,995,000 20,100,000 - ---------------------------------------------------------------------------------------------------------------------------------- Cash flows from investing activities: Investment in software development costs (8,187,000) (7,323,000) (15,521,000) (16,893,000) (15,131,000) Purchases of property and equipment (3,346,000) (6,311,000) (17,711,000) (11,353,000) (9,883,000) Cash received in push down of EBP subsidiaries 5,087,000 Proceeds from sale of long term investment 5,087,000 Proceeds from the sale of property and equipment 11,656,000 - ---------------------------------------------------------------------------------------------------------------------------------- Net cash used in investing activities (11,533,000) (13,634,000) (28,145,000) (23,159,000) (13,358,000) - ---------------------------------------------------------------------------------------------------------------------------------- Cash flows from financing activities - 1,345,000 Additional investment by FFMC - ---------------------------------------------------------------------------------------------------------------------------------- Increase (decrease) in cash and cash equivalents 5,771,000 3,360,000 (7,114,000) 836,000 8,087,000 Cash and cash equivalents at beginning of period 6,987,000 14,101,000 14,101,000 13,265,000 5,178,000 - ---------------------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of period $12,758,000 $ 17,461,000 $ 6,987,000 $ 14,101,000 $ 13,265,000 ==================================================================================================================================
See Notes to Combined Financial Statements. 9 FIRST HEALTH COMPANIES (WHOLLY-OWNED SUBSIDIARIES OF FIRST DATA CORPORATION) NOTES TO COMBINED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION The combined financial statements include the accounts of FIRST HEALTH Services and its wholly owned subsidiaries First Mental Health, Inc. and Viable Information Processing Systems, Inc. ("Services"), FIRST HEALTH Strategies ("Strategies"), EBP Health Plans, and Prime Extra, (collectively, "FIRST HEALTH" or the "Company"). The Company is a group of health care administration companies which are owned by First Data Corporation ("FDC"). FIRST HEALTH was originally formed by First Financial Management Corporation ("FFMC") through the acquisitions of Services in 1989, First Mental Health in 1991, Strategies in 1992 and Employee Benefit Plans, Inc. ("EBP") in 1995, creating a fully-integrated health care services firm, serving both private and public sector markets. All significant intercompany balances, transactions and profits have been eliminated. 2. NATURE OF OPERATIONS The Company provides a full portfolio of health plan management solutions to a broad customer base of private corporations and public agencies. The Company's activities consist principally of claims processing, system design and development and managed care administration in the health services industry. The Company also provides services to other industries in the areas of data processing facilities management and drug utilization review. 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES INTERIM FINANCIAL INFORMATION: In the opinion of management, the unaudited information presented as of June 30, 1997 and for the six month periods ended June 30, 1997 and 1996 reflect all adjustments, which consist of normal recurring adjustments, necessary for a fair presentation of the interim period financial statements. Operating results for interim periods are not necessarily indicative of the results that may be expected for a full year. USE OF ESTIMATES: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of 10 contingent assets and liabilities and reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. CASH AND CASH EQUIVALENTS: The Company is included in FDC's combined cash management program, whereby cash generated by FDC's subsidiaries is consolidated daily for concentration and investment. Pursuant to an agreement between FDC and the Company, cash and cash equivalents at December 31, 1996 and 1995 include amounts due on a demand basis from FDC's combined cash balances. Cash and cash equivalents are defined as all highly liquid investments with original maturities of three months or less at date of purchase. MARKETABLE DEBT SECURITY: The long-term investment at December 31, 1995 is a U.S. Treasury Note due in 1996, bearing interest at 4.375 percent, with an amortized cost of $5,093,000. This investment, which is classified as available for sale, is reported at fair value, based upon quoted market price. PROPERTY AND EQUIPMENT: Property and equipment are recorded at cost. Expenditures for the maintenance and repair of property and equipment are charged to expense as incurred. Expenditures for major replacement or betterment are capitalized. Depreciation is provided over the estimated useful lives of the related assets using the straight-line method. These lives range from three years to eight years for computer equipment and software and five years for office furniture and equipment. Leasehold improvements are amortized over the shorter of the lease term or estimated useful life of the asset. Amounts charged to expense for the depreciation and amortization of property and equipment were $8,554,000 in 1996, $5,675,000 in 1995 and $5,764,000 in 1994. Capitalized depreciation associated with software development is excluded from the above totals. LONG-LIVED ASSETS: The carrying amount of all long-lived assets is evaluated periodically to determine if adjustment to the depreciation and amortization period or to the unamortized asset balance is warranted. Such evaluation is based principally on the expected utilization of the long-lived assets and the projected, undiscounted cash flows of the operations in which the long-lived assets are deployed. During 1995, an evaluation of the carrying amount of the capitalized software development costs determined that an adjustment to the carrying value was warranted. Based upon management's calculation of future cash flows, an impairment charge of $18,000,000 was recorded to reduce the carrying amount of the asset to its estimated net realizable value. No such write-down or adjustment was required in 1996. GOODWILL: FFMC acquired FIRST HEALTH Services in 1989, First Mental Health in 1991 and FIRST HEALTH Strategies in 1992. These acquisitions were accounted for by the purchase method of accounting. The excess of cost over fair value of assets 11 acquired and liabilities assumed, which was recorded as goodwill, represents the excess of the cost of acquired businesses over the value assigned to tangible and identifiable intangible assets and the liabilities assumed. Goodwill is being amortized on a straight-line basis over 40 years. The Company periodically assesses the recoverability of goodwill by comparing its carrying value to expected future operating results of the applicable acquired business. If estimates of future operating results were insufficient to recover future charges of goodwill amortization, then the unamortized balance of goodwill would be reduced. In October 1995, FFMC acquired Employee Benefit Plans, Inc. a health claims processor and plan administrator with a life insurance subsidiary selling insurance products. Simultaneous with the acquisition, FFMC pushed down the EBP Health Plans and Prime Extra subsidiaries of EBP to the Company. The push down was effected through the intercompany account between the Company and FFMC. The push down of EBP Health Plans and Prime Extra did not result in an increase in goodwill as no goodwill had been allocated to the acquisition of these companies. The assets received and liabilities assumed related to EBP Health Plans and Prime Extra are disclosed in Note 4. SOFTWARE DEVELOPMENT COSTS: The Company has capitalized costs incurred in the development of a technologically advanced claims adjudication system to be utilized as the primary platform for future claims processing activities. Both internal and external costs directly related to this project have been capitalized. Capitalization of development costs related to this project began when technological feasibility was established and will end when the software is ready for its intended use. Amortization of these development costs will begin when the software is placed into service. The amount of software development costs capitalized net of any impairment charges were $18,398,000 in 1996, $345,000 in 1995 and $16,326,000 in 1994. Included in these amounts are capitalized depreciation associated with equipment used in the development and testing of the software of $2,877,000 in 1996, $1,452,000 in 1995 and $1,195,000 in 1994. As previously discussed, the Company wrote-off $18,000,000 of capitalized software development costs in 1995 to reduce the carrying amount of the asset to its estimated net realizable value. OTHER ASSETS: Other assets consist principally of costs incurred in developing software products for sale and costs incurred in the design and implementation of applications systems which service new customer contracts. Software development costs are amortized on a straight line basis over five years. Design and implementation costs are amortized on a straight line basis over the life of the associated contract, which typically range from one to five years. 12 AMOUNTS DUE TO AFFILIATES: The intercompany balance with affiliates, principally FDC, represents cash transferred to FDC under its combined cash management program, net of payments by FDC on behalf of the Company (such as amounts related to acquisitions, employee benefits, telecommunications, legal, etc.), see Note 8. FAIR VALUE OF FINANCIAL INSTRUMENTS: The carrying amounts of cash and cash equivalents, accounts receivable and accounts payable are reasonable estimates of their fair value. REVENUE RECOGNITION: Claims processing revenue and managed care service revenue are recognized as earned. Revenue generated from system programming services is recognized based on the percentage of the project completed within the accounting period. Drug formulary rebate revenue is recorded on an accrual basis when earned and adjusted based on subsequent receipt of cash payments. NEW ACCOUNTING STANDARD: In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 130 "Reporting Comprehensive Income" which establishes standards for reporting and display of comprehensive income and its components (revenues, expenses, gains, and losses) in a full set of general purpose financial statements. SFAS No. 130 is effective for fiscal years beginning after December 15, 1997. Reclassification of financial statements for earlier periods provided for comparative purposes is required. The impact of the adoption of SFAS No. 130 has not yet been fully determined. 4. SUPPLEMENTAL CASH FLOW INFORMATION
Six Months Ended June 30, Years Ended December 31, ------------------------- ----------------------------- 1997 1996 1996 1995 1994 ---- ---- ---- ---- ---- (unaudited) Cash payments for: Interest $652,000 $ 773,000 $1,475,000 $ 95,000 Income taxes 3,085,000 6,169,000 3,178,000 $14,440,000
13 Cash payments for interest and income taxes are paid (settled) through the intercompany account with FDC and FFMC. SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING ACTIVITIES: In 1995, FFMC pushed down the EBP Health Plans and Prime Extra subsidiaries of EBP to the Company. The Company received assets and assumed liabilities in connection with this transaction as follows: Assets received $(15,486,000) Liabilities assumed 7,063,000 Amount due to affiliate 13,510,000 ------------ Cash received in push down $ 5,087,000 ============
5. LEASES The Company leases data processing equipment, office equipment and office space under operating leases through 2009. Future minimum annual rental commitments under these noncancelable operating leases at December 31, 1996 were as follows: Years ending December 31, 1997 $15,673,000 1998 10,517,000 1999 6,187,000 2000 3,965,000 2001 3,412,000 Thereafter 11,155,000 ----------- Total minimum lease payments $50,909,000 ===========
Total rental expense for operating leases approximated $21,583,000 in 1996, $19,145,000 in 1995 and $18,017,000 in 1996. 14 6. INCOME TAXES
Components of the provision for income taxes are as follows: Years Ended December 31, ---------------------------------------- 1996 1995 1994 ----------- ----------- ------------ Currently payable: Federal $ 7,035,000 $ 6,699,000 $ 13,300,000 State and local 1,513,000 1,441,000 2,860,000 ----------- ----------- ------------ 8,548,000 8,140,000 16,160,000 Deferred taxes: Federal 3,840,000 5,544,000 6,063,000 State and local 827,000 1,192,000 1,304,000 ----------- ----------- ------------ 4,667,000 6,736,000 7,367,000 ----------- ----------- ------------ Provision for income taxes $13,215,000 $14,876,000 $ 23,527,000 =========== =========== ============
A reconciliation of the U.S. federal statutory rate to the effective tax rate is presented below:
Years Ended December 31, ------------------------ 1996 1995 1994 ---- ---- ---- U.S. federal statutory rate 35.0% 35.0% 35.0% State income taxes, net of federal benefit 5.3% 5.2% 5.1% Nondeductible expenses 4.9% 4.6% 2.9% Other 0.5% 0.6% 0.4% ----- ----- ----- Effective tax rate 45.7% 45.4% 43.4% ===== ===== =====
15 Deferred tax assets and (liabilities) comprise the following as of December 31, 1996 and 1995:
1996 1995 ---- ---- Deferred tax assets: Net operating loss carryforwards $ 2,106,000 $ 2,106,000 Bad debt reserve 1,664,000 1,821,000 Acquisition reserve 2,009,000 2,082,000 Other intangible assets 1,468,000 Other 2,252,000 3,929,000 ------------ ------------ Total deferred tax assets 9,499,000 9,938,000 Deferred tax liabilities: Software development costs 24,745,000 15,795,000 Depreciation 2,390,000 2,320,000 Other intangible assets 4,310,000 Other 360,000 842,000 ------------ ------------ Total deferred tax liabilities 27,495,000 23,267,000 ------------ ------------ Total deferred tax (liability) (17,996,000) (13,329,000) Valuation allowance (2,106,000) (2,106,000) ------------ ------------ Net deferred tax (liability) $(20,102,000) $(15,435,000) ============ ============
Income tax benefits associated with the exercise of FDC and FFMC stock options were $2,378,000 in 1996, $4,857,000 in 1995 and $1,606,000 in 1994. Such amounts are credited to paid-in capital. A valuation allowance has been provided for those net operating loss ("NOL") carryforwards and temporary differences which are estimated to expire before they are utilized. At December 31, 1996, the Company had approximately $5,444,000 of NOL carryforwards attributed to EBP Health Plans which were pushed down to the Company in 1995. Such carryforwards reflect income tax losses incurred which will begin to expire in 2003. 7. EMPLOYEE BENEFIT PLANS The Company's employees participate in FDC's profit sharing and savings plans which allow eligible employees to allocate up to 15% of their salary through payroll deductions. The Company matches 25% of the employee's contributions, up to 6% of his or her salary. The Company's cost of these plans approximated $1,422,000 in 1996, $2,332,000 in 1995 and $2,379,000 in 1994. 16 The Company has a defined benefit pension plan covering certain employees. The benefits under this plan are based on years of service and final average compensation levels. The following table sets forth the plan's funded status, reconciled with amounts recognized in the Company's combined balance sheet at December 31, 1996 and 1995:
1996 1995 ---- ---- Accumulated benefit obligation $ 5,397,000 $ 5,020,000 ============ =========== Projected benefit obligation $ 5,397,000 $ 5,020,000 Fair value of plan assets (primarily fixed income securities) 6,049,000 6,080,000 ------------ ----------- Funded status at December 31 652,000 1,060,000 Asset at transition date (1,131,000) (1,225,000) Unrecognized net loss 768,000 592,000 ------------ ----------- Prepaid pension cost $ 289,000 $ 427,000 ============ ===========
Net retirement plan expense for the years ended December 31, 1996, 1995 and 1994 consists of the following:
1996 1995 1994 ---- ---- ---- Interest cost on the accumulated benefit obligation $ 364,000 $ 333,000 $ 313,000 Net deferral and amortization (94,000) (94,000) (94,000) Expected return on plan assets (474,000) (438,000) (447,000) --------- --------- --------- Net defined benefit pension income $(204,000) $(199,000) $(228,000) ========= ========= =========
The weighted average discount rate used in determining the actuarial present value of the projected benefit obligation was 7.5% in both 1996 and 1995. The expected long term rate of return on plan assets was 8.0 % in 1996, 1995 and 1994. 17 8. TRANSACTIONS WITH AFFILIATES Transactions with affiliates were as follows:
1996 1995 1994 ---- ---- ---- Revenues from affiliates $13,709,000 $5,056,000 $1,866,000 Cost of services to affiliates 1,099,000 1,247,000 1,095,000 Expenses incurred for products and services provided by affiliates 1,324,000 1,953,000 1,946,000
The Company does not maintain corporate treasury, legal, tax, internal audit, and other similar corporate support functions. These services were provided to the Company by FDC in 1996 and FFMC in 1995 and 1994. During 1996, FDC charged the Company $7,868,000 for these services. Included in the $7,868,000 charge was approximately $1,477,000 of interest expense on the intercompany balances between FIRST HEALTH and affiliates, principally FDC. The interest expense was calculated monthly based on the average monthly intercompany balance multiplied by an interest rate which approximated 7% in 1996. In 1995 and 1994, FFMC did not charge the Company for corporate support services or charge interest on the intercompany balance as FFMC did not allocate or charge these types of costs to its subsidiaries, nor did their systems provide sufficient information to develop a reasonable cost allocation. 9. REVENUE CONCENTRATION The Company had no customers which individually accounted for 10% or more of revenue in 1996, 1995 or 1994. 10. COMMITMENTS AND CONTINGENCIES The Company is party to a number of contracts with state agencies and non- governmental business entities. These contracts are subject to audit by such agencies and business entities or their representatives. Such audits could result in requests for reimbursement to the state agencies and business entities for expenditures disallowed under the terms of the contracts or for damages for nonperformance of agreed upon standards. Management believes that disallowed expenditures or damages for nonperformance, if any, would not be significant. In the normal course of business, the Company is subject to claims and litigation. Management of the Company believes that current or threatened claims and litigation with a reasonably possible chance of loss would not, individually or in the aggregate, 18 result in a materially adverse effect on the Company's results of operations, liquidity or financial condition. 11. SUBSEQUENT EVENTS RESTRUCTURING CHARGES: In March 1997, the Company recorded a restructuring charge of approximately $3,388,000. This charge was for employee severance associated with a companywide reduction-in-force implemented to streamline operating efficiencies. The restructuring plan affected approximately 6% of the Company's employees. ACQUISITION OF CERTAIN SUBSIDIARIES OF FIRST HEALTH: On July 1, 1997, HealthCare COMPARE Corp. ("HCC") completed the acquisition of all of the outstanding shares of common stock of Strategies and Services from FFMC and FDC (collectively, the "Sellers") for a purchase price of approximately $202,000,000 in cash, subject to certain post-closing adjustments. The acquisition excluded the stock of Viable Information Processing Systems, Inc., a wholly-owned subsidiary of Services. The acquisition was effected pursuant to the terms of a Stock Purchase Agreement, dated as of May 22, 1997, among HCC and the Sellers, and will be accounted for as a purchase of the acquired FIRST HEALTH Companies by HCC. 19 Item 7 (b): Pro forma financial information The accompanying unaudited pro forma consolidated balance sheet as of June 30, 1997 and unaudited pro forma statements of operations for the year ended December 31, 1996 and the six month period ended June 30, 1997 are presented to reflect the acquisition of all of the outstanding shares of capital stock of FIRST HEALTH Strategies, Inc. ("Strategies") and FIRST HEALTH Services Corporation ("Services") (collectively, "FHC"), excluding the stock of Viable Information Processing Systems, Inc., a wholly-owned subsidiary of Services, from First Financial Management Corporation and First Data Corporation (collectively, the "Sellers") by HealthCare COMPARE Corp. (the "Company") (the "Acquisition") for a purchase price of $202 million in cash, subject to certain working capital adjustments which, when finalized, will result in a reduction of the purchase price to approximately $196 million. The Acquisition was effected pursuant to the terms of a Stock Purchase Agreement, dated as of May 22, 1997, among the Company and the Sellers. The Acquisition was accounted for under the purchase method of accounting. The accompanying unaudited pro forma consolidated financial statements reflect the effects of a preliminary allocation of the purchase price. The accompanying unaudited pro forma consolidated financial statements should be read in conjunction with the respective companies' historical consolidated or combined financial statements and notes thereto. The unaudited pro forma consolidated financial statements are presented for informational purposes only and are not necessarily indicative of actual results had the foregoing transaction occurred as described in the preceding paragraph, nor do they purport to represent results of future operations of the merged companies. The pro forma consolidated balance sheet assumes the Acquisition occurred on June 30, 1997. The pro forma consolidated statements of operations present the Company's historical consolidated statements of operations for the fiscal year ended December 31, 1996 and the six months ended June 30, 1997, along with FHC's statements of operations for the same periods adjusted to give effect to the Acquisition as if the Acquisition had occurred on January 1, 1996. Unaudited pro forma consolidated financial information presented herein reflects adjustments for (i) the estimated allocation of purchase price to the fair value of assets acquired, including goodwill, and liabilities assumed, (ii) the effect of recurring charges related to the Acquisition, primarily the amortization of goodwill, recording of interest expense on borrowings to finance the Acquisition and the reduction of depreciation expense due to the write-down to fair value of fixed assets, (iii) the estimated liability for restructuring and integration costs, and (iv) removal of revenues and related cost of services and expenses for acquired businesses that are held for sale. The unaudited pro forma consolidated financial statements do not reflect an expected material non recurring charge for the portion of the purchase price which will be allocated to in-process research and development as a result of the Acquisition, or any allocation of a portion of the purchase price to intangible assets other than goodwill. In addition, the Company has not finalized all aspects of its merger and integration plan for FHC. The Company is currently performing a valuation of FHC's in-process research and development related to existing technology and technology in-process. The fair market value of FHC's technology will be 20 estimated using a discounted cash flow approach. A charge will be recorded for in-process research and development equal to its estimated current fair value of specifically identified technologies for which an alternative future use does not exist. The preliminary allocation of the purchase price resulted in approximately $158 million of goodwill. The actual amount of goodwill recorded will vary based upon the final purchase price allocation resulting from settlement of the working capital adjustment, and completion of the merger and integration plan and the asset and technology valuations discussed above. Changes in goodwill and the related amortization expense resulting from these plans and assessments may be material. 21 HEALTHCARE COMPARE CORP. UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET JUNE 30, 1997 (Dollars in thousands)
- ------------------------------------------------------------------------------------------------------------------------------------ FIRST HEALTH COMPANIES HEALTHCARE ---------------------------------------- PRO FORMA COMPARE BUSINESS NOT ACQUIRED PURCHASE ADJUSTED CORP. HISTORICAL PURCHASED FIRST HEALTH ADJUSTMENTS BALANCE (a) (a) (b) ASSETS: CURRENT ASSETS: Cash and cash equivalents $ 64,537 $ 12,758 $ (202) $ 12,960 $ 77,497 Short term investments 22,680 22,680 Accounts receivable, less 29,351 45,545 2,760 42,785 $(4,153) (d) 67,983 allowances for doubtful accounts Other current assets 7,251 10,380 987 9,393 11,567 (f),(g) 28,211 Net current assets of businesses 2,012 (d),(e) 2,012 held for sale --------- ---------- ---------- ---------- ---------- ---------- TOTAL CURRENT ASSETS 123,819 68,683 3,545 65,138 9,426 198,383 LONG-TERM INVESTMENTS: Marketable securities 96,923 96,923 Other 25,030 25,030 --------- ---------- ---------- ---------- ---------- ---------- 121,953 121,953 PROPERTY AND EQUIPMENT: Buildings and improvements 50,846 3,867 42 3,825 (3,249) (h) 51,422 Computer equipment and software 44,683 58,414 3,679 54,735 (51,379) (h) 48,039 Office furniture and equipment 19,740 29,746 1,624 28,122 (23,764) (h) 24,098 --------- ---------- ---------- ---------- ---------- ---------- 115,269 92,027 5,345 86,682 (78,392) 123,559 Less accumulated depreciation and amortization (54,636) (55,984) (3,448) (52,536) 52,536 (h) (54,636) --------- ---------- ---------- ---------- ---------- ---------- PROPERTY AND EQUIPMENT, NET 60,633 36,043 1,897 34,146 (25,856) 68,923 GOODWILL 159,305 21,407 137,898 19,754 (i) 157,652 SOFTWARE DEVELOPMENT COSTS 63,824 63,824 (63,824) (j) OTHER ASSETS 4,859 10,327 10,115 212 13,685 (g) 18,756 --------- ---------- ---------- ---------- ---------- ---------- TOTAL ASSETS $311,264 $338,182 $36,964 $301,218 $(46,815) $565,667 ========= ========== ========== ========== ========= ==========
See notes to unaudited pro forma consolidated financial statements. 22 HEALTHCARE COMPARE CORP. UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET (CONTINUED) JUNE 30, 1997 (Dollars in thousands)
- ----------------------------------------------------------------------------------------------------------------------------------- FIRST HEALTH COMPANIES HEALTHCARE -------------------------------------- PRO FORMA COMPARE BUSINESS NOT ACQUIRED PURCHASE ADJUSTED CORP. HISTORICAL PURCHASED FIRST HEALTH ADJUSTMENTS BALANCE LIABILITIES & STOCKHOLDERS' EQUITY: (a) (a) (b) CURRENT LIABILITIES: Accounts payable $ 6,807 $ 15,073 $ 157 $ 14,916 $ 393(c) $ 22,116 Accrued expenses 12,553 23,429 1,457 21,972 13,718(k) 48,243 Treasury stock purchases payable 855 855 Claims reserves 8,075 8,075 Income taxes payable 747 747 --------- ---------- ---------- ---------- ---------- ---------- TOTAL CURRENT LIABILITIES 29,037 38,502 1,614 36,888 14,111 80,036 NON-CURRENT LIABILITIES: Amounts due to affiliates 22,827 16,879 5,948 (5,948)(l) Long-term debt 202,000 (m) 202,000 Deferred tax liability, net 25,196 3,407 21,789 (21,789)(g) Other non-current liabilities 1,902 1,350 1,350 54 (d) 3,306 --------- ---------- ---------- ---------- ---------- ---------- TOTAL NON-CURRENT LIABILITIES 1,902 49,373 20,286 29,087 174,317 205,306 --------- ---------- ---------- ---------- ---------- ---------- TOTAL LIABILITIES 30,939 87,875 21,900 65,975 188,428 285,342 STOCKHOLDERS' EQUITY: Common stock 373 2,000 2,000 (2,000)(n) 373 Additional paid-in capital 144,794 70,713 70,713 (70,713)(n) 144,794 Retained earnings 331,343 177,594 15,064 162,530 (162,530)(n) 331,343 Unrealized holding gain on marketable securities 1,120 1,120 Treasury stock, at cost (197,305) (197,305) --------- ---------- ---------- ---------- ---------- ---------- TOTAL STOCKHOLDERS' EQUITY 280,325 250,307 15,064 235,243 (235,243) 280,325 --------- ---------- ---------- ---------- ---------- ---------- TOTAL LIABILITIES & STOCKHOLDERS' $311,264 $338,182 $36,964 $301,218 $(46,815) $565,667 EQUITY ========= ========== ========== ========== ========== ==========
See notes to unaudited pro forma consolidated financial statements. 23 HEALTHCARE COMPARE CORP. UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1996 (Dollars in thousands, except per share data)
- ----------------------------------------------------------------------------------------------------------------------------------- FIRST HEALTH COMPANIES HEALTHCARE ---------------------------------------- PRO FORMA COMPARE BUSINESS NOT ACQUIRED PURCHASE ADJUSTED CORP. HISTORICAL PURCHASED FIRST HEALTH ADJUSTMENTS BALANCE (a) (a) (b) REVENUES $247,804 $311,630 21,285 $290,345 $(31,828) (o) $506,321 OPERATING EXPENSES: Cost of services 72,284 198,942 10,473 188,469 (24,076) (o) 236,677 Selling and marketing 29,148 43,963 2,667 41,296 (6,406) (o) 64,038 General and administrative 13,745 23,177 2,404 20,773 (3,020) (o) 31,498 Healthcare benefits 5,479 5,479 Depreciation and amortization 12,334 15,150 1,825 13,325 (2,690) (p) 22,969 Interest (income) expense, net (13,581) 1,477 819 658 10,512 (q) (2,411) --------- ---------- --------- --------- -------- -------- 119,409 282,709 18,188 264,521 (25,680) 358,250 --------- ---------- --------- --------- -------- -------- INCOME BEFORE INCOME TAXES 128,395 28,921 3,097 25,824 (6,148) 148,071 INCOME TAXES 49,400 13,215 1,415 11,800 (491) 60,709 (r) --------- ---------- --------- --------- -------- -------- NET INCOME $ 78,995 $ 15,706 $ 1,682 $ 14,024 $(5,657) $ 87,362 ========= ========== ========= ========= ======== ======== NET INCOME PER COMMON SHARE $ 2.24 $ 2.48 ======== ======== WEIGHTED AVERAGE COMMON AND COMMON SHARE EQUIVALENTS 35,244 35,244 ======== ========
See notes to unaudited pro forma consolidated financial statements. 24 HEALTHCARE COMPARE CORP. UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS SIX MONTHS ENDED JUNE 30, 1997 (Dollars in thousands, except per share data)
- ----------------------------------------------------------------------------------------------------------------------------------- FIRST HEALTH COMPANIES HEALTHCARE ---------------------------------------- PRO FORMA COMPARE BUSINESS NOT ACQUIRED PURCHASE ADJUSTED CORP. HISTORICAL PURCHASED FIRST HEALTH ADJUSTMENTS BALANCE (a) (a) (b) REVENUES $133,755 $145,639 $10,283 $135,356 $(15,914) (o) $253,197 OPERATING EXPENSES: Cost of services 39,095 99,128 4,925 94,203 (12,038) (o) 121,260 Selling and marketing 14,638 17,853 1,218 16,635 (3,203) (o) 28,070 General and administrative 7,372 11,885 1,571 10,314 (1,510) (o) 16,176 Healthcare benefits 4,127 4,127 Depreciation and amortization 6,392 7,520 1,193 6,327 (957) (p) 11,762 Restructuring charge 3,388 3,388 3,388 Interest (income) expense, net (6,701) (652) (44) (608) 5,256 (q) (2,053) --------- ---------- ---------- ---------- ---------- ---------- 64,923 139,122 8,863 130,259 (12,452) 182,730 --------- ---------- ---------- ---------- ---------- ---------- INCOME BEFORE INCOME TAXES 68,832 6,517 1,420 5,097 (3,462) 70,467 INCOME TAXES 26,554 3,858 840 3,018 (681) 28,891 (r) --------- ---------- ---------- ---------- ---------- ---------- NET INCOME $ 42,278 $ 2,659 $ 580 $ 2,079 $(2,781) $ 41,576 ========= ========== ========== ========== ========== ========== NET INCOME PER COMMON SHARE $ 1.25 $ 1.23 ========= ========= WEIGHTED AVERAGE COMMON AND COMMON SHARE EQUIVALENTS 33,757 33,757 ========= =========
See notes to unaudited pro forma consolidated financial statements. 25 HEALTHCARE COMPARE CORP. NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 1996 AND THE SIX MONTHS ENDED JUNE 30, 1997 The unaudited pro forma consolidated balance sheet as of June 30, 1997 reflects the adjustments necessary to record the Acquisition as though it had occurred on June 30, 1997. The unaudited pro forma consolidated statements of operations for the year ended December 31, 1996 and the six month period ended June 30, 1997 have been prepared assuming the Acquisition had occurred on January 1, 1996 and reflect the effects of certain adjustments to the historical consolidated financial statements that result from the Acquisition between the Company and the Sellers. Based upon the terms of the Acquisition, the transaction is accounted for as a purchase of FHC by the Company for financial reporting and accounting purposes. Accordingly, the Company revalued the basis of FHC's acquired assets and assumed liabilities to fair value. The purchase price of FHC is calculated as the cash paid, net of an estimated working capital adjustment, plus the Company's transaction costs. The difference between the purchase price and the fair value of the identifiable tangible and intangible assets acquired and liabilities assumed is recorded as goodwill and will be amortized over a period of 30 years. The preliminary allocation of the purchase price is subject to completion of certain valuations relating to in-process research and development and tangible and intangible assets, and the completion of the Company's integration and merger plan. Changes to the preliminary purchase price allocation resulting from the finalization of the valuations and merger plan may be material. The preliminary allocation of the purchase price to the fair value of assets acquired and liabilities assumed is as follows: Purchase price $202,000 Less: due from Sellers for working capital adjustment (6,000) Transaction costs 3,000 ----------- Total estimated purchase price $ 199,000 ----------- Purchase price has been allocated as follows: Fair value of assets acquired $ 90,751 Goodwill 157,652 Liabilities assumed (38,431) Liability for restructuring and integration costs (10,972) ----------- $ 199,000 -----------
26 (a) Pursuant to the terms of the Stock Purchase Agreement, the Company will not acquire the stock of Viable Information Processing Systems, Inc. ("VIPS"), a wholly-owned subsidiary of Services. The historical combined financial statements of FHC have been adjusted to reflect the assets and liabilities and results of operations of VIPS. The column "Acquired FIRST HEALTH" represents the historical combined financial position and results of operations that were acquired by the Company. (b) The "Pro Forma Adjusted Balance" column represents the sum of the amounts included in the following columns: "HealthCare COMPARE Corp.", "Acquired FIRST HEALTH", and "Purchase Adjustments". THE UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1997 GIVES EFFECT TO THE FOLLOWING PRO FORMA ADJUSTMENTS: (c) Primarily represents the accrual of debt issuance costs relating to the establishment of the credit agreement used to finance the Acquisition. (d) Includes the reclassification of the net assets of certain acquired businesses of FHC that are currently held for sale to "Net current assets of businesses held for sale." (e) Includes the adjustment to write down the net current assets of the businesses held for sale to their fair value. (f) Includes the write-down of prepaid expenses to conform with the Company's accounting policy, which is to expense such costs as incurred. (g) Includes the adjustments to the deferred tax balances for the tax effects of the pro forma adjustments, primarily the write-down to fair value of property and equipment, the write-down to fair value of capitalized software, and the recording of additional accrued expenses relating to the Acquisition. (h) Represents the write-down of property and equipment to its estimated fair value at the balance sheet date. (i) Represents the write-off of goodwill previously recorded by FHC of $137,898,000 and the recording of $157,652,000 of goodwill resulting from the Acquisition which will be amortized over 30 years. (j) Represents the write-off of capitalized software costs relating to either technology which the Company does not intend to further develop or which would not be capitalized in conformity with the Company's accounting policies. (k) The Company expects to incur costs of approximately $10,972,000 in connection with the implementation of a formal plan to reduce duplicative operating expenses of the acquired company. The estimated adjustment primarily relates to costs associated with combining the 27 operations of the two companies and includes severance benefits and closure costs of duplicative and excess facilities of FHC. As all portions of the merger and integration plan have not been finalized, the amount recorded is subject to adjustment. In addition, the adjustment includes an accrual of approximately $3,000,000 for transaction costs incurred by the Company relating to the Acquisition. (l) Represents the elimination of amounts due to FHC's parent and related affiliated companies. (m) Represents borrowings under the credit agreement used to finance the Acquisition. (n) Represents the elimination of FHC's common stock, additional paid-in capital, and retained earnings. THE UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1996 AND THE SIX MONTHS ENDED JUNE 30, 1997 GIVE EFFECT TO THE FOLLOWING PRO FORMA ADJUSTMENTS: (o) Represents the removal of revenues, cost of services, selling and marketing expense, and general and administrative expense of certain acquired businesses of FHC that are held for sale. The earnings or loses of these businesses from date of acquisition are excluded from operations and are recorded as adjustments to the carrying amount of their net assets in the purchase price allocation. (p) Represents the following for both the year ended December 31, 1996 and the six-months ended June 30, 1997: (i) an increase in goodwill amortization expense, calculated as of January 1, 1996, over an estimated useful life of 30 years. Goodwill and other intangibles and the related amortization expense are subject to adjustment resulting from the completion of the final purchase price allocation; (ii) amortization of debt issuance costs relating to the credit agreement used to finance the Acquisition; and (iii) a reduction in depreciation expense resulting from both the write-down of property and equipment to its fair value and the amount allocated to certain acquired businesses of FHC that are held for sale. The net adjustment is computed as follows: 1996 1997 Increase in goodwill amortization $1,212,000 $563,000 Reduction in depreciation expense (3,969,000) (1,553,000) Amortization of debt issuance costs 67,000 33,000 ----------- ---------- Net adjustment ($2,690,000) ($957,000) =========== ==========
(q) Represents the adjustment to interest expense related to debt acquired to finance the Acquisition calculated as average borrowings of $202 million multiplied by an average interest rate of 6%, less interest expense allocated to certain acquired businesses held for sale. (r) Represents the estimated income tax expense of the Company, including the pro forma effects of the Acquisition, at an estimated rate of 41%. 28 Item 7 (c): Exhibits No. 23: Consent of Deloitte & Touche LLP EX-23 2 CONSENT OF DELOITTE & TOUCHE LLP 1 EXHIBIT 23 INDEPENDENT AUDITORS' CONSENT HealthCare COMPARE Corp.: We consent to the incorporation by reference in the Registration Statements of HealthCare COMPARE Corp. on Form S-8, (file numbers 33-26639, 33-26640, 33-42902, 33-43806, 33-43807, 33-87986, 33-62747 and 333-31893) of our report, dated August 29, 1997 of the FIRST HEALTH Companies (wholly-owned subsidiaries of First Data Corporation) for each of the three years in the period ended December 31, 1996. DELOITTE & TOUCHE LLP Chicago, Illinois September 15, 1997 -----END PRIVACY-ENHANCED MESSAGE-----