The Company's principal corporate offices are located in Avon, Connecticut. The Company also maintains offices in a number of locations throughout the United States. Subsidiary headquarters are located in the Washington, DC, Minneapolis, San Diego and Los Angeles areas. The Company leases approximately 1,886,000 square feet of space and owns approximately 216,000 square feet of space. The Company believes that its facilities are adequate for its current needs and that suitable additional space will be available as required.
(1) Includes asset writedowns and spin-off costs of $10,455 and restructuring expense of $3,500.
(3) Includes merger-related expense of $5,986 and litigation and settlement expense of $12,022.
(4) Includes merger-related expense of $38,409 and litigation and settlement expense of $6,752.
Value Health, Inc. ("the Company") is a provider of specialty benefit programs to large corporations, insurance carriers, managed care organizations, and federal, state, and local governments. The Company's businesses include: pharmacy benefit management; mental health and substance abuse management; workers' compensation, disability and group health management; and disease management. Its programs provide services to more than 78 million people nationwide.
The Company's prescription drug service revenues consist of revenues from its retail network and institutional pharmacy management businesses. Prescription drug product revenues consist of revenues from the Company's mail service pharmacy business. Mental health revenues consist of revenues from the Company's managed mental health benefit plans, including case management, utilization review, claims payment and employee assistance programs. Workers' compensation revenues consist of revenues from managed care programs for the workers' compensation and group health industry. Information services revenues consist of revenues from disease management programs and clinical review services.
Revenue is recognized at the time related services are performed. Revenue from the sale of mail order prescription drugs is recognized at the time of shipment. Prescription drug service revenue from the retail network business under certain arrangements is billed to plan sponsors on a per prescription basis plus a claims processing fee together with a fee for specific clinical services. Under certain other arrangements, the Company bills plan sponsors a fixed monthly payment per employee, known generally as "capitation". Under the former arrangement the Company bears no financial risk for increases in the number of prescriptions. Under the latter arrangement the Company is responsible for paying all approved prescription drug claims and bears the risk/benefit that claims may vary from the fixed monthly, capitated amount.
On July 3, 1996, the Company contributed the assets of its institutional pharmacy business to a joint venture with Allegiance Corporation The Company's investment in the joint venture is recorded using the equity method, eliminating recognition of revenues and expenses of such business in the Company's results of operations subsequent to July 3, 1996. The Company's proportionate share of joint venture results of operations is included in Other, net on the consolidated statements of operations.
On January 15, 1997, the Company entered into a definitive Agreement and Plan of Merger (the "Merger Agreement") with Columbia/HCA Healthcare Corporation ("Columbia"), a New York Stock Exchange company and the largest provider of healthcare services in the United States. It is intended that the Merger will qualify as a pooling of interests for accounting purposes and will constitute a tax-free reorganization for federal income tax purposes. In accordance with the terms and conditions of the Merger Agreement, each share of the Company's common stock (and outstanding common stock options) will be converted into common stock (and common stock options) of Columbia at an exchange ratio of 0.58. Consummation of the Merger is subject to satisfaction of certain conditions, including approval by shareholders of Value Health and treatment as a pooling of interests for accounting purposes. In the event of termination under specified conditions, Columbia may be entitled to receive a fee of $45 million from the Company.
Prescription drug service revenues (from the retail and pharmacy network and institutional business) for 1996 of $1,151.7 million increased by $98.2 million, or 9.3% over 1995 and 1995 revenues increased by $161.8 million or 18.2% over 1994. The addition of new customers increased revenues by $182.2 million in 1996. Revenues from existing customers declined by $39.1 million in 1996 due primarily to certain loss contracts canceled by the Company and due to contracts canceled by customers. The Company's joint venture with Allegiance Corporation commenced operations in July, 1996. Under generally accepted accounting principles, joint venture revenue is not consolidated with the Company's revenue. Accordingly, reported prescription drug service revenue from existing (institutional) customers was reduced from 1995 by approximately $44.8 million. The addition of new customers increased revenues by $196.2 million in 1995 over 1994 while revenues from existing customers declined by $34.4 million in 1995 from 1994 due primarily to lost business and price reductions on existing business.
Workers' compensation 1996 revenues of $107.7 million increased by $11.1 million or 11.5% over 1995 and 1995 revenues increased by $29.3 million or 43.5% over 1994. The addition of new customers increased revenues by $3.9 million and $4.6 million in 1996 and 1995, respectively. Revenues from existing customers increased by $2.8 million in 1996 and decreased by $3.0 million in 1995. Acquisitions added $5.8 million and $27.7 million to 1996 and 1995 revenues, respectively. Revenues in 1996 were decreased by $1.4 million as a result of the divestiture and discontinuance of certain non-core operations.
Investment income in 1996 of $5.6 million declined by $2.6 million or 31.7% from 1995 and 1995 investment income declined by $2.7 million or 25.2% from 1994. The declines in each year were due to lower investment balances from the previous year.
The Company's costs of services consist of direct expenses of providing specialty managed care and information services, including costs of retail drugs, mental health and substance abuse provider charges, salaries and wages of medical management and health policy consultants, customer service and claims processing personnel and certain data processing costs. Costs of services for 1996 increased by $65.9 million or 5.6% over 1995 and 1995 costs were $162.0 million or 16.1% greater than 1994. Most of these increases were due to an increased number of plan participants and provider and drug price increases.
Selling, general and administrative expenses for 1996 increased $3.8 million or 2.1% over 1995 and 1995 expenses were $23.2 million or 14.8% greater than 1994. The increases in both years were due to staffing and related costs associated with new contracts, added investment in claims processing capability and continued growth in overhead costs to support growth within the Company's product lines. In addition, 1995 expenses include a $1.0 million charitable contribution made by Diagnostek prior to the completion of the merger in July 1995 and $5.6 million in additional charges for Diagnostek-related asset write- offs and litigation accruals. Selling, general and administrative expenses also include Diagnostek litigation and settlement expenses of $12.0 million in 1994. As a percentage of revenues, selling, general and administrative expenses were 9.3%, 9.6% and 9.6% in 1996, 1995 and 1994, respectively. The lower ratio during 1996 is due in part to the Company's restructuring and re-engineering cost reduction programs implemented during 1996. In 1996, selling, general and administrative expenses declined by approximately $2.0 million as a result of these cost reduction programs. The majority of these cost reduction programs were implemented by December 31, 1996, with the remainder to be completed during the first half of 1997.
Depreciation and amortization expense, which consists of the depreciation of property and equipment and the amortization of purchased and internally developed software, was $27.9 million in 1996 as compared to $28.6 million in 1995 and $18.7 million in 1994. The reduction in depreciation and amortization expense during 1996 was due to significant writedowns in 1996 resulting from the Company's restructuring programs. The higher level of depreciation and amortization in 1995 was attributable to increased investment in fixed assets to support growth in the Company's business and increased amortization of capitalized computer software.
In 1996, the Company recognized $10.5 million of charges primarily in connection with expenses of the planned spinoff of its ValueRx subsidiary as well as asset writedowns related to the sale of assets of its Value Health Management subsidiary (see note 21).
In 1995, the Company recognized merger-related expense of $68.8 million in connection with the Diagnostek merger. In 1994, the Company recognized merger- related expense of $6.0 million in connection with its mergers with Prescription Drug Service, Inc., Prescription Drug Service West, Inc. and RxNet, Inc. (see notes 3 and 5). As of December 31, 1996, $8.4 million of the $68.8 million remained accrued. This amount will result in future cash payments but will not have a material impact on the Company's financial condition or results of operations.
The Company has funded its operations and capital expenditures primarily from the proceeds of stock issuances and internally generated cash. On August 21, 1996, the Company entered into a five-year $140 million revolving credit agreement with a bank group (see note 7). The Company borrowed $87.5 million under this agreement to fund the MedView acquisition on November 15, 1996 (see note 3).
For 1996, net cash provided by operating activities was $59.5 million. During 1996, the Company incurred cash expenditures in connection with acquisitions and investments of $107.3 million and capital expenditures for property and equipment were approximately $61.3 million. During 1996, the Company repurchased approximately 1,056,000 shares of its common stock. The stock repurchase program announced in October 1996 was canceled in January 1997.
The Company has never paid dividends and does not expect to pay dividends in 1997.
All other recently enacted pronouncements either have been adopted by, or do not apply to, the Company.
The accompanying notes are integral part of the consolidated financial statements.
The Company is a leading provider of specialty managed health care benefit programs in the areas of prescription drugs, mental health and substance abuse, workers' compensation and disability and disease management. The Company also provides other health care information services.
The consolidated financial statements include the accounts of the Company and all its subsidiaries. All significant intercompany balances and transactions have been eliminated.
The preparation of the consolidated financial statements requires management to make estimates and assumptions affecting the reported amounts of assets and liabilities and revenues and expenses. Actual results could differ significantly from those estimates.
For purposes of reporting cash flows, investments with original maturities of three months or less are considered to be cash equivalents.
Inventories consist of prescription drugs and are stated at the lower of cost or market. Cost is determined using the first-in, first-out method.
The Company's investments in joint ventures are accounted for under the equity method. The investment in joint ventures is included in other assets and is increased/decreased by the Company's equity interest in earnings/losses of the joint ventures. The balances at December 31, 1996 and December 31, 1995 were $17,006,000 and $500,000, respectively.
Expenditures for maintenance and repairs are charged to income as incurred and renewals and improvements are capitalized. Upon sale or retirement of fixed assets, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is credited or charged to income.
Payables to providers are recorded as services are rendered. The costs of claims for services rendered but not yet reported are estimated based on historical data, current enrollment statistics, patient census data and other information. Such estimates and the resulting accrued liabilities are periodically reviewed and updated. Any adjustments resulting therefrom are reflected in earnings currently.
Revenue is recognized at the time related services are performed. Revenue from sales of mail order prescription drugs is recognized at the time of shipment. Deferred revenue represents amounts advanced to the Company on contracts for which performance is expected to be completed in future periods.
The Company's prescription drug service revenues consist of revenues from its retail network and institutional pharmacy management businesses. Prescription drug product revenues consist of revenues from the Company's mail service pharmacy business. Mental health revenues consist of revenues from the Company's managed mental health benefit plans, including case management, utilization review, claims payment and employee assistance programs. Insurance services revenues consist of revenues from managed care programs for the workers' compensation and group health industry. Information services revenues consist of revenues from disease management programs and clinical review services.
The Company accounts for these "cost-plus" research and development contracts by expensing costs, net of reimbursements, as incurred and recognizing amounts billed, in excess of reimbursements from third parties, as revenue when earned.
No customer accounted for 10% or more of consolidated total revenues for the years ended December 31, 1996, 1995 or 1994.
Effective January 1, 1996, the Company adopted Statement of Financial Accounting Standards No. 123 ("SFAS 123"), electing the disclosure provisions of SFAS 123. Compensation cost for all years presented in the consolidated statements of operations has been measured using the intrinsic value based method prescribed by APB Opinion No. 25. Given that the Company grants all stock options at market value on the date of grant, the intrinsic value based method results in $0 of compensation expense being recorded in the consolidated financial statements. The Company has made pro forma disclosures of net income and earnings per share as required by SFAS 123 (see note 18).
Net earnings per share are based on the weighted average number of common shares and common share equivalents (if dilutive) resulting from options outstanding during the periods. The weighted average number of common shares and common share equivalents outstanding is approximately 54,844,000, 54,343,000 and 54,191,000 for the years ended December 31, 1996, 1995 and 1994, respectively. There is not a significant difference between primary and fully diluted earnings per share.
Certain amounts from the 1995 and 1994 consolidated financial statements are reclassified to conform with the 1996 presentation.
On January 15, 1997, the Company entered into a definitive Agreement and Plan of Merger (the "Merger Agreement") with Columbia/HCA Healthcare Corporation ("Columbia"), a New York Stock Exchange company and the largest provider of healthcare services in the United States, and Columbia Merger-Sub. Corp., a wholly-owned subsidiary of Columbia pursuant to which the Company will become a wholly-owned subsidiary of Columbia (the "Merger"). It is intended that the Merger will qualify as a pooling of interests for accounting purposes and will constitute a tax-free reorganization for federal income tax purposes. In accordance with the terms and conditions of the Merger Agreement, each share of the Company's common stock (and outstanding common stock options) will be converted into common stock (and common stock options) of Columbia at an exchange ratio of 0.58.
Consummation of the Merger is subject to satisfaction of certain conditions, including approval by shareholders of Value Health, regulatory approvals, and treatment as a pooling of interests for accounting purposes. In the event of termination under specified conditions, Columbia may be entitled to receive a fee of $45 million from the Company.
On November 15, 1996, the Company completed its acquisition of MedView Services, Inc. (MedView), a provider of workers' compensation managed care services, in exchange for $87.5 million in cash. The acquisition was accounted for as a purchase. Goodwill of $80.3 million was recorded and is being amortized over 35 years. The results of operations of MedView are included in the Company's Consolidated Statements of Operations from the date the acquisition was completed. Pro forma information is not presented as it is immaterial.
On May 13, 1996, the Company completed the sale of all the operating assets of the Company's Lewin-VHI, Inc. subsidiary to Quintiles Transnational Corporation. The Company has recognized a loss of approximately $1.0 million in its 1995 consolidated statement of operations in connection with this transaction.
On January 10, 1996, the Company completed its acquisition of Medintell Systems Corporation ("Medintell"), a developer and marketer of advanced pharmacy information systems and services. This acquisition was accounted for as a purchase in which the Company issued 842,571 shares of its common stock for all of the issued and outstanding shares of Medintell. In connection with this transaction, the Company repurchased an equivalent number of shares, completing the repurchase on March 21, 1996. Goodwill of approximately $28.3 million was recorded and is being amortized over 20 years. The results of operations of Medintell are included in the Company's Consolidated Statements of Operations from the date the acquisition was completed. Pro forma information is not presented as it is immaterial.
On July 28, 1995, the Company completed its merger with Diagnostek. The Company issued 12,213,075 shares of its common stock in exchange for all of the outstanding common stock of Diagnostek at an exchange ratio of 0.4975:1. The transaction has been accounted for as a pooling of interests and financial statements for all periods prior to this combination have been restated to reflect the combined operations.
On March 28, 1995, the Company completed its sale of National Foot Care Program, Inc. at approximately book value, in exchange for $2.9 million of notes receivable.
On February 15, 1995, the Company completed its acquisition of Health Management Strategies International, Inc. ("HMS") for $13.9 million in cash. Goodwill of approximately $13.0 million was recorded and is being amortized over 25 years. The results of operations of HMS are included in the Company's Consolidated Statement of Operations from the date the acquisition was completed.
On August 29, 1994, the Company completed its merger with Prescription Drug Service, Inc. and Prescription Drug Service West, Inc. ("Prescdrug"). The Company issued 937,178 shares of its Common Stock in exchange for all of the outstanding common, and preferred stock of PrescDrug.
The Prescdrug and RxNet transactions were accounted for as poolings of interests and financial statements for all periods prior to these combinations were restated to reflect the combined operations.
On May 1, 1994, the Company and Pfizer Inc entered into a joint venture partnership to develop specialty disease management programs. The partnership was dissolved in 1996.
Eight of the other nine contracts accrued for as of December 31, 1996 and 1995, relate to the Company's application of its loss contract accounting policy to the book of business associated with Diagnostek. Upon closing of the Diagnostek merger in the third quarter of 1995, significant Diagnostek customer agreements, primarily signed in late 1994 and early 1995 (prior to the Company's merger with Diagnostek) were reviewed by the Company to determine projected profitability. Following this review, appropriate loss contract reserves were established in the third quarter of 1995.
As a result of the merger with Diagnostek, the Company embarked on a plan to integrate certain of the combined Companies' EDP systems. The costs of the integration and conversion were computed based on the estimated costs of contracts with consultants engaged to assist in the integration of the various software and hardware systems.
Severance and related benefits were estimated based upon costs associated with identified employees as well as targeted head count reductions.
Similarly, asset write-offs were identified for each of the locations to be vacated and were computed based on the estimated book value of the identified assets at the anticipated date of write-off.
During the third quarter of 1994, the Company recorded a charge of $6.0 million in connection with its mergers with PrescDrug and RxNet. Of this amount, approximately $2.8 million was incurred for transaction costs and $3.2 million was related to costs associated with the combining of operations and the related combination activities.
During the fourth quarter of 1993, the Company recorded a charge of $38.4 million in connection with its merger with Preferred. Of this amount, approximately $9.3 million was incurred for transaction costs and $29.1 million was related to costs associated with the combining of operations and the related combination activities.
Included in fixed assets are the following assets under capital leases:
The Company has one class of common stock outstanding. At December 31, 1996, there were 54,412,726 shares of common stock and no shares of preferred stock outstanding. Under the Company's certificate of incorporation, as amended, the authorized capital stock is 100,000,000 shares of common and 1,000,000 shares of undesignated preferred stock.
In February, 1991, the Company adopted the 1991 Stock Plan (the "1991 Plan"). As of December 31, 1996, the 1991 Plan, as amended, provides that options to purchase up to 6,058,236 shares of Company common stock may be granted to officers and key employees. Under the 1991 Plan, the Company may grant incentive stock options, non-qualified stock options, restricted stock, stock appreciation rights and performance units. Options are exercisable in installments as determined by the Board of Directors of the Company. Incentive stock options must have a term not exceeding 10 years and an exercise price not less than the fair market value of the Company common stock on the date of grant.
Diagnostek had stock option plans under which both incentive and non-qualified options had been granted to employees and non-employees. The terminated 1983 plan allowed for the purchase of up to 2,000,000 shares of Diagnostek common stock of which substantially all options had been granted. During 1994, an additional 1,000,000 shares of common stock were authorized for issuance under the Diagnostek 1991 plan. The Diagnostek 1991 plan, as amended in 1994, permitted granting of options for the purchase of up to 1,950,000 shares. On the date of the merger with Diagnostek, the Company replaced all options outstanding under the Diagnostek plans with options to purchase shares of the Company's common stock based on the exchange ratio of 0.4975 to 1.
During 1996, the Company permitted certain option holders to surrender their options in exchange for new options with an exercise price of $18.375. Under this program, the new options vest over the same period of time, beginning on the new grant date, as did the original options surrendered. The new options terminate on the same date as the original options.
In February, 1991, the Company adopted the 1991 Non-Employee Director Stock Option Plan (the "Directors' Plan"). The Directors' Plan provides that options to purchase up to 112,500 shares of the Company's Common Stock may be granted to certain non-employee directors of the Company. The exercise price per share of options granted under the Directors' Plan will be equal to the fair market value of the Company's Common Stock at the date of grant. Initially, options granted under the Directors' Plan expired five years from the date of grant. One-half of the shares covered by the options become exercisable upon the date of grant and the remaining one-half of such shares become exercisable on the first anniversary of the date of grant. On May 4, 1994, the Company amended and restated the Directors' Plan to provide for: (i) the increase in the number of shares of Common Stock subject to the Directors' Plan from 112,500 to 250,000; (ii) the automatic annual grant of vested options to acquire up to 2,500 shares of the Company's Common Stock to continuing eligible directors beginning upon the second anniversary of initial election to the Board; (iii) the automatic grant of vested options to acquire an additional 500 shares to such continuing directors who serve as Chairmen of the Company's Audit Committee or Compensation Committee; and (iv) the extension of the period of time such options are exercisable from five years to 10 years. At December 31, 1996, options to purchase 128,500 shares of common stock at prices ranging from $8.00 to $37.50 per share had been granted and 105,740 options were outstanding. Approximately 104,240 of these options were exercisable at December 31, 1996.
In November, 1991, Preferred's Board of Directors approved the 1991 Directors' Stock Option Plan (the "1991 Directors' Plan"). Under the 1991 Directors' Plan, certain non-employee directors of the Company were each granted options to purchase 4,400 shares of the Company's stock. The options under the 1991 Directors' Plan were immediately vested and exercisable at the fair market value of the Company's common stock at the date of grant. No shares were granted in 1996, 1995 or 1994. At December 31, 1996, 13,200 options were both outstanding and exercisable.
The Company adopted a 401(k) Retirement Savings Plan (the "Savings Plan") for all employees, which became effective on May 1, 1991. The Company made matching contributions to the Savings Plan, subject to certain limitations, equal to 100% of each participant's pre-tax contribution of an amount up to 2% of such participant's total compensation and 50% of the next 2% of such participant's compensation in 1996, 1995 and 1994. All employees of the Company on May 1, 1991, and all persons who become employees thereafter and complete at least one year of employment with the Company, are eligible to participate in the Savings Plan. The Company's matching contribution expense was $2,800,000 $2,800,000 and $929,000 in 1996, 1995 and 1994, respectively.
Effective January 1, 1995, the Preferred Health Care Savings and Investment Plan, a qualified defined contribution plan with Section 401(k) features ("the Preferred Savings Plan") and the Community Care Network, Inc. 401(k) Savings Plan ("the CCN Plan") were merged into the Value Health 401(k) Retirement Savings Plan. Aggregate Company contributions to the Preferred Savings Plan and the CCN Plan were $640,000 in 1994.
The provision for income taxes for the years ended December 31, 1996, 1995 and 1994 consisted of the following:
The tax benefits of carryforwards and temporary differences related to the deferred tax asset at December 31, 1996 and 1995 are as follows:
The valuation allowance was decreased in 1996 by $321,000 in connection with the use of net operating losses from business combinations. The valuation allowance of $4,917,000 and $5,238,000 at December 31, 1996 and 1995, respectively, has been maintained primarily due to the uncertainty regarding the timing of net operating loss utilization related to certain business combinations. At December 31, 1996 and 1995 the valuation allowance included approximately $3,921,000 and $3,400,000, respectively, for net operating loss carryforwards related to purchase business combinations. Should deferred tax assets subsequently be recognized for such carryforwards, the reduction of the valuation allowance will be offset by a corresponding reduction of goodwill.
In connection with the merger with Preferred on December 14, 1993, the Company terminated the employment of the former chief executive officer of Preferred. Accordingly, under an existing employment agreement, the Company is obligated to pay the former executive officer severance in the amount of $304,500, to be increased through 1997, by approximately 5% per year. These obligations were included as part of the Company's 1995 merger charges.
Separately, the Company has three other notes receivable from this former executive officer. One note, for $238,000, bears interest at 9%. Two other notes aggregating $419,108 bear interest at 5.5%. These three notes are partially collateralized by the pledge of the former executive officer's common stock of the Company. The above notes are due February 28, 2007.
In connection with the Diagnostek merger, the Company entered into a Consulting Agreement and an Agreement Not to Compete with the former chief executive officer of Diagnostek. Under the consulting agreement, the Company will pay the former chief executive officer an annual consulting fee of $120,000 and make continued payments of certain split dollar life insurance policy premiums at an amount previously funded by Diagnostek, but not to exceed $327,000 per year. The term of the Consulting Agreement is five years and commenced July 28, 1995. Under the Agreement Not to Compete, the Company paid the former chief executive officer $3.5 million on January 2, 1996 in exchange for his agreement not to compete with the Company in any of its businesses and not to solicit or otherwise intentionally interfere with the Company's employees or customers for a 10 year period beginning July 28, 1995.
In connection with the construction of a new residence, the former chief executive officer of Diagnostek borrowed $2,231,750 from Diagnostek. The loan bears interest at 7.5% per annum and is payable over 30 years ending December 1, 2021. The loan is evidenced by a promissory note and mortgage. The amount receivable at December 31, 1996, including accrued interest was $2,180,000.
In connection with the purchase of a residence, a former executive officer of Diagnostek borrowed $330,000 from Diagnostek during 1990. The indebtedness, which is evidenced by a promissory note, bears interest at the rate of 7.5% per annum and is payable in 1998. The amount receivable at December 31, 1996, including accrued interest was $338,000.
The Company also maintains employment agreements with certain of its executive officers providing for severance payments of up to three years' current base salary in the event any of the agreements are terminated, under certain specified conditions.
Statement of Financial Accounting Standards No. 107, Disclosures about Fair Value of Financial Instruments ("SFAS 107"), requires disclosure of fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate the value. Financial instruments include cash and short-term investments, notes receivable, long-term investments, other investments and accounts receivable, accounts payable and accrued expenses. The methods and assumptions used to estimate the fair value of each class of financial instruments are as follows:
Notes receivable consist of loans to officers and other entities (see notes 3 and 14). There are no established trading markets for these loans which management intends to hold to maturity. Generally, fair value is determined by discounting future cash flows using current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. However, due to the nature of certain notes receivable, it is impracticable to determine fair value.
The Company is involved in other litigation arising in the normal course of business. The Company believes that resolution of these matters will not result in any payment that, in the aggregate, would be material to the financial position or results of operations or cash flows of the Company, notwithstanding possible insurance recoveries.
Investments in debt and equity securities as of December 31, 1996 and 1995 are summarized as follows:
Proceeds from the sale of available-for-sale securities were $50,677,000 and $139,978,000 for the years ended December 31, 1996 and 1995, respectively. Realized gains (losses) from these sales were $0 and $(559,000) in 1996 and 1995, respectively.
Pro forma net earnings (loss) and net earnings (loss) per share for the years ended December 31, 1996 and 1995 are as follows:
The fair value of each option granted is estimated on the date of grant using a modified Black-Scholes option-pricing model with the following weighted average assumptions:
On January 31, 1997, the Company completed the sale of substantially all of the assets of its VHM subsidiary. The Company has accrued, at December 31, 1996, a pre-tax loss of $8.0 million on the sale which is included in asset writedowns and spin-off costs on the Consolidated Statement of Operations.
We have audited the consolidated statement of earnings, cash flows and changes in stockholders' equity of Diagnostek, Inc. and subsidiaries for the year ended December 31, 1994, included herein. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.
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 our audit provides a reasonable basis for our opinion.