The Company owns a 60,000 square foot building in Anaheim, California, which it utilizes as its corporate headquarters and executive offices. In addition, the Company leases offices in Phoenix, Arizona; San Diego, California; Walnut Creek, California; Denver, Colorado; St. Louis, Missouri; Austin, Texas; Dallas, Texas; and Houston, Texas. The Company leased all of its previously owned Guards dental offices pursuant to practice management agreements. Those leases expire on dates ranging through July 2005. In the opinion of management, the Company's facilities are adequate for its current needs.
As a result of the Company's discontinuation of its orthodontic practices in 1997, the financial statements have been reclassified for all comparative years to reflect these changes (see Note 2 of the Consolidated Financial Statements). The Company's revenues for the twelve months ended December 31, 1997, increased 31.1 percent, from $72,709 to 95,350, on a membership increase of 18.5 percent. This includes the contribution from the acquisition of First American in September 1996, as well as the acquisition of Advantage in May 1997. Excluding the impact of the two acquisitions, revenues for the same period indicated above increased 13.1 percent on a 5.9 percent increase in membership. These increases were attributable to cross selling of product offerings to existing clients, moderate price increases to renewing clients and increases in sales to small and mid-size clients.
After restating the Company's financial statements to reflect the discontinuation of the Company's general dental practices, and for the adoption of a change in accounting principle (see Notes 1 and 2 of the Consolidated Financial Statement), the Company's revenues for the twelve months ended December 31, 1996, were $72,709, or a 19.7 percent increase on a 29.2 percent membership increase over the corresponding period a year ago. These increases included the impact on revenues and membership for the acquisition of First American, completed September 27, 1996. Excluding the impact of the acquisition, revenues for the same period indicated above increased 14.8 percent on a 6.0 percent increase in membership. The increase in revenue was attributable to new small and mid-size clients, cross-selling of product offerings to existing clients and moderate price increases to renewing clients.
Health care expenses for the twelve months ended December 31, 1996 increased $9,249 or 20.4 percent. Health care expense as a percentage of health care revenues increased by 0.4 percent from 74.6 percent of revenues for the twelve months ended December 31, 1995, to 75.0 percent for the same period in 1996. This was primarily due to an increase
in the estimated liability for claim costs processed through the Company's indemnity dental system, as well as the selected disenrollment of less profitable clients based on actuarial reviews of plan designs and utilization.
General and administrative expenses for the twelve months ended December 31, 1996, increased $2,841 or 21.1 percent. This was due primarily to the acquisition of First American. The acquisition had a slightly higher ratio of general and administrative expenses to revenues than the Company had prior to the acquisition. In addition, the goodwill expense of $312 attributable to the acquisition, for the period following the purchase on September 27, 1996, is included in general and administrative expenses. Excluding the impact of the acquisition and the associated goodwill expense, the ratio of general and administrative expenses to revenues improved slightly to 19.0 percent, from 20.1 percent for the twelve months ended December 31, 1996, compared to the same period of 1995.
Pro forma operating income for the discontinued general dental practices and orthodontic practices for the twelve months ended December 31, 1995, increased due primarily to increases in revenues and more favorable costs related to the increased revenues in the dental offices.
The Company's California dental plan contributes substantially to the Company's operating earnings. Additionally, in 1997, the dental plans in each state all contributed positively towards operating earnings. Management believes that each state plan is capable of being profitable once targeted enrollment levels are attained and stable provider panels are in place. The Company's indemnity insurance subsidiary also contributed positively towards operating earnings.
The Company's ability to attract clients is affected by revisions in employee benefit programs, fluctuations in employment levels, increasing market competition and other factors. The Company's ability to increase revenues depends on many factors, including existing and emerging competition. There can be no assurance that the Company's revenues will continue to increase.
In September 1996, the Company established a $30 million bank loan with a bank which provided for a $22 million reducing revolving acquisition sub-facility and an $8 million revolving working capital sub-facility. This agreement was terminated in September 1997.