During 2017, the Board of Directors established a Special Committee to consider strategic alternatives available to the Company, including consideration of certain third party proposals made to the Company. The significant amount of work by the Special Committee and advisors to the Special Committee resulted in increased director compensation expense and professional expense during 2018 and 2017. As discussed on our Current Report on Form 8-K filed with the Commission on March 14, 2019, the Company entered into Agreement with DentaQuest, LLC dated March 12, 2019 pursuant to which the Company will be merged with a subsidiary of DentaQuest, LLC and our shareholders will receive cash in exchange for their Company commons shares (the “Merger”). The Merger is subject to approval of our shareholders, regulatory approval and other customary conditions.
Net income for the year ended December 31, 2018 was $2,557,000, an increase of $728,000, or 39.8%, from the year ended December 31, 2017. The increase in net income was primarily a result in lower income tax expense of approximately $1,057,000, an increase in premium revenue of approximately $4,725,000 and an increase in investment income of approximately $68,000. The increase in net income was offset by an increase in healthcare services expense of approximately $2,464,000, an increase in insurance expenses of $2,285,000 and an increase in realized losses on investments of approximately $374,000. Our ratio of insurance expense to total premium revenue (“insurance expense ratio”) increased to 22.2% in 2018 from 21.1% in 2017.
Our dental and vision products grew by approximately 21,600 members, or 5.6%, from 386,600 members at December 31, 2017 to 408,200 members at December 31, 2018. This membership increase from December 31, 2017 is due to an increase in fully-insured dental PPO membership of approximately 11,300 members, an increase in self-insured dental membership of approximately 9,900 members and an increase in corporate, all other membership of approximately 1,200 members. This was offset by a decrease in fully-insured dental HMO/IND membership of approximately 800 members.
In September 2018, we paid a dividend of $45.00 per share to shareholders of record for our Redeemable Common Shares. In March 2017, we paid a dividend of $42.50 per share to holders of our Redeemable Common Shares.
Our self-insured dental membership increased by approximately 9,900 members, or 10.2%, in 2018. This membership increase is due to new sales of approximately 5,300 members, growth in our existing self-insured employer groups of approximately 1,900 members and an increase of approximately 2,700 members due to the conversion of employer groups from our fully-insured dental HMO/IND and PPO products to our self-insured dental product.
Self-Insured Claim Revenue - Self-insured claim revenue increased approximately $2,314,000 in 2018. The self-insured claim revenue increased by approximately $1,922,000 due to an increase in membership of the self-insured product as well as an increase of approximately $392,000 as a result of an increase in self-insured claim revenue on a PMPM basis in 2018.
Investment income increased approximately $68,000, to $333,000 in 2018 from $265,000 in 2017.
Self-insured healthcare services expense increased by $2,077,000 in 2018. Self-insured healthcare services expense on a PMPM basis increased 1.2% from $21.77 PMPM in 2017 to $22.04 PMPM in 2018. An increase in self-insured healthcare services expense of $1,741,000 was due to an increase in membership in 2018 compared to 2017. In addition, an increase in healthcare services expense on a PMPM basis resulted in an increase in self-insured healthcare services expense of approximately $336,000 in 2018 compared to 2017.
Consolidated insurance expenses increased approximately $2,285,000 in 2018. Total insurance expenses as a percentage of total premium revenue, or the insurance expense ratio, was 22.2% for 2018, increasing 1.1% from the 2017 ratio of 21.1%. The higher consolidated insurance expense in 2018 was primarily due to the reinstatement of the federal premium tax as well as higher professional consulting expense, third party administration expense and various other expenses in 2018.
Our effective tax rate for 2018 was 26.3% compared to the 51.9% effective tax rate in 2017. The decrease in federal income tax rate is the result of the U.S. government tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”), which reduced the corporate tax rate from 34% to 21%. This reduction is offset by the non-deductible federal premium tax in 2018. See Note 10 to the consolidated financial statements included in Item 8 - Financial Statements and Supplementary Data for a complete reconciliation of the federal statutory rate to the effective tax rate.
Fully-insured dental PPO premium revenue for 2017 increased by approximately $3,573,000 compared to 2016. Fully-insured dental PPO revenue increased by approximately $3,966,000 due to an increase in fully-insured PPO group and individual membership in 2017, offset by a decrease of approximately $393,000 due to a decrease in premium rates for the year. The fully-insured dental PPO segment represented approximately 24.1% of our total dental business in 2017.
Self-insured healthcare services expense increased by $251,000 in 2017. Self-insured healthcare services expense on a PMPM basis increased 0.5% from $21.66 PMPM in 2016 to $21.77 PMPM in 2017. An increase in self-insured dental membership due to the conversion of employer groups to our self-insured product resulted in an increase in claims expense of approximately $3,116,000. The increase was offset by a decrease of $2,993,000 due to the loss of self-insured groups in 2017. In addition, self-insured healthcare services expense increased approximately $252,000 attributable to fee schedule increases effective January 1, 2017. Lower healthcare services utilization resulted in a decrease in self-insured healthcare services expense of approximately $124,000 in 2017 compared to 2016.
Corporate, all other healthcare services expense is not recognized by the Company due to the fact that our other dental indemnity, dental PPO and vision PPO products are underwritten by third party insurance carriers.
Consolidated insurance expenses increased approximately $552,000 in 2017. Total insurance expenses as a percentage of total premium revenue, or the insurance expense ratio, was 21.1% for 2017, increasing 0.1% from the 2016 ratio of 21.0%. Salaries and wages increased by approximately $184,000 in 2017 primarily due to increased medical premiums. Other insurance expense increased by approximately $411,000 due to an increase in expenses related to the launch of the individual dental PPO product in our new states for 2018 and an increase in professional fees attributable primarily to services provided to the Special Committee in considering strategic alternatives available to the Company. These increases were offset by a slight decrease in commissions expense.
Our effective tax rate for 2017 was 51.9% compared to the 40.7% effective tax rate in 2016. The increase in the effective tax rate in 2017 compared to 2016 is primarily the result of the Tax Act. The Tax Act makes broad and complex changes to the U.S. tax code beginning in 2018, which will reduce the corporate tax rate from 34% to 21%. The rate reduction required a remeasurement of the Company’s net deferred tax asset. The Tax Act accounts for approximately 18.2% of the 2017 effective rate. This was offset by a decrease in nondeductible federal premium tax that was not required in 2017. See Note 10 to the consolidated financial statements included in Item 8 - Financial Statements and Supplementary Data for a complete reconciliation of the federal statutory rate to the effective tax rate.
Cash increased $1,956,000, or 17.4%, for the year ended December 31, 2017 to approximately $13,177,000 at December 31, 2017 from approximately $11,221,000 at December 31, 2016. This cash increase is primarily the result of cash flow provided by operations of approximately $3,608,000. This increase was offset by a decrease in cash flow used in investing activities and financing activities of approximately $592,000 and $1,060,000, respectively. The change in cash for the years ended December 31, 2018, 2017 and 2016 is summarized as follows (in thousands):
During 2018, we made purchases totaling approximately $2,941,000 of investment grade and non-investment grade corporate bonds, money markets and certificates of deposit in order to improve investment income. Also during 2018, we sold investment grade and non-investment grade corporate bonds, and certificates of deposit and had maturities that together totaled approximately $2,678,000. The remaining net cash used in investing activities during 2018 was primarily due to purchases of computer equipment and internally developed software development costs.
In 2017, we made scheduled principal payments of approximately $53,000 related to our office building mortgage and scheduled payments of approximately $278,000 related to our capital leases. During 2017, we repurchased Redeemable Common Shares with a book value (purchase price) of approximately $182,000. We also paid dividends of approximately $547,000 to holders of our Redeemable Common Shares.
A summary of our future commitments as of December 31, 2018 is as follows:
As of December 31, 2018, we believe our most significant other commitments are:
Deferred Compensation - We expect to pay our deferred compensation liability to the Company directors and employees as they retire or otherwise terminate their association with the Company in future years. However, the Merger Agreement requires that the Deferred Compensation plan be terminated in connection with closing. Therefore, if the merger is consummated, substantially all deferred compensation liabilities will be satisfied in connection with closing the merger.
Redeemable Common Shares - Pursuant to the Company’s Code of Regulations, holders of Class A, Class B and Class C shares have the right to require the Company to repurchase such holder’s common shares on the terms contained in the Code of Regulations.
Our consolidated cash and short term investments were approximately $14.1 million at December 31, 2018. Our consolidated cash and short term investments increased by approximately $0.2 million from approximately $13.9 million as of December 31, 2017. This increase in cash and short term investments from December 31, 2017 to December 31, 2018 is the result of cash provided by operating activities of approximately $2.4 million. This increase was offset by cash used for investing and financing activities of approximately $2.3 million.
We believe our cash, short term investments and working capital lines of credit together are sufficient to meet our short term and long term liquidity needs. We are obligated to make payments related to our contractual obligations such as our building mortgage and our operating leases and other commitments (see contractual obligations and other commitments). We will also be obligated in certain circumstances to repurchase the redeemable shares of our Class A, Class B and Class C shareholders who die and our Class A and Class B shareholders who become permanently disabled, or retire. Our Board considers limitations on the amount of share redemptions each year. While we are not able to estimate future redeemable share redemptions, we repurchased approximately $120,000, $182,000, and $276,000, of Redeemable Common Shares in the years ended December 31, 2018, 2017, and 2016, respectively. We believe our cash balances, available-for-sale investment securities, operating cash flows, and borrowing capacity, taken together, provide adequate resources to fund ongoing operating and regulatory requirements and fund future expansion opportunities and capital expenditures in the foreseeable future.
We maintained aggregate statutory capital and surplus of approximately $14.4 million as of December 31, 2018 and were in compliance with applicable statutory requirements. Although the minimum required levels of equity are largely based on premium volume, product mix, and the quality of assets held, minimum requirements can vary significantly from state to state. Given our anticipated premium growth in 2019 resulting from the expansion of our networks and membership, capital requirements will increase. We expect to fund these increased requirements through the retention of earnings and/or future capital raising activities.
Most states rely on risk-based capital requirements, or RBC, to define the required levels of equity. RBC is a model developed by the NAIC to monitor an entity’s solvency. This calculation indicates recommended minimum levels of required capital and surplus and signals regulatory measures should actual surplus fall below these recommended levels. RBC has been adopted in the states in which we currently do business. We file our annual statement and RBC reporting with the Ohio Department of Insurance and the NAIC. Dental Care Plus’s statutory annual statements for the year ended December 31, 2018 filed with the Ohio Department of Insurance reflected total adjusted capital in excess of Company Action Level RBC.
The differences between our net income and comprehensive income include the changes in the unrealized gains or losses on marketable securities and changes in the fair value of our interest rate swap agreement. For the years ended December 31, 2018, 2017, and 2016, respectively, such changes increased or (decreased), net of related income tax effects, by the following amounts:
Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America. Application of those accounting principles includes the use of estimates and assumptions that are made by management, and that we believe are reasonable based on the information available. These estimates and assumptions affect the reported amounts of assets, liabilities, revenues and expenses in the accompanying consolidated financial statements. We believe the most critical accounting policies used to prepare the accompanying consolidated financial statements are the following:
Our estimated liability for claims payable and corresponding healthcare services expense includes claims incurred but not reported (“IBNR”), claims reported but not yet processed and paid and other healthcare services expenses incurred, including estimated costs of processing outstanding claims. Our estimated liability for claims payable is based primarily on the average historical lag time between the date of service and the date the related claim is paid, taking into account recent trends in payment rates and the average number of incurred claims per covered individual over a rolling 12 month period.
The following table shows our total claims payable liability as of December 31, and its three components. IBNR represents a substantial portion of our claims payable liability.
AS OF DECEMBER 31, 2018 AND 2017 AND FOR THE YEARS ENDED DECEMBER 31, 2018, 2017 AND 2016
DCP Holding Company (the “Company”) is the parent holding company of three wholly-owned subsidiaries which include Dental Care Plus, Inc., an Ohio corporation, Insurance Associates Plus, Inc., an Ohio corporation, and Adenta, Inc., a Kentucky corporation. Providers who participate in one or more of the Dental Care Plus networks own a majority of the Company’s Redeemable Common Shares. The Company’s Redeemable Common Shares are also owned by retired providers, Company board members, non-provider individuals and employees. The Company primarily offers to employer groups of all sizes dental health maintenance organization (“HMO”), participating provider organization (“PPO”) and indemnity plans for dental care services and vision benefit plans. As of December 31, 2018, we had approximately 366,700 members in our dental benefits plans and approximately 41,500 members in our vision benefit plans with approximately 3,000 providers participating in our dental HMO network, approximately 3,200 providers participating in our DentaSelect dental PPO network and approximately 2,300 in our Balanced Value dental PPO network. The Company has a network access agreement with a national dental network management company that has one of the largest PPO networks of providers under contract in the United States. With this network access agreement, our dental PPO members have access to approximately 46,400 additional providers throughout the United States. The Company also has a network access arrangement with a national dental administration company for the dental PPO plans that it offered on the FFM exchanges in 2018. With this network access arrangement, FFM exchange members have access to approximately 12,700 providers across the eleven FFM exchange states. Dental Care Plus Inc. is an Ohio-domiciled insurance company dually licensed as a life and health insurer and a specialty health insuring corporation and able to underwrite dental indemnity, dental PPO, dental HMO, and vision benefit products as well as other life and health insurance products.
The accounting policies of the Company conform to accounting principles generally accepted in the United States of America (“GAAP”). The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. The accompanying consolidated financial statements include estimates for items such as claims payable, deferred acquisition costs, income taxes and various other liability accounts. Actual results could differ from those estimates. Policies that affect the more significant elements of the consolidated financial statements are summarized below.
The Company capitalizes the costs of computer software developed or obtained for internal use in accordance generally accepted accounting principles. Capitalized computer software costs consist of purchased software licenses, implementation costs, development costs and payroll-related costs for certain projects that qualify for capitalization. The Company expenses costs related to preliminary project assessment, training and application maintenance as incurred, and amortizes the capitalized computer software costs on a straight-line basis over the estimated useful life of the software upon being placed in service.
Business acquisitions often result in recording identifiable intangible assets. Identifiable intangible assets are recognized at the time of an acquisition, based upon their fair value. Similar to long-lived tangible assets, identifiable define-life intangible assets are subject to amortization and periodic impairment reviews whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The review for impairment of the Company’s intangible assets requires management to predict the estimated cash flows that will be generated by the long-lived asset over its remaining estimated useful life.
Deferred Acquisition Costs- Deferred acquisition costs are those incremental direct costs related to the successful acquisition of new and renewal business. These incremental direct costs are those that are essential to the contract transaction and would not have been incurred had the contract transaction not occurred. Such incremental direct costs include commissions, costs of contract issuance and underwriting, state premium taxes and other costs the Company incurs to successfully acquire new business or renew existing business. The Company defers policy acquisition costs and amortizes them over the estimated life of the contracts, which are short-duration in nature, in proportion to premiums earned. The Company capitalized deferred acquisition costs of approximately $5,245,000, $4,508,000, and $5,877,000, and amortized approximately $5,448,000, $4,980,000, and $4,780,000 of these capitalized costs for the years ended December 31, 2018, 2017, and 2016, respectively. The amortization of these costs are recorded in commission expenses and other acquisition costs included in the consolidated statements of comprehensive income.
Administration fee revenue (“ASO fees”) is recognized monthly when earned and is normally based on annual or multi-year contracts with the self-insured groups. ASO fees are charged to self-insured employer groups monthly on a per subscriber per month basis and included in premium revenue in the accompanying condensed consolidated statements of comprehensive income. Any unearned ASO fee revenue received prior to the beginning of a reporting period are recognized as premiums received in advance and are included in unearned premium revenue in the accompanying condensed consolidated balance sheets.
Self-insured premium revenue is recognized upon the adjudication of claims for self-insured members in accordance with agreements with self-insured employers and is included in premium revenue in the accompanying condensed consolidated statements of comprehensive income. Any self-insured premium amounts not received by the end of a reporting period are recorded as accounts receivable by the Company. Collection of the self-insured premium revenue occurs within the first month after the reporting period. In addition, the Company also holds deposits from self-insured groups which were approximately $127,000 at December 31, 2018. Self-insured deposits are recorded as other payables and accruals in the accompanying condensed consolidated balance sheet.
Other Income and Realized Gains (Losses) On Investments, Net - Other income is comprised primarily of rental income from the rental of space in the building owned and partially occupied by the Company (See Note 14). Realized gains (losses) on investments is primarily made up of realized investment gains, losses and other than temporary impairments of investment grade and non-investment grade corporate bonds.
In January 2016, the FASB issued ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10) - Recognition and Measurement of Financial Assets and Financial Liabilities. ASU 2016-01 revises the accounting related to the classification and measurement of investments in equity securities and the presentation of certain fair value changes for financial liabilities measured at fair value. The effective date of ASU 2016-01 is for interim and annual reporting periods beginning after December 15, 2017. The Company adopted the requirements of ASU 2016-01 on January 1, 2018. The adoption of these standards did not have a material impact on the Company’s consolidated financial position, cash flows and results of operations.
In August 2018, the FASB issued ASU 2018-15, Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. ASU 2018-15 amends ASC 350 to include implementation costs of a cloud computing arrangement that is a service contract and clarifies that a customer should apply ASC 350-40 to determine which implementation costs should be capitalized in a cloud computing arrangement that is considered a service contract. The effective date of ASU 2018-15 is for interim and annual reporting periods beginning after December 15, 2019. The ASU has not yet been adopted. Management is currently evaluating the impact on our company's consolidated financial position, cash flows and results of operations.
The Company owned corporate bonds at December 31, 2018, which consist primarily of investment grade securities. At December 31, 2018, total bond fair value was approximately $8,201,000, which consists of approximately $7,484,000 with a credit rating of BBB- or better. The remaining securities, totaling approximately $717,000, had a credit rating of between BB+ and B. The weighted average yield-to-cost of the Company’s corporate bonds was approximately 3.38% at December 31, 2018. The weighted average maturity of the Company’s corporate bonds was 4.74 years at December 31, 2018.
At December 31, 2018 and, 2017, maturity dates for fixed maturities and short-term investments (excluding the money market funds) were:
Unrealized losses at December 31, 2018 and 2017 on investments were generally due to higher current market yields relative to the yields of the investments at their amortized cost. Unrealized losses due to credit risk associated with the underlying investments, if any, are not material. All investments with unrealized losses are reviewed quarterly to determine if any impairment is other than temporary, requiring a charge to earnings. The Company considers the severity of the loss on a security, duration of loss, duration of the investment, credit rating of the security, as well as payment performance and the Company’s intent or requirement to sell the investment before recovery when determining whether any impairment is other than temporary. The Company had no other-than-temporary impairment charges for the year ended December 31, 2018, 2017 and 2016. The Company had no investments in a material unrealized loss position for greater than one year as of December 31, 2018 and 2017.
Goodwill and intangible assets were recorded as a result of the acquisition of Adenta, Inc. in 2005 related to goodwill, an acquired contract, memberships and a provider network. Goodwill amounted to approximately $136,000 at December 31, 2018 and 2017. There has not been any impairment on goodwill. Identifiable and amortizable intangible assets amounted to approximately $35,000 net of approximately $205,000 of accumulated amortization at December 31, 2018 and to approximately $41,000 net of approximately $199,000 of accumulated amortization at December 31, 2017. Amortization expense was approximately $6,000, $9,000 and $15,000 for each of the three years ended December 31, 2018, 2017 and 2016. The provider network intangible asset of approximately $35,000 at December 31, 2018 is being amortized over a period of 20 years, a period during which the Company expects that all of these providers will have retired from the network. The membership intangible assets (net of individual memberships written-off in the year of acquisition) has been fully amortized over its 11 year useful life at December 31, 2018. The remaining weighted-average amortization period for these intangible assets is approximately 8 years. Goodwill and intangible assets are included in other assets in the accompanying consolidated balance sheets at December 31, 2018 and 2017.
The Company recorded expense of approximately $59,000, $56,000, and $61,000, related to deferred director fees and deferred employee compensation for the years ended December 31, 2018, 2017 and 2016, respectively. Directors and key employees who elect to defer cash compensation may request that the Company invest this compensation in mutual fund investments or phantom shares of the Company. The deferred cash compensation is included in the deferred compensation liability at December 31, 2018 and 2017.
The following is a summary of activity of non-vested awards for the years ended December 31, 2018 and 2017:
The following is a summary of activity of vested awards for the years ended December 31, 2018 and 2017:
Substantially all of the incurred but not reported (“IBNR”) balance for dental HMO and dental PPO as of December 31, 2018 relates to the current year. At December 31, 2018 and 2017, the IBNR balance included in the total claims payable liability was approximately $1,982,000 and $2,054,000, respectively. The following is information about fully insured dental healthcare expense incurred and fully insured healthcare expense paid as of December 31, 2018:
The Company enters into sale-leaseback transactions with a leasing company for the sale of certain fixed assets. There is no gain or loss on any sales. The Company does not retain the benefits and risk to the property sold and risk of ownership is transferred to the leasing company. The Company sold certain fixed assets for approximately $921,000 in 2017. The Company simultaneously enters into capital lease agreements with the leasing company that obligates the Company to pay lease payments related to the respective assets sold. The Company entered into lease payments for sold assets totaling approximately $999,000 in 2017. Under this capital lease agreement, the Company is required to have a minimum tangible net worth equal to or greater than $2,500,000 at the end of each fiscal year.
The Company entered into an interest rate swap agreement (cash flow hedge) used to manage the Company’s interest rate risk. The swap agreement effectively changed the interest rate related to the Company’s mortgage note with a commercial bank from a variable rate based on the 30-day LIBOR rate plus 1.95% to a fixed rate of 3.90% for the 10-year period through December 22, 2022. The Company’s risk management policy is to not enter into derivatives for speculative purposes. The notional amount decreases in direct correlation to the principal reduction of the mortgage and was approximately $1,040,000 and $1,095,000 at December 31, 2018 and 2017, respectively. The Company believes that the risk of nonperformance by the counter party to this agreement is not material to the financial statements. At December 31, 2018 and 2017, the fair value of this agreement was approximately $17,000 and $7,000 respectively and is included in other assets in the consolidated balance sheets. The agreement will terminate upon maturity of the mortgage loan payable (Note 7).
The Company has an annually renewable agreement with a commercial bank for a $500,000 working capital line of credit. Interest is payable at a variable rate of LIBOR plus 2.50%. The Company did not have any interest expense or significant fees for the line of credit for each of the three years ended December 31, 2018. As of December 31, 2018 and 2017, there was no amount outstanding on this line of credit. The $500,000 working capital line of credit expires in August 2019. The Company expects to renew this line of credit at its maturity.
The Company has an additional annually renewable working capital line of credit for $1,000,000. Interest is payable at a variable rate of LIBOR plus 2.50%. The Company did not have any interest expense or significant fees for the line of credit for each of the three years ended December 31, 2018. At December 31, 2018 and 2017, there was no amount outstanding on this line of credit. The $1,000,000 working capital line of credit expires in August 2019. The Company expects to renew this line of credit at its maturity.
The components of the provision for income taxes are summarized as follows for the years ended December 31, 2018, 2017 and 2016, respectively:
Management believes it is more likely than not that deferred tax assets, net of valuation allowance will reduce future income tax payments. Significant factors considered by management in its determination of the probability of the realization of the deferred tax benefits include the historical operating results and the expectations of future earnings. The Company had $50,176, $38,415, and $74,209, of net operating loss carry forwards to utilize in future years at December 31, 2018, 2017, and 2016, respectively. These losses will expire between 2019 and 2025. Net deferred tax assets are included in other assets in the accompanying consolidated balance sheets at December 31, 2018 and 2017.
In December 2017, the Company estimated the effects on deferred tax balances in accordance with Securities and Exchange Commission Staff Accounting Bulletin No. 118 (“SAB 118”) commonly referred to as the Tax Cuts and Jobs Act (“Tax Act”) made broad and complex changes to the U.S. tax code beginning in 2018. These changes to the tax code reduced the corporate tax rate from 34% to 21%. The rate reduction required a remeasurement of the Company’s net deferred tax asset and these items resulted in an estimated increase in our 2017 tax expense of approximately $692,000. Additional clarification of the Tax Act during 2018 did not have a material impact on the Company’s effective tax rate. As a result, the Company’s implementation in relation to the Tax Reconciliation Act is complete as of December 31, 2018.
Employees of the Company are covered by a defined contribution 401(k) plan sponsored by the Company. Discretionary contributions of a certain percentage of each employee’s contribution, which may not exceed a limit set annually by the Internal Revenue Service, are contributed by the Company each year and vest ratably over a five-year period. Company contributions, including administration fees paid by the Company, amounted to approximately $90,000, $91,000, and $89,000, for the years ended December 31, 2018, 2017 and 2016, respectively.
The Company leased space in its building to unrelated parties under non-cancelable leases. The Company did not have any lease income for the year ended December 31, 2018 and 2017. Income recorded by the Company under non-cancelable leases amounted to approximately $52,000 for the year ended December 31, 2016. Such amount is recorded as other income in the accompanying consolidated statements of comprehensive income.
The results of the fully-insured dental HMO and indemnity, fully-insured dental PPO and self-insured dental segments are measured by gross profit. The Company does not allocate insurance expense, investment and other income, assets or liabilities to these segments because the Company does not use these measures to analyze the segments. These items are assigned to the remainder of the Company’s business, which it identifies as corporate, all other. The Company’s gross profit was approximately $28,243,000, $25,981,000, and $25,094,000, for the years ended December 31, 2018, 2017 and 2016, respectively.
In 2018, four of our Board members are also participating providers and as a group received approximately $190,000, in directors’ fees for the year ended December 31, 2018. In 2017 and 2016, seven of our Board members were also participating providers and as a group received approximately $183,000, and $201,000, in directors’ fees for the years ended December 31, 2017, and 2016, respectively.
At December 31, 2018 and 2017, there were no assets or liabilities that were required to be measured at fair value on a non-recurring basis. The Company did not have any transfers between fair value hierarchy levels during years ended December 31, 2018 and 2017. As of December 31, 2018 and 2017, the Company did not have any assets or liabilities classified as Level 3 of the fair value hierarchy.
Participating providers along with Company directors and employees have the option to purchase one or more voting Class B Redeemable Common Shares of the Company, when offered. Non-provider individuals are eligible to purchase Class C voting Redeemable Common Shares, when offered. The maximum percentage of Class C Common Shares outstanding at any time as a proportion of all voting Common Shares is 40%. The book value of a Common Share was approximately $1,355 and $1,210 at December 31, 2018 and 2017, respectively. In 2018, 2017, and 2016, the Board declared a per share cash dividend for all Class A, Class B and Class C Redeemable Common Shares in the amounts of $45.00, $42.50, and $40.47, respectively.
The Company has 100,000 authorized Class D Redeemable Common Shares, without par value. The Class D Redeemable Common Shares are non-voting redeemable common shares that Preferred Shares may be converted into under certain circumstances. As of December 31, 2018 and 2017, no Class D Redeemable Common Shares were issued or are outstanding.
Dividend restrictions vary among the subsidiaries. Dental Care Plus is restricted by regulatory requirements of its domiciliary state, which limit by reference to statutory net income and net worth, the dividends that can be paid without prior regulatory approval. Dividends paid by Dental Care Plus cannot, without prior approval of the Ohio Department of Insurance, exceed in any one year the lesser of: (i) 10% of net worth (as of the preceding December 31), or (ii) net income for the prior year, and only if net worth exceeds $250,000 and only out of unassigned surplus. In December 2018, Dental Care Plus declared a dividend payable to the DCP Holding Company in the amount of approximately $1,470,000, payable January 2019. There were no dividends declared or paid by Dental Care Plus in 2017 or 2016.