The following is a discussion of changes in the consolidated results of operations of the Company for the years ended December 31, 1997, 1996, and 1995.
FOR THE YEAR ENDED DECEMBER 31, ------------------------------------ 1997 1996 1995 ------- ------- ------- Total revenues ....................... 100.0 % 100.0 % 100.0 % ------- ------- ------- Expenses: Agent commissions .................. 23.2 % 25.0 % 36.0 % Personnel .......................... 39.9 % 37.3 % 25.4 % General and administrative ......... 19.4 % 21.5 % 16.8 % Pre-operating and contract start-up costs ................... 0.1 % 0.4 % 1.7 % Contract commitments ............... - 1.4 % - Restructure charge ................. 0.5 % 0.7 % - Integration ........................ 1.7 % 4.0 % - Loss on impairment of goodwill ......................... - 7.1 % - Depreciation and amortization ...... 5.6 % 5.4 % 4.4 % ------ ------- ------
Interest expense ..................... 1.5 % 1.4 % 0.1 % Equity in loss of joint venture .................... 1.0 % - - ------ ------- ------ Income (loss) before income taxes ..................... 7.1 % (4.2)% 15.6 % Provision (benefit) for income taxes ..................... 3.3 % (0.7)% 6.1 % ------ ------- ------
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Revenues for the year ended December 31, 1997 increased $89.5 million, or 46.2%, to $283.3 million from $193.8 million in 1996. This increase resulted primarily from the inclusion of an additional six months of revenues, $71.6 million, from the Company's acquisition of Consolidated Group and Harrington (effective July 1, 1996). Revenues from the Company's base business (revenues exclusive of above acquisitions) increased by $17.9 million compared to the same period in 1996. This increase was primarily a result of the Company's assumption of the TMG block of business.
General and administrative expense for the year ended December 31, 1997 increased $13.4 million, or 32.2%, to $55.0 million from $41.6 million in 1996. Of this increase, $14.3 million is attributable to a full year of expenses from the Company's 1996 acquisitions being included in the Company's 1997 general and administrative expenses. The Company's general and administrative expense as a percentage of total revenue decreased to 19.4% in 1997 from 21.5% in 1996. This decline is primarily attributable to savings realized in postage, communications, professional services, and printing costs and the net recovery of $1.5 million from DGB in 1997.
In 1997, the Company renegotiated its contracts with the Florida Community Health Purchasing Alliances ("CHPAs") and exited the Kentucky alliance and Washington alliance businesses. The Company closed its Lexington, Kentucky office at the end of the contract term. As a result of the Kentucky office closure, the Company recognized a one-time, non-recurring charge to general and administrative expense of $0.2 million. No contract commitment expense for the alliance business was recognized by the Company in 1997.
Integration expense for the year ended December 31, 1997 was $4.9 million. Of this expense, $3.2 million related to the integration of information systems used by the TMG, Consolidated Group, and Harrington businesses, while $1.7 million represented other costs associated with transferring functions from certain of the Company's offices, the consolidation of treasury functions, and employee relocations.
Personnel expense for the year ended December 31, 1996 increased $46.8 million to $72.2 million, or 184.3%, from $25.4 million in 1995. Of this increase, $41.3 million was attributable to the Company's acquisitions of TPCM, DGB, Consolidated Group, and Harrington. Personnel expense for the Company increased $5.5 million and was primarily related to additional salaries and wages, overtime, and temporary services related to new activities from the Company's alliance and self-funded customers, which are more labor-intensive than fully-insured customers.
General and administrative expense for the year ended December 31, 1996 increased $24.6 million, or 144.7%, to $41.6 million from $17.0 million in 1995. Of this increase, $17.1 million was attributable to costs associated with the Company's acquisitions of TPCM, DGB, Consolidated Group, and Harrington. Costs for the Company increased by $7.6 million and were primarily attributable to telephone, postage, printing, and professional services related to the Company's business activities from alliance and self-funded customers.
Restructure charges resulted primarily from the Company's closure of its Memphis facility and downsizing of its corporate offices subsequent to the acquisitions of Consolidated Group and Harrington.
On May 19, 1995, the Company completed an initial public offering which generated net proceeds of approximately $51.0 million. The proceeds from this offering, in conjunction with borrowings against the Company's Line of Credit, were used in the acquisitions of TPCM and DGB in 1995 and Consolidated Group and Harrington in 1996.
On March 5, 1997, the Company and Health Risk Management, Inc. ("HRM"), a provider of integrated health care management services, mutually agreed to terminate a merger agreement previously entered into on September 12, 1996. In connection with the termination, the Company purchased 200,000 shares of HRM common stock, representing approximately 4.5% of HRM shares outstanding, at a price of $12.50 per share.
Based upon current expectations, the Company believes that all consolidated operating and financing activities for the foreseeable future will be met from internally generated cash flow from operations, available cash, or its existing Line of Credit.
The financial statements required by this item are listed in Item 14(a)(1) and are submitted at the end of this Annual Report on Form 10-K. The Company is not required to file any supplementary data under this Item.