Our strategy focuses on providing solutions for employers to the rising cost of dental care by leveraging our growing networks of participating dentists and deploying a variety of products that give employer groups and members more choices. Additionally, we have increased the diversification of our membership base, not only through our newer products, but also by entering new geographic areas. We expect our dental PPO products to continue to be an important driver of growth in the years ahead.
We had net income of approximately $1,341,000 for the year ended December 31, 2014 compared to net income of approximately $1,282,000 for the year ended December 31, 2013. This increase in net income is primarily the result of an increase in premium revenue of approximately $5,573,000, to $91,936,000 in 2014 from $86,363,000 in 2013, offset by an increase in healthcare services expense of approximately $3,934,000, to $71,696,000 in 2014 from $67,762,000 in 2013. This increase in gross margin of approximately $1,639,000 was offset by an increase in insurance expenses of $1,536,000, to $18,325,000 in 2014 from $16,789,000 in 2013. Our ratio of insurance expense to total premium revenue (“insurance expense ratio”) increased to 19.9% in 2014 from 19.4% in 2013.
Our dental and vision products grew by approximately 16,700 members, or 5.2%, from 319,200 members at December 31, 2013 to 335,900 members at December 31, 2014. This membership increase from December 31, 2013 is due to an increase in fully-insured dental HMO/IND membership of approximately 2,200 members, an increase in fully-insured dental PPO membership of approximately 9,500 members, an increase in self-insured dental membership of approximately 3,300 members and an increase in corporate, all other membership of approximately 1,700 members.
Our self-insured dental membership increased by approximately 3,300 members in 2014. This increase is partially due to the addition of new self-insured dental HMO and dental PPO employer groups in the Southwest Ohio and Northern Kentucky markets, and primarily due to an increase in membership of existing employer groups in the last twelve months.
Fully-insured dental HMO/IND premium increased approximately $1,292,000 in 2014 compared to 2013. Fully-insured dental HMO/IND premium rates negotiated with employer groups at their renewals resulted in an increase of approximately $798,000 in fully-insured dental HMO/IND premium revenue. An increase in fully-insured dental HMO/IND membership in 2014 resulted in an increase in fully-insured dental HMO/IND premiums of approximately $494,000. The fully-insured dental HMO/IND segment represented approximately 52.2% of our total dental business in 2014.
Fully-insured dental PPO premium increased approximately $2,965,000 in 2014 compared to 2013. Fully-insured dental PPO premium rates negotiated with employer groups at their renewals resulted in an increase of approximately $100,000 in fully-insured dental PPO premium revenue. An increase in fully-insured PPO group membership in the 2014 period resulted in an increase in fully-insured dental PPO premiums of approximately $2,040,000. The addition of the fully-insured on-exchange dental PPO membership resulted in an increase in fully-insured dental PPO premiums of approximately $825,000. The fully-insured dental PPO segment represents approximately 17.9% of our total dental business.
Total self-insured revenue increased approximately $1,264,000 in 2014 compared to 2013. Self-insured dental revenue increased by approximately $891,000 due to new self-insured sales. In addition, self-insured revenue increased by approximately $373,000 due to an increase in the self-insured claims revenue on a per member per month basis as a result of slightly higher dental service utilization and a slight increase in self-insured administrative fee rates on a per member per month basis. The self-insured dental segment represented approximately 29.2% of our total dental business in 2014. The self-insured segment revenue has two components:
Self-Insured Claim Revenue - Self-insured claim revenue increased approximately $1,191,000, or 4.9%. Self-insured claim revenue increased by approximately $847,000 due to new self-insured sales. Also, self-insured claim revenue increased by approximately $344,000 primarily due to an increase in the self-insured claim revenue on a per member per month basis as a result of a 1.5% dental fee schedule increase effective January 1, 2014.
Fully-insured dental PPO healthcare services expense increased by $1,966,000, or 18.4%, to $12,661,000 in 2014 from $10,695,000 in 2013. This increase was primarily the result of an increase in fully-insured dental PPO healthcare services expense of approximately $1,617,000 related to the increase in fully-insured group dental PPO membership and approximately $204,000 related to the new fully-insured on-exchange dental PPO membership. This increase in fully-insured dental PPO healthcare services expense was also attributable to an increase of approximately $145,000 due to an increase in fully-insured dental PPO healthcare services expense on a per member per month basis of approximately 1.2% in 2014 for both existing and new fully-insured dental PPO membership. Fully-insured dental PPO healthcare services expense increased by approximately $185,000 due to the 1.5% fee schedule increase effective January 1, 2014. This increase was offset by a decrease in fully-insured dental PPO claims of $40,000 due to a decrease in dental service utilization level by our fully-insured dental PPO members in 2014 compared to 2013.
Our fully-insured dental HMO/IND membership increased approximately 4,500 in 2013. This membership increase is primarily attributable to an increase of approximately 4,600 fully-insured dental HMO members, offset by a decrease of approximately 100 fully-insured dental indemnity members underwritten by Dental Care Plus, Inc. (“DCP"). The increase in fully-insured dental HMO membership of 4,600 members is due to new sales in the Cincinnati and Northern Kentucky markets of approximately 14,600 members during 2013, offset by the loss of approximately 10,000 members with employer groups that did not renew with the Company or reduced employee counts of retained employer groups. A significant portion of the fully-insured dental HMO membership losses were the result of not renewing certain employer groups that did not accept the premium rate increases we proposed. In addition, some of these membership losses were due to corporate acquisitions where our employer group customers moved to the new parent company benefit plans.
Fully-insured dental HMO/IND premium increased approximately $2,812,000 in 2013 compared to 2012. Fully-insured dental HMO/IND premium rates negotiated with employer groups at their renewals resulted in an increase of approximately $1,460,000 in fully-insured dental HMO/IND premium revenue. An increase in fully-insured dental HMO/IND membership in 2013 resulted in an increase in fully-insured dental HMO/IND premiums of approximately $1,352,000. The fully-insured dental HMO/IND segment represented approximately 54.0% of our total dental business in 2013.
Other income decreased approximately $41,000 or 40.2% to $61,000 in 2013 from $102,000 in 2012. This decrease is primarily the result of realized gains due to the sale of investments in 2012 that did not recur in 2013.
Self-insured healthcare services expense increased by approximately $1,069,000, or 5.1%, in 2013. An increase of 4.6% in self-insured member month volume in 2013 compared to 2012 resulted in an increase in self-insured healthcare services expense of approximately $1,000,000. Self-insured dental healthcare services expense increased by approximately $69,000 due to an increase in dental service utilization level by our self-insured members in 2013 compared to 2012.
Our effective tax rate for 2013 was 37.1% compared to the 35.3% effective tax rate in 2012. Our 2013 and 2012 effective tax rates were higher than the federal statutory rate primarily due to the impact of permanent tax differences related to meal and entertainment expenses and legal fees. See Note 6 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 decreased $425,000, or 5.0%, for the year ended December 31, 2013 to approximately $8.1 million at December 31, 2013 from approximately $8.5 million at December 31, 2012. This cash decrease is primarily the result of an increase in our corporate bond investments of approximately $3.1 million and the investment in our office building and related equipment of approximately $601,000. These cash decreases due to investing activities were offset by strong profitability due to a lower fully-insured loss ratio in 2013. This loss ratio decrease is primarily due to an increase in fully-insured dental HMO/IND and fully-insured dental PPO premium rates in 2013 compared to 2012 and improved underwriting practices. The change in cash for the years ended December 31, 2014, 2013 and 2012 is summarized as follows (in thousands):
In 2014, we paid approximately $47,000 of our outstanding mortgage balance and repaid approximately $124,000 related to the capital lease that we executed in December 2013. During 2014, we sold approximately $330,000 of Class B and Class C common shares. Also during 2014, we repurchased redeemable common shares of $362,000 from provider shareholders. In addition, we paid dividends to our institutional preferred shareholders and our common shareholders totaling approximately $425,000 in 2014.
A summary of our future commitments as of December 31, 2014 is as follows:
A mortgage note, secured by the land and the office building, accrues interest based on the 30-day LIBOR rate plus 1.95%. The note requires us to make principal payments of $3,800 per month in 2014 and higher principal payments in subsequent years through 2022 in accordance with the agreed upon loan amortization schedule. At the maturity date of the mortgage note in 2022, the expected outstanding balance of the note of approximately $804,000 must be repaid or refinanced. We also entered into an interest rate swap agreement that effectively changed the interest rate related to the $1,340,000 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 approximately 3.90% for the 10-year period through December 2022. At December 31, 2014, the carrying value of the mortgage note approximates fair value. Under this mortgage, the Company is required to have a minimum tangible net worth equal to or greater than $3,500,000 at the end of each fiscal year and a debt service ratio of at least 1:1. The Company was in compliance with these covenants at December 31, 2014. The Company also entered into a capital lease agreement with the leasing company in 2013 that obligates the Company to pay lease payments over a three year period and an additional capital lease agreement with a leasing company in 2014 that obligates the Company to pay lease payments over a four year period. Under these capital lease agreements, 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. At December 31, 2014, the Company was in compliance with this minimum tangible net worth requirement.
Redeemable Common Shares - Pursuant to the Company’s Amended and Restated 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. At December 31, 2014, approximately $83,000 in redeemed common shares are to be paid in 2015.
Our consolidated cash and short term investments were approximately $9.9 million at December 31, 2014. Our consolidated cash and short term investments increased by approximately $1.5 million from approximately $8.4 million as of December 31, 2013.
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 $362,000, $264,000, and $138,000 of redeemable common shares in the years ended December 31, 2014, 2013, and 2012, 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.
Our largest subsidiary, Dental Care Plus, operates in states that regulate its payment of dividends and debt service on inter-company loans, as well as other inter-company cash transfers and require minimum levels of equity as well as limit investments to approved securities. The amount of dividends that may be paid by Dental Care Plus, without prior approval by state regulatory authorities, is limited based on statutory income and statutory capital and surplus. Dividends cannot 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 positive retained earnings. In 2012, Dental Care Plus paid an ordinary dividend in the amount of $360,000 to DCP Holding Company that did not require prior approval by the Ohio Department of Insurance. There were no dividends declared or paid by Dental Care Plus during 2014 or 2013. Even if prior approval is not required, prior notification must be provided to state insurance departments in Ohio, Kentucky and Indiana before paying a dividend.
Dental Care Plus, an Ohio-domiciled insurance company dually licensed as a life and health insurer and a specialty health insuring corporation, is able to underwrite dental indemnity, dental PPO, dental HMO, and vision benefit products as well as other life and health insurance products in Ohio. The minimum required capital and surplus for Dental Care Plus licensed as a life and health insurance company in Ohio was $2.5 million at December 31, 2014.
We maintained aggregate statutory capital and surplus of approximately $9.7 million as of December 31, 2014 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 2015 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 future capital raising activities, if any.
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 by Ohio, Kentucky and Indiana, the three 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, 2014 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, 2014, 2013, and 2012, respectively, such changes increased or (decreased), net of related income tax effects, by the following amounts:
Between December 31, 2013 and December 31, 2014, our claims payable liability estimate increased by approximately $778,000 or 35%, primarily due to higher fully-insured dental HMO/IND and fully-insured dental PPO membership at December 31, 2014 compared to December 31, 2013, along with a significant increase in fully-insured dental HMO/IND utilization in December 2014 compared to December 2013. Fully-insured incurred claims were $18.34 PMPM for December 2014 compared to $17.52 PMPM for December 2013. Reported claims in process at December 31, 2014 was approximately $698,000, or $105,000 higher than the reported claims in process at December 31, 2013. This increase was the result of a larger claims inventory at December 31, 2014. There were four days of reported claims in process at December 31, 2014 and December 31, 2013.
When developing our estimate for claims payable liability as of December 31, 2014, we considered actual paid claim data from January 2015. As a result, we are able to use the completion factors approach for all historical months in 2014, including December 2014. The table below illustrates how our operating results are impacted when there is a variance between estimated claims expense and actual claims expense. The table shows the sensitivity of the estimated fully-insured incurred claims payable liability to fluctuations in the expected completion factors that were used to estimate the claims payable liability as of December 31, 2014 within variance ranges historically experienced. Based on historical experience, the completion factors we use to estimate outstanding IBNR and reported claims in process are highly reliable for predicting actual claims paid at future times, with a variance range of approximately one-half of one percent, plus or minus.
(a) Reflects estimated potential changes in incurred claims payable liability caused by changes in completion factors for all months prior to December 31, 2014.
Healthcare services expense is recognized on a monthly basis. In the case of the fully-insured dental segment, healthcare services expense is calculated by taking the paid claims associated with the fully-insured membership and adjusting this amount for the change in the claims payable liability determined using the actuarial estimates discussed above. For the self-insured dental segment, the healthcare services expense is based solely on the paid claims for the self-insured membership. In most cases, our reimbursement to our participating providers for covered dental services under the dental HMO and in-network dental PPO are subject to a 10% withhold. The amounts withheld are not retained in a separate fund and we have no obligation to pay any portion of the amounts withheld to the providers.
We have audited the accompanying consolidated balance sheets of DCP Holding Company and subsidiaries (the “Company”) as of December 31, 2014 and 2013, and the related consolidated statements of comprehensive income, redeemable shares and shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2014. Our audits also included the financial statement schedules included in Item 15(a)2. These consolidated financial statements and financial statement schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedules based on our audits.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2014 and 2013, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2014, in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.
AS OF DECEMBER 31, 2014 AND 2013 AND FOR THE YEARS ENDED DECEMBER 31, 2014, 2013 AND 2012
Cash and Cash Equivalents- The Company defines cash as cash held in operating accounts at financial institutions. The Company considers highly liquid investments with maturities of three months or less at the date of acquisition as cash equivalents in the accompanying consolidated financial statements. These investments are carried at cost, which approximates fair value.
Redeemable Institutional Preferred Shares- In 2010, the Company entered into a Preferred Stock Purchase Agreement (the “2010-Stock Purchase Agreement”) with an investor. Pursuant to the 2010-Stock Purchase Agreement, the investor agreed to purchase 300 Shares at a purchase price of $1,000 per share, with an aggregate purchase price of $300,000. The annual dividend payable on each Share is 5% of the book value at the beginning of the dividend period.
Derivative Instruments- All derivative financial instruments are recorded on the consolidated balance sheet at fair value. The changes in fair value of derivatives that are designated and qualify as cash flow hedges are recorded in other comprehensive income, with subsequent reclassification to earnings when the hedged transaction asset or liability impacts earnings. Any ineffectiveness is recognized in earnings immediately. The Company’s risk management policy is to not enter into derivatives for speculative purposes.
During 2014, 2013, and 2012, four fully-insured customers accounted for approximately 9%, 10%, and 9%, respectively, of the Company’s total revenue. Additionally, two self-insured customers accounted for approximately 11%, 11%, and 12% of the Company’s total revenue during each of the years 2014, 2013, and 2012, respectively.
The Company had one customer that had a balance of approximately 23% and 29% of the uncollected premium receivable balance at December 31, 2014 and 2013, respectively.
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, 2014 and 2013. There has not been any impairment on goodwill. Identifiable and amortizable intangible assets amounted to approximately $81,000 net of approximately $159,000 of accumulated amortization at December 31, 2014 and to approximately $97,000 net of approximately $143,000 of accumulated amortization at December 31, 2013. Amortization expense was approximately $15,000 for each of the three years ended December 31, 2014, 2013 and 2012. The provider network intangible asset of approximately $57,000 at December 31, 2014 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. Membership intangible assets (net of individual memberships written-off in the year of acquisition) of approximately $24,000 at December 31, 2014 are being amortized over an 11 year useful life in accordance with the Company’s expectation for the membership retention. The remaining weighted-average amortization period for these intangible assets is approximately 8 years. Amortization expense for 2015 and 2016 is expected to be approximately $15,000 each year. Goodwill and intangible assets are included in other assets in the accompanying consolidated balance sheets at December 31, 2014 and 2013.
The Company owned certificates of deposit insured by the Federal Deposit Insurance Corporation (“FDIC”) with an amortized cost of $1,050,000 and $1,200,000 as of December 31, 2014 and 2013, respectively. The certificates of deposit included in short-term and fixed maturities investments are classified as available-for-sale and are carried at fair value. At December 31, 2013, the Company also invested in money market funds included in short-term investments and classified as available-for-sale, with a cost and fair value of approximately $60,000. The Company invested in corporate bonds with an amortized cost of approximately $7,047,000 and $5,936,000 as of December 31, 2014 and 2013, respectively. The investment and non-investment grade corporate bonds included in fixed maturity investments are classified as available-for-sale and are carried at fair value.
At December 31, 2014 and, 2013, maturity dates for fixed maturities and short-term investments (excluding the money market funds) were:
The components of the provision for income taxes are summarized as follows for the years ended December 31, 2014, 2013 and 2012, 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 $98,247, $110,265, and $122,544 of net operating loss carry forwards to utilize in future years at December 31, 2014, 2013, and 2012, respectively. These losses will expire between 2018 and 2024. Net deferred tax assets are included in other assets in the accompanying consolidated balance sheets at December 31, 2014 and 2013.
On September 13, 2013, the Internal Revenue Service released final tangible property regulations under Sections 162(a) and 263(a) of the Internal Revenue Code of 1986 (“Code”), regarding the deduction and capitalization of expenditures related to tangible property. The final regulations replace temporary regulations that were issued in December 2011. Also released were proposed regulations under Section 168 of the Code regarding dispositions of tangible property. These regulations generally apply to taxable years beginning on or after January 1, 2014 and did not have a material effect to the consolidated financial statements.
For the years ended December 31, 2014, 2013, and 2012, the Company did not have any significant uncertain tax positions. The Company is primarily subject to U.S. federal and various U.S. state and local tax authorities. Tax years subsequent to 2010 remain open to examination by the Internal Revenue Service (“IRS”), and tax years subsequent to 2009 remain open to other state and local tax authorities.
The Company had depreciation expense of approximately $318,000, $347,000 and $271,000 for the years ended December 31, 2014, 2013 and 2012, respectively.
In accordance with the 2006 Dental Care Plus Management Equity Incentive Plan and the Dental Care Plus, Inc. and DCP Holding Company Deferred Compensation Plan (the “Plans”), Company directors and certain key employees elected to defer portions of their director fees and employee compensation, as applicable. The Company recorded expense of approximately $130,000, $67,000, and $88,000 related to deferred director fees and deferred employee compensation for the years ended December 31, 2014, 2013 and 2012, respectively. Directors and key employees who elect to defer cash compensation may request that the Company invest this compensation in a mutual fund investment or phantom shares of the Company. The deferred cash compensation is included in the deferred compensation liability at December 31, 2014 and 2013.
The deferred compensation expense related to these awards is recorded ratably during the applicable vesting period. The Company recorded deferred compensation expense of approximately $872,000, $616,000, and $466,000, with a tax benefit of approximately $296,000, $209,000, and $158,000, related to deferred share awards and the change in the value of phantom shares for the years ended December 31, 2014, 2013 and 2012, respectively. As of December 31, 2014, there is approximately $301,000 of total unrecognized compensation cost related to non-vested awards under the Plans. That cost is expected to be recognized over a weighted average period of 1.34 years.
The Company is authorized to issue 100,000 preferred shares, without par. In 2010, the Company entered into a Preferred Stock Purchase Agreement with an investor for 300 Redeemable Institutional Preferred Shares at a purchase price of $1,000 per share. In 2012 and 2013, the Company entered into additional Stock Purchase Agreements with an investor for the sale of 1,000 Redeemable Institutional Preferred Shares each year at a purchase price of $1,000 per share. The annual dividend payable on each Redeemable Institutional Preferred Share is 5% of the book value at the beginning of the dividend period. As of December 31, 2014, 2013, and 2012, dividends declared were approximately $128,000, $123,000, and $67,000, respectively. As of December 31, 2014, 2013, and 2012, dividends paid were approximately $128,000, $123,000, and $83,000, respectively.
In December 2012, the Company entered into an interest rate swap agreement (“Agreement”) (cash flow hedge) with an original notional amount of $1,340,000. The Agreement is used to manage the Company’s interest rate risk. The swap agreement effectively changed the interest rate related to the Company’s 2012 refinanced 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. 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, 2014 and 2013, the fair value of this Agreement was a liability of approximately $5,000 and $56,000, respectively. This amount is included in other payables and accruals in the accompanying consolidated balance sheets. The agreement will terminate upon maturity of the mortgage loan payable (Note 11).
In 2003, the Company previously entered into an interest rate swap agreement (“2003-Agreement”) (cash flow hedge) with an original notional amount of $1,500,000. The swap agreement effectively changed the interest rate related to $1,500,000 of the Company’s $1,800,000 previous mortgage note with a commercial bank from a variable rate based on the 30-day LIBOR rate plus 1.75% to a fixed rate of approximately 4.95%. The 2003-Agreement terminated in December 2012 when the Company refinanced the mortgage note (Note 11). Upon termination of the 2003-Agreement, the Company realized a loss of approximately $5,900, which is included in realizable gains (losses) on investments, net in the accompanying consolidated statements of comprehensive income for the year ended December 31, 2012.
The amounts included in other comprehensive income (loss) related to the interest rate swaps were $33,504, $(9,466), and ($16,447), net of income tax expense (benefit) of $17,260, $(4,877), and $(8,474), during 2014, 2013 and 2012, respectively.
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, 2014. At December 31, 2014 and 2013, there was no amount outstanding on this line of credit. The $1,000,000 working capital line of credit expires in July 2015. In addition, the Company had an irrevocable letter of credit for $10,000, with interest payable on all outstanding amounts at a variable rate of the prime rate of borrowing plus 6.00%. The letter of credit also had an annual fixed rate of 2.10% for access to the letter of credit obligation. The letter of credit expired in December 2014 and was not renewed.
Leases-The Company leases certain equipment and office space under non-cancelable operating leases. Rent expense under all operating leases was approximately $154,000, $136,000, and $118,000 for the years ended December 31, 2014, 2013 and 2012, respectively.
At December 31, 2014, future approximate minimum annual lease payments under non-cancelable operating leases are as follows:
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 $20,240,000, $18,601,000, and $16,417,000, for the years ended December 31, 2014, 2013 and 2012, respectively.
Listed below is financial information required for each reportable segment for the years ended December 31, 2014, 2013 and 2012 (amounts in thousands):
All of the Company’s Class A, and Class B shareholders are related parties, either as a participating provider, director or an employee of the Company.
The Company’s providers, who are also shareholders, submitted claims of approximately $36,902,000, $37,566,000, and $37,720,000 in 2014, 2013 and 2012, respectively. The Company had claims payable liability to related party providers of approximately $1,547,000 and $1,231,000 at December 31, 2014 and 2013, respectively.
Seven of our Board members are also participating providers and as a group received approximately $191,000, $154,000 and $159,000 in directors’ fees for the years ended December 31, 2014, 2013, and 2012, respectively.
Level 1 - Valuations based on quoted prices in active markets for identical assets or liabilities that the entity has the ability to access.
At December 31, 2014 and 2013, 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 December 2014 and 2013. As of December 31, 2014 and 2013, the Company did not have any assets or liabilities classified as Level 3 of the fair value hierarchy.
A summary of our unaudited quarterly results of operations for the years ended December 31, 2014 and 2013 is as follows (amounts in thousands):
On February 11, 2015, the Company’s Board of Directors declared a $39.86 per share dividend for all Class A, Class B and Class C redeemable common shareholders of record on February 11, 2015, payable on March 27, 2015. With the dividend, the holders of restricted share units will receive an equivalent share based dividend.