The following table sets forth selected financial and statistical data for the Company as of the dates and for the periods indicated. As a result of the 1998 fourth quarter acquisition of TPN, Inc. ("TPN") that was accounted for as a pooling of interests, the 1995 through 1998 periods have been restated to include the operating results of TPN, which was formed in August 1994 but did not commence significant operations until 1995. The 1998 balance sheet data contained herein reflects the December 30, 1998 acquisition of Universal Fidelity Life Insurance Company ("UFL") that was accounted for as a purchase transaction and accordingly, no operating results of UFL are included in the income statement data. Certain reclassifications have been made to conform to current year presentation. This information is not necessarily indicative of the Company's future performance. The following information should be read in conjunction with the Company's Consolidated Financial Statements and Notes thereto included elsewhere herein.
- -------------------- (1) Excluding short-term investments with a fair value of $2.4 million.
The Company had a consolidated working capital surplus of $21.2 million at December 31, 1998 compared to $34.8 million at December 31, 1997. The $13.6 million decrease in working capital during 1998 was primarily the result of decreases in cash and the current portion of investments of $21.0 million due to longer term investments and the $970,000 increase in life insurance reserves partially offset by increases in the current portion of commission advances of $5.5 million and decreases in accounts payable and accrued expenses of $2.6 million.
Inventories Inventories include the cost of materials and packaging and are stated at the lower of cost or market. Cost is determined using the first-in, first-out ("FIFO") method for the personal and home care and personal development inventory. Cost of jewelry is determined using the retail-inventory method.
Membership Benefit Liability The Membership benefit liability represents claims reported but not paid and actuarially estimated claims incurred but not reported on open panel Memberships and per capita amounts due provider attorneys on closed panel Memberships. The Company calculates the benefit liability costs on open panel Memberships based on completion factors that consider historical claims experience based on the dates that claims are incurred, reported to the Company and subsequently paid. Processing costs related to these claims are accrued based on an estimate of expenses to process such claims.
Deferred tax liabilities and assets at December 31, 1998 and 1997 are comprised of the following:
The exercise of stock options which have been granted under the Company's various stock option plans give rise to compensation which is includable in the taxable income of the option grantee and deductible by the Company for federal and state income tax purposes. Such compensation results from increases in the fair market value of the Company's common stock subsequent to the date of grant of the applicable exercised stock options, and in accordance with Accounting Principles Board Opinion No. 25, such compensation is not recognized as an expense for financial accounting purposes and the related tax benefits are recorded in capital in excess of par value.
Agency's financial position and results of operations are included in the Company's financial statements on a combined basis. Agency earned commissions, net of amounts paid directly to its agents by the underwriter, during 1998, 1997 and 1996 of $119,000, $110,000 and $130,000, respectively, through its sales of insurance products of an unaffiliated company. Agency had a net loss for the years ended December 31, 1998 and 1997 of $10,694 and $12,500, respectively, and net income for the year ended December 31, 1996 of $6,700 after incurring commissions earned by the Chairman of $47,000, $50,000 and $49,000 respectively, and annual management fees paid to the Company of $36,000 for 1998 and $72,000 for 1997 and 1996.
Following is a summary of the unaudited interim results of operations for the years ended December 31, 1998 and 1997. As a result of the 1998 fourth quarter acquisition of TPN that was accounted for as a pooling of interests, the 1998 and 1997 periods have been restated to include the operating results of TPN.