Unaudited Statistical Data: Member months enrollment 600,494 441,886 655,985 Medical loss ratio (2) 84.3% 91.9% 92.1% General and administrative expense ratio (3) 17.5% 16.9% 21.1%
As a further condition to the successful closing of the Patel Transaction, in June 1999 The 1818 Fund II, L.P. (the "Fund"), the general partner of which is Brown Brothers Harriman & Co., converted $15.0 million in subordinated note, plus accrued interest (8%) of approximately $0.8 million into 100,000 shares of senior convertible preferred stock ("Series B") of the Company, which was then converted into 10.0 million shares of common stock. In connection with the conversion of the Series B preferred stock, the Company recorded interest expense of approximately $3.0 million relating to the fair value of the shares received in excess of the shares issuable at a conversion price of $8.00 per share.
The cost and accumulated depreciation for property and equipment sold, retired, or otherwise disposed of are relieved from the accounts and the resulting gains or losses are reflected in income. During 2001, the Company retired approximately $3.2 million of fully depreciated equipment from its operations.
In December 1997, the Company amended the exercise price on the 200,000 options previously granted to the President in 1996, from $10.125 to $3.01 per share. In September 1997, the Company granted the President options for 30,000 shares, at an exercise price of $15.00 per share. In February 1998, the Company amended the exercise price for the 30,000 options to $4.51 per share, and granted additional options for 100,000 shares, at an exercise price of $5.02 per share. The President resigned, effective January 15, 1999, and his qualified options terminated April 15, 1999.
The fair value of each option granted is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted- average assumptions used for grants in 2001, 2000, 1999, respectively: expected volatility of 143.0%, 131.0%, and 45.8%; expected lives of 8.0, 9.0, and 3.0 years; and risk-free interest rate of 1.98%, 4.0%, and 6.0%. Additionally, in each year, the dividend yield was 0%.
The Company sponsored a retirement plan (the "Plan") designed to qualify under Section 401(k) of the Internal Revenue Code of 1986, as amended. All employees over age twenty-one (21) who have been employed by the Company for at least one year with one thousand (1,000) hours of service are eligible to participate in the plan. Employees may contribute to the plan on a tax deferred basis generally up to 18% of their total annual salary. Under the plan, the Company makes matching contributions at the rate of 50% of the amount contributed by the employees up to a maximum of 2% of the employee's total annual compensation. The employer contributions are vested after five (5) years of service. The Company has not made any contributions since 1999 and has no obligations to make any future contributions under the Plan. The Plan was merged into the Comprehensive Health Management of Florida, LLC 401(k) and Profit Sharing Plan, an affiliate of the majority shareholder, in May 2000.
In May 1999, the Company entered into a settlement agreement for $2.5 million, all of which is being funded by the insurance carrier, which provided coverage to the individual defendants. The settlement agreement received Federal Court approval in January 2000. The Company was reimbursed by the insurance carrier of approximately $776,000 for expenses related to fees paid to the attorneys representing the individual defendants, less the Company's insurance deductible. The reimbursement was included in other revenue in fiscal year 2000.
In March 1998, the National Association of Insurance Commissioners adopted the Codification of Statutory Accounting Principles (the Codification). The SNYID has adopted the Codification, with some modifications, through the adoption of Regulation 172. The purpose of the Codification is to enhance the consistency of the accounting treatment of assets, liabilities, reserves, income, and expenses of insurers, by setting forth the accounting practices and procedures to be followed in completing annual and quarterly financial statements required by law. The applicable modifications that will effect the preparation of the statutory financial statements for WCNY are as follows: 1) no limitation with respect to the amount of EDP Equipment to be admitted, with useful lives being recorded up to 10 years, 2) estimated Pharmaceutical Rebates may be included as admitted assets, 3) unsecured Receivables from Health Care Providers are non-admitted, 4) deferred income taxes are non-admitted, and 5) WCNY's value for its investment in FirstChoice is limited to an amount up to 50% of its own statutory net worth. The state of New York required adoption of the Codification for the preparation of statutory financial statements effective January 1, 2001. The adoption of Codification has the effect of decreasing WCNY's statutory surplus at January 1, 2001 by approximately $1,501,000, which relates to accounting principles regarding prepaid expenses, furniture and equipment, surplus note interest, and the cumulative effect of Codification on its investment in FirstChoice.
Unaudited Pro Forma 2000 (1) --------- Total revenue $ 113,842 Net loss available to common shareholders (4,886) Net loss available to common shareholders per share (0.13)
(1) The acquired line of business' general and administrative expenses was adjusted using 11.5% of revenue under the management agreement with CHM, which resulted in savings of approximately $40.
2001 2000 1999 ---------- ---------- ---------- Total Expenses: New York $ 54,399 $ 59,567 $ 91,932 Connecticut 44,608 23,622 30,579 Other 226 294 6,658 ---------- ---------- ---------- Total $ 99,233 $ 83,483 $ 129,169 ========== ========== ==========