SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended July 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from __________ to __________
Commission File Number 0-20946
Health Management Systems, Inc.
(Exact name of registrant as specified in its charter)
New York 13-2770433
State of Incorporation (I.R.S. Employer Identification Number)
401 Park Avenue South, New York, New York 10016
(Address of principal executive offices, zip code)
(212) 685-4545
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address, and former fiscal year,
if changed since last report.)
Indicate by check x/ whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes x/ No __
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at August 31, 1996
----- ------------------------------
Common Stock, $.01 Par Value 17,312,802 Shares
HEALTH MANAGEMENT SYSTEMS, INC.
INDEX TO FORM 10-Q
QUARTER ENDED JULY 31, 1996
PART I FINANCIAL INFORMATION Page No.
Item 1 Financial Statements
Consolidated Balance Sheets as of July 31, 1996 (unaudited) 1
and October 31, 1995
Consolidated Statements of Operations (unaudited) for the 2
three month and nine month periods ended July 31, 1996 and
July 31, 1995
Consolidated Statement of Shareholders' Equity (unaudited) 3
for the nine month period ended July 31, 1996
Consolidated Statements of Cash Flows (unaudited) for the 4
three month and nine month periods ended July 31, 1996 and
July 31, 1995
Notes to Interim Consolidated Financial Statements (unaudited) 5
Item 2 Management's Discussion and Analysis of Results of Operations 6
and Financial Condition
PART II OTHER INFORMATION 11
SIGNATURES 12
EXHIBIT INDEX 13
HEALTH MANAGEMENT SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
($ In Thousands, Except Per Share Amounts)
July 31, October 31,
1996 1995
----------- -----------
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 12,013 10,801
Short-term investments 18,041 19,287
Accounts receivable, net:
Trade 47,400 31,517
Affiliates 105 113
-------- ------
47,505 31,630
Other current assets 9,546 4,328
-------- ------
Total current assets 87,105 66,046
Property and equipment, net 7,257 5,874
Intangible assets, net 5,300 5,461
Capitalized software costs, net 1,324 865
Investments in affiliates 6,963 7,673
Other assets 844 1,465
-------- ------
Total assets $108,793 87,384
======== ======
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued expenses $ 18,300 14,842
Amounts payable to affiliates 2,038 0
Deferred revenue 5,045 3,941
Deferred income taxes 5,894 5,620
-------- ------
Total current liabilities 31,277 24,403
Other liabilities 2,245 1,739
Deferred income taxes 2,444 2,018
-------- ------
Total liabilities 35,966 28,160
-------- ------
Shareholders' equity:
Preferred stock - $.01 par value; 5,000,000 shares
authorized; none issued and outstanding 0 0
Common stock - $.01 par value; 45,000,000 shares
authorized; 17,309,195 shares issued and
outstanding at July 31, 1996; 16,390,762 shares
issued and outstanding at October 31, 1995 173 164
Capital in excess of par value 56,933 48,481
Retained earnings 15,369 10,115
Unrealized appreciation on short-term investments 352 464
-------- ------
Total shareholders' equity 72,827 59,224
-------- ------
Commitments and contingencies
Total liabilities and shareholders' equity $108,793 87,384
======== ======
See accompanying notes to interim consolidated financial statements.
1
HEALTH MANAGEMENT SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(In Thousands, Except Per Share Amounts)
Three months Nine months
ended July 31, ended July 31,
------------------ -----------------
1996 1995 1996 1995
------- ------ ------ ------
Revenue:
Trade $25,657 20,954 72,256 58,311
Affiliates 128 2,066 4,496 6,735
------- ------ ------ ------
25,785 23,020 76,752 65,046
Cost of services:
Compensation 14,076 11,381 37,325 31,575
Data processing 4,131 2,037 8,393 5,615
Occupancy 2,071 1,635 5,478 4,847
Other 7,857 3,733 16,369 9,972
------- ------ ------ ------
28,135 18,786 67,565 52,009
------- ------ ------ ------
Operating (loss) margin before
amortization of intangibles (2,350) 4,234 9,187 13,037
Amortization of intangibles 51 54 161 189
------- ------ ------ ------
Operating (loss) income (2,401) 4,180 9,026 12,848
Other income (expense):
Interest income, net 186 311 665 663
Loss on investment (927) 0 (927) 0
Merger related costs 0 (19) (489) (1,045)
Equity in (loss) earnings of
affiliate (109) 11 188 11
------- ------ ------ ------
(850) 303 (563) (371)
(Loss) income before income taxes (3,251) 4,483 8,463 12,477
Income tax benefit (expense) 1,424 (2,070) (3,209) (5,840)
------- ------ ------ ------
Net (loss) income $(1,827) 2,413 5,254 6,637
======= ====== ====== ======
Earnings per share data:
Net (loss) income per weighted
average share of common stock
outstanding $ (0.11) 0.14 0.29 0.38
======= ====== ====== ======
Weighted average shares
outstanding 17,193 17,538 18,276 17,322
======= ====== ====== ======
See accompanying notes to interim consolidated financial statements.
2
HEALTH MANAGEMENT SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED)
($ In Thousands)
Unrealized
Common Stock Appreciation
----------------- Capital In (Depreciation) Total
Par Excess Of Retained on Short-term Shareholders'
Shares Value Par Value Earnings Investments Equity
---------- ----- ---------- -------- -------------- -------------
Balance at October 31, 1995 16,390,762 $164 48,481 10,115 464 59,224
Net income 0 0 0 5,254 0 5,254
Stock option activity 772,718 8 5,406 0 0 5,414
Employee Stock Purchase Plan activity 145,715 1 1,969 0 0 1,970
Disqualifying dispositions 0 0 1,077 0 0 1,077
Depreciation on
short-term investments 0 0 0 0 (112) (112)
---------- ---- ------ ------ ---- ------
Balance at July 31, 1996 17,309,195 $173 56,933 15,369 352 72,827
========== ==== ====== ====== ==== ======
See accompanying notes to interim consolidated financial statements.
3
HEALTH MANAGEMENT SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In Thousands)
Three months Nine months
ended July 31, ended July 31,
------------------ -----------------
1996 1995 1996 1995
------- ------ ------ ------
Operating activities:
Net (loss) income $(1,827) 2,413 5,254 6,637
Adjustments to reconcile net
(loss) income to net cash provided
by (used in) operating activities:
Loss on investment 927 0 927 0
Depreciation and amortization 756 645 2,267 2,026
Amortization of intangibles 51 54 161 189
Amortization of unearned
compensation 0 3 0 10
Gain on disposal of assets 0 0 0 (19)
Deferred tax expense 90 147 700 548
Equity in loss (earnings) of
affiliate 109 (11) (188) (11)
Disqualifying dispositions 297 0 1,077 0
Unrealized appreciation on
short-term investments 0 0 0 8
Other 0 0 0 (3)
Changes in assets and liabilities:
(Increase)decrease in
accounts receivable (2,459) 885 (15,875) (7,726)
(Increase)decrease in other
current assets (4,250) 535 (5,218) 278
Increase in accounts payable
and accrued expenses 6,629 2,760 3,458 2,959
Increase in amounts payable
to affiliates 2,038 236 2,038 193
Increase(decrease) in
deferred revenue 522 (834) 1,104 (833)
Increase (decrease) in other
assets and liabilities, net 170 (2) 1,127 762
------- ------ ------ ------
Total adjustments 4,880 4,418 (8,422) (1,619)
------- ------ ------ ------
Net cash provided by
(used in) operating
activities 3,053 6,831 (3,168) 5,018
------- ------ ------ ------
Investing activities:
Capital asset expenditures (1,677) (333) (3,275) (849)
Software capitalization (283) (212) (834) (656)
Investment in affiliates 28 (5,610) (29) (6,132)
Purchase of short-term investments 0 (147) 0 (5,105)
Proceeds from sale of short-term
investments 1,771 0 1,134 1,788
------- ------ ------ ------
Net cash used in
investing activities (161) (6,302) (3,004) (10,954)
------- ------ ------ ------
Financing activities:
Proceeds from issuance of
common stock 203 109 1,970 1,001
Proceeds from exercise of
stock options 2,174 198 5,414 1,011
Repayment of notes payable 0 0 0 (342)
------- ------ ------ ------
Net cash provided by
financing activities 2,377 307 7,384 1,670
------- ------ ------ ------
Net increase (decrease) in cash and
cash equivalents 5,269 836 1,212 (4,266)
Cash and cash equivalents at beginning
of period 6,744 9,233 10,801 14,082
Adjustment to cash to reflect change
in Health Care Microsystems, Inc.
fiscal year 0 0 0 253
------- ------ ------ ------
Cash and cash equivalents at end
of period $12,013 10,069 12,013 10,069
======= ====== ====== ======
See accompanying notes to interim consolidated financial statements.
4
HEALTH MANAGEMENT SYSTEMS, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Interim Unaudited Financial Information
Health Management Systems, Inc. (HMS or the Company) management is
responsible for the accompanying unaudited interim consolidated financial
statements and the related information included in these notes to the interim
consolidated financial statements. In the opinion of management, the interim
consolidated financial statements reflect normal recurring adjustments,
necessary for the fair presentation of the Company's financial position and
results of operations and cash flows for the periods presented. Results of
operations of interim periods are not necessarily indicative of the results
to be expected for the entire year.
These interim consolidated financial statements should be read in conjunction
with the audited consolidated financial statements of the Company as of and
for the year ended October 31, 1995 included in the Company's current report
on Form 8-K dated April 29, 1996 as filed with the Securities and Exchange
Commission (the Commission).
2. HHL Financial Services, Inc. (HHL)
On August 21, 1996, the Company announced a one-time charge and revenue
reversal pertaining to its relationship with HHL, a major customer of HMS,
which is in default of its data processing agreement with the Company. The
Company's one-time charge relates to (i) the full reservation of prior period
accounts receivable of $2,881,000, (ii) accrual of net costs to be incurred
in excess of anticipated revenue relating to the Company's continued
contractual obligation with HHL of $3,823,000, and (iii) the write-off of its
investment in HHL of $927,000, resulting in a total one-time charge of
$7,631,000. Additionally, revenue of $2,180,000 earned and initially recorded
in the third quarter was reversed. The result of the total write-off and
revenue reversal recognized in the third quarter of $9,811,000 translates to
an after-tax impact of $5,514,000, or $0.32 per share.
As of July 31, 1996, the Company has accrued $3,823,000 for probable future
net cash expenditures related to the Company's continuing contractual
obligations with HHL. The Company anticipates that substantially all amounts
accrued as of July 31, 1996 will be paid out or otherwise satisfied by the
end of fiscal 1997.
3. Supplemental Cash Flow Disclosures
Cash paid for income taxes during the quarters ended July 31, 1996 and 1995
was $1,406,000 and $2,645,000, respectively. Cash paid for income taxes
during the nine months ended July 31, 1996 and 1995 was $5,887,000 and
$2,892,000, respectively.
4. Net Income (Loss) Per Common Share
Net income (loss) per common share has been computed by dividing net income
(loss) attributable to common shareholders by the weighted average number of
common shares outstanding during each period. Common stock equivalents
utilizing the treasury stock method are included in the computation of
weighted average number of shares outstanding for the three month period
ended July 31, 1995 and the nine month periods ended July 31, 1996 and 1995.
Common stock equivalents have not been included in the computation of
weighted average number of shares outstanding for the three month period
ended July 31, 1996, as the effect would be anti-dilutive.
5
Item 2--Management's Discussion and Analysis of Results of Operations and
Financial Condition--Three Month and Nine Month Periods Ended July 31, 1996
and 1995
Operating Results
Three Months Ended July 31, 1996
Revenue for the quarter ended July 31, 1996 was $25,785,000, an increase of
$2,765,000 or 12% over the comparable period in 1995, and represented the
Company's tenth consecutive quarterly revenue increase. During the quarter ended
July 31, 1996, the Company recorded a reversal of $2,180,000 of HHL revenue
which was initially recorded in the quarter. Revenue for the third quarter
before the reversal was $27,965,000, an increase of $4,945,000 or 21% over the
comparable prior year period. The Company's proprietary services, Retroactive
Claims Reprocessing (RCR)(SM), Comprehensive Account Management Services
(CAMS)(SM), and Third Party Liability Recovery (TPLR)(SM), collectively after
the revenue reversal comprise the most significant of the Company's services,
accounting for $18,194,000 or 71% of the Company's consolidated revenue for the
third quarter of 1996, compared to $16,673,000 or 72% of consolidated revenue
for the comparable prior year quarter. Revenue from proprietary services after
the revenue reversal increased 9% over the third quarter of the prior year,
principally due to revenue generated by the Company's TPLR and RCR engagements.
The Company's Managed Care Support (MCS) services revenue, generated by the
Company's Health Care microsystems, Inc. subsidiary (HCm), was $5,294,000, an
increase of $1,081,000 or 26% over the comparable prior year period. The
Company's Electronic Data Interchange (EDI) services revenue, realized by the
Company's Quality Medi-Cal Adjudication, Inc. subsidiary (QMA), was $2,297,000
for the third quarter of 1996, an increase of $163,000 or 8% over the third
quarter of 1995.
Cost of services for the third quarter of 1996 was $28,135,000, an increase of
$9,349,000 or 50% over the comparable period in 1995. During the quarter ended
July 31, 1996, the Company recorded a one-time charge pertaining to its
relationship with HHL (see Note 2). This one-time charge increased cost of
services by $6,704,000. Thus, costs in the third quarter of 1996 are 36% over
those for the quarter ended July 31, 1995. The $6,704,000 charge was comprised
of (i) $1,362,000 of net compensation costs, and (ii) $2,199,000 of net data
processing costs associated with the continued servicing of the HHL data
processing agreement, plus (iii) $3,143,000 of other costs, including $2,881,000
of bad debt expense related to HHL receivables and $262,000 of net other
operating expenses associated with the continued servicing of the HHL data
processing agreement.
Compensation expense, the Company's largest expense component, totalled
$14,076,000, an increase of $2,695,000 or 24% over the comparable prior year
period. Compensation expense prior to the one-time charge of $1,362,000 was
$12,714,000, an increase of $1,333,000 or 12% over the comparable prior year
period. Exclusive of the effect of the one-time charge, the increase in
compensation expense reflected a 19% increase in the average number of employees
in support of business growth and expansion, offset by salary savings associated
with employee turnover.
Data processing expense for the third quarter of 1996 was $4,131,000, an
increase of $2,094,000 or 103% over the comparable period in 1995. Data
processing expense prior to the one-time charge of $2,199,000 was $1,932,000, a
decrease of $105,000 or 5%. This decrease was attributable to the Company's
ability to reallocate resources previously applied to HHL data processing to
other projects and a deferral of investments in computer equipment.
6
Occupancy expense for the third quarter of 1996 was $2,071,000, an increase of
$436,000 or 27% over the comparable period in 1995. This increase was primarily
due to expansion of the Company's facilities across the Country, including the
Company's headquarters.
Other operating expense for the third quarter of 1996 was $7,857,000, an
increase of $4,124,000 or 110% over the comparable prior year period. Other
operating expense prior to the one-time charge of $3,143,000 was $4,714,000, an
increase of $981,000 or 26%. Exclusive of the effect of the one-time charge,
this increase was principally attributable to higher levels of direct project
costs, employee related expenses, and professional fees.
Operating loss before amortization of intangible assets for the quarter ended
July 31, 1996 was $2,350,000, a decrease of $6,584,000 or 156% from the
$4,234,000 of operating margin realized in the comparable period in 1995. This
represents a negative operating margin rate of 9% during the third quarter of
1996 compared to the 18% positive operating margin rate experienced in the third
quarter of 1995. Operating margin before amortization of intangibles and prior
to the one-time charge and revenue reversal was $6,534,000, an increase of
$2,300,000 or 54%. Exclusive of the effect of the one-time charge and revenue
reversal, the operating margin rate would have been 23%, an increase of 5
percentage points over the 18% realized in the comparable prior year period.
This increase is a result of revenue before the reversal increasing at a higher
rate than total operating expenses before the one-time charge.
Amortization of intangible assets for the third quarter of 1996 was $51,000, a
decrease of $3,000 or 6% from the third quarter of 1995. The decrease results
from the full amortization of one of the intangible assets.
Net interest and other income of $186,000 in the third quarter of 1996 decreased
by $125,000 from $311,000 in the third quarter of 1995, primarily as a function
of a higher interest expense related to a potential tax liability and loan
origination fees associated with the new $40,000,000 line of credit obtained by
the Company during the quarter. The Company's investment in HHL of $927,000 was
written off in the third quarter of 1996 as part of the one-time charge. Equity
in the loss of the Company's Health Information Systems Corporation affiliate
was $109,000 for the third quarter of 1996, a decrease of $120,000 from the
$11,000 of income recorded during the third quarter of 1995.
The Company's income tax benefit for the third quarter of 1996 was $1,424,000,
resulting in an effective tax rate of approximately 43.8%. This compares to
income tax expense of $2,070,000 and an effective tax rate of approximately
46.2% for the third quarter of 1995. The 169% decrease in income tax expense was
primarily the result of the HHL one-time charge and revenue reversal which
decreased pre-tax income by $9,811,000 and reduced tax expense by $4,297,000.
Income tax expense without the HHL one-time charge and revenue reversal would
have been $2,873,000, an increase of $803,000 or 39% over the comparable prior
year period. This is in line with the increase in pre-tax income before the HHL
one-time charge and revenue reversal of $2,077,000 or 46%.
As a result of the HHL one-time charge and revenue reversal, net loss and loss
per share for the three month period ended July 31, 1996 were $1,827,000 and
$0.11, a 176% and 179% decrease, respectively, from the comparable prior year
period. Net income and earnings per share prior to the one-time charge and
revenue reversal would have been $3,687,000 and $0.21, an increase of $1,274,000
and $0.07 or 53% and 50%, respectively.
7
Nine Months Ended July 31, 1996
Revenue for the nine months ended July 31, 1996 was $76,752,000, an increase of
$11,706,000 or 18% over the comparable prior year period. During the nine months
ended July 31, 1996, the Company recorded a reversal of $2,180,000 of HHL
revenue recorded in the third quarter. Revenue for the nine months ended July
31, 1996 before the reversal was $78,932,000, an increase of $13,886,000 or 21%
over the comparable prior year period. Revenue from proprietary services after
the revenue reversal grew $8,801,000 or 18%, to $56,567,000, principally due to
revenue generated by the Company's TPLR and RCR engagements. Revenue from MCS
services was $13,643,000, an increase of $2,530,000 or 23% over the comparable
prior year period. Revenue from EDI services was $6,542,000, an increase of
$375,000 or 6% from last year.
Cost of services for the nine months ended July 31, 1996 was $67,565,000, an
increase of $15,556,000 or 30% over the comparable period in 1995. During the
nine months ended July 31, 1996, the Company recorded a one-time charge
pertaining to its relationship with HHL. This charge increased cost of services
by $6,704,000 or 13% over the quarter ended July 31, 1995. The $6,704,000 charge
was comprised of (i) $1,362,000 of net compensation costs, and (ii) $2,199,000
of net data processing costs associated with the continued servicing of the HHL
data processing agreement, plus (iii) $3,143,000 of other operating costs,
including $2,881,000 of bad debt expense related to HHL receivables and $262,000
of net other operating expenses associated with the continued servicing of the
HHL data processing agreement.
Compensation expense, the Company's largest component, totalled $37,325,000, an
increase of $5,750,000 or 18% over the comparable prior year period.
Compensation expense prior to the one-time charge of $1,362,000 was $35,963,000,
an increase of $4,388,000 or 14%. Exclusive of the effect of the one-time
charge, this increase reflected a 16% increase in the average number of
employees in support of business growth and expansion, offset by salary savings
associated with employee turnover.
Data processing expense was $8,393,000, an increase of $2,778,000 or 49% over
the comparable period in 1995. Data processing expense prior to the one-time
charge of $2,199,000 was $6,194,000, an increase of $579,000 or 10%. Exclusive
of the effect of the one-time charge, this increase was attributable to costs
associated with the continuing enhancement of the Company's data processing
environments.
Occupancy expense was $5,478,000, an increase of $631,000 or 13% over the
comparable period in 1995. This increase was primarily due to the expansion of
the Company's facilities, including the Company's headquarters.
Other operating expense was $16,369,000, an increase of $6,397,000 or 64% over
1995. Other operating expense prior to the one-time charge of $3,143,000 was
$13,226,000, an increase of $3,254,000 or 33%. Exclusive of the effect of the
one-time charge, this increase was principally attributable to higher levels of
direct project costs, including professional fees, employee related costs, and
professional marketing fees.
Operating margin before amortization of intangible assets for the nine months
ended July 31, 1996 was $9,187,000, a decrease of $3,850,000 or 30% from the
$13,037,000 amount realized in the comparable period in 1995. The Company's
operating margin rate before amortization of intangible assets was 12%, compared
to 20% in 1995. Operating margin before amortization of intangibles and prior to
the one-time charge and revenue reversal was $18,071,000, an increase of
$5,034,000 or 39%. Exclusive of the effect
8
of the one-time charge and revenue reversal, the operating margin rate would
have been 23%, an increase of 3 percentage points over the 20% realized in the
comparable prior year period.
Amortization of intangible assets for the nine months ended July 31, 1996 was
$161,000, a decrease of $28,000 or 15% from the comparable prior year period.
The decrease results from the full amortization of one of the Company's
intangible assets.
Net interest and other income of $665,000 in the nine months ended July 31, 1996
increased by $2,000 from $663,000 in the comparable period in 1995; the increase
would have been $45,000 but for the loan origination fees associated with the
Company's securing a new line of credit with a major money center financial
institution. The Company wrote off its investment in HHL of $927,000 in the nine
months ended July 31, 1996 as part of the one-time charge. Merger related costs
of $489,000 were incurred in the nine months ended July 31, 1996 related to the
Company's merger with CDR Associates, Inc. (CDR) in April 1996. Merger related
costs of $1,045,000 were incurred in the nine months ended July 31, 1995 related
to the Company's merger with HCm in February 1995.
The Company's income tax expense for the nine months ended July 31, 1996 was
$3,209,000, resulting in an effective tax rate of approximately 37.9%. This
compares to income tax expense of $5,840,000 and an effective tax rate of
approximately 46.8% for the prior year period. The reduction in the effective
tax rate results from the non-taxability of income from CDR for the first six
months of the fiscal year due to its status as an S Corporation, and from the
decrease of non-tax deductible merger costs from the comparable prior year
period. Income tax expense without the HHL one-time charge and revenue reversal
would have been $7,506,000, an increase of $1,666,000 or 29% over the comparable
prior period.
Net income and earnings per share for the nine months ended July 31, 1996 were
$5,254,000 and $0.29, a 21% and 24% decrease, respectively, from net income of
$6,637,000 and $0.38 in earnings per share reported in the comparable prior year
period. Net income and earnings per share prior to the one-time charge, revenue
reversal, and merger costs were $11,257,000 and $0.62 year to date, an increase
of $3,575,000 and $0.18 over the same period last year, or 47% and 41%,
respectively.
Liquidity and Capital Resources
At July 31, 1996, the Company had $55,828,000 in net working capital,
$14,185,000 greater than working capital at October 31, 1995. The Company's
principal sources of liquidity at July 31, 1996 consisted of cash, cash
equivalents, and short-term investments aggregating $30,054,000 and net accounts
receivable of $47,505,000. Accounts receivable at July 31, 1996 reflected an
increase of $15,875,000 or 50% over the October 31, 1995 balance. This increase
is due to revenue growth, delays in processing payments through a government
client, and changes in the Company's product revenue mix which serve to elongate
the Company's liquidation cycle. Management does not believe that this increase
reflects adversely on the quality or collectibility of the Company's accounts
receivable.
On July 15, 1996, the Company entered into a $40,000,000 unsecured revolving
credit facility with a major money center financial institution. The credit
facility, which is fully available as of the date of this report, has a term of
three years, carries an unused commitment fee of 20 basis points, and bears
interest at the institution's prime lending rate, or LIBOR plus 5/8%, at the
Company's option. The Company has advised the bank that, as a result of the
one-time charge and revenue reversal recorded for HHL in the quarter ended July
31, 1996 the Company was not in compliance with one of the financial covenants
of the Credit Agreement. The bank has waived the Company's compliance with this
covenant for such
9
quarter and amended the Credit Agreement to revise the covenant. The Company
would have been in compliance under the revised covenant.
* * * * *
This document contains forward-looking statements. Such statements by their
nature entail various risks, reflecting the dynamic, complex, and rapidly
changing nature of the health care industry. Results actually achieved may
differ materially from those currently anticipated. The various risks include
but are not necessarily limited to: (i) the continued ability of HMS to grow
internally or by acquisition, (ii) the success experienced in integrating
acquired businesses into the HMS group of companies, (iii) changing conditions
in the health care industry which could simplify the reimbursement process
and/or data management requirements associated with the health care transfer
payment process and adversely affect HMS's business, (iv) government regulatory
and political pressures which could reduce the rate of growth of health care
expenditures, (v) competitive actions by other companies, and (vi) other risks,
as noted in HMS's registration statements and periodic reports filed with the
Commission.
10
HEALTH MANAGEMENT SYSTEMS, INC. AND SUBSIDIARIES
PART II--OTHER INFORMATION
Item 1 Legal Proceedings - No material legal proceedings are pending.
Item 2 Changes in Securities - None
Item 3 Defaults Upon Senior Securities - None
Item 4 Submission of Matters to a Vote of Security Holders - None
Item 5 Other Information - None
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits--See Exhibit Index
(b) Reports on Form 8-K - None
11
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: September 13, 1996 HEALTH MANAGEMENT SYSTEMS, INC.
(Registrant)
/s/ Phillip Siegel
Phillip Siegel
Vice President and
Chief Financial Officer
12
HEALTH MANAGEMENT SYSTEMS, INC. AND SUBSIDIARIES
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
10.1 Credit Agreement and Guaranty Among Health Management Systems, Inc., as
Borrower, Accelerated Claims Processing, Inc., Quality Medi-Cal
Adjudication, Incorporated, Health Care microsystems, Inc. and CDR
Associates, Inc., as Guarantors, and The Chase Manhattan Bank, as Bank
(filed herewith).
10.1(i) First Amendment to Credit Agreement and Guaranty and Waiver (filed
herewith).
10.2 Lease, dated as of March 15, 1996, by and between 387 P.A.S.
Enterprises, as Landlord, and Health Management Systems, Inc., as
Tenant (filed herewith).
11 Computation of Earnings Per Share (filed herewith)
27 Financial Data Schedule, which is submitted electronically to the
Securities and Exchange Commission for informational purposes only and
not filed
13