Exhibit 99.2.1
Discontinued Operations
In the third quarter fiscal 2000, Management took action on a formal plan to
divest non-core units that were acquired through the PHSS acquisition in
December 1997. Over the last year, the Company has made significant progress in
implementing programs to improve the underlying efficiency of these business
activities. The result has been expected short term losses from the closed
operations offsetting gains from those that would be the nucleus for longer term
growth. The Company has made management changes. It has closed locations that
did not have the critical mass for long-term profitable growth. It has
implemented a number of new systems initiatives that will improve productivity
and offer the infrastructure to process greater volume in the future. NDC
believes that there is a significant demand for these services in the market and
that these changes represent steps that can improve profitability from new
revenue streams. In spite of these investments and actions taken to strengthen
the business for future growth, the Company has concluded that these operations
no longer logically integrate with NDC's core Health Information Services
business. The core business includes Internet oriented network, information
management and strategic provider point of use platforms. Management and the
Board believe that the magnitude of opportunity in its core business requires
singular focus of management time and resources. Thus, the decision was made to
move to divest the line of business and account for it as discontinued
operations in accordance with Accounting Principles Board Opinion No. 30,
"Reporting the Results of Operations". Accordingly, results of these operations
have been classified as discontinued and prior periods have been restated.
The operating results of the discontinued operations are summarized as follows
(In thousands, except per share data):
Three Months Ended Nine Months Ended
February 29/28, February 29/28,
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2000 1999 2000 1999
---- ---- ---- ----
Revenue $ 26,250 $30,298 $ 81,270 $86,775
Operating income (loss) (5,053) 1,397 (12,088) (2,215)
Income (loss) from operations (3,165) 792 (7,628) (1,540)
Projected phase-out loss from operations,
net of tax (10,381) -- (10,381) --
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Income (loss) on discontinued operations
before cumulative effect of change in
accounting principle (13,546) 792 (18,009) (1,540)
Cumulative effect of change in accounting
principle -- -- (13,760) --
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Net income (loss) on discontinued
operations $(13,546) $ 792 $(31,769) $(1,540)
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Earnings (loss) per share:
From operations $ (0.10) $ 0.02 $ (0.23) $ (0.05)
Projected phase-out loss from operations (0.31) -- (0.31) --
Cumulative effect of change in accounting
principle -- -- (0.41) --
---------------------------------------------------------------
Total $ (0.41) $ 0.02 $ (0.95) $ (0.05)
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For the Physician Management Services component of the discontinued operation,
the Company continued the accounting policy followed by this business prior to
its acquisition by the Company. The Company maintained this generally accepted
policy after the acquisition for Physician Management Services offerings for
which the Company invoices and collects amounts on its customer's behalf.
Previously, for customers where the amount and timing of collection of their
accounts receivable could be reasonably estimated, the Company estimated the
fees that it expected to invoice those customers upon collection of their
accounts receivable. It recognized such revenues when substantially all services
to be performed by the Company had been completed. Estimated costs to complete
were accrued separately.
Effective June 1, 1999, the Company elected to change its revenue recognition
policy. Effective with the change in policy, the Company will recognize revenue
when the services are billed to the customer, at which point all services to be
performed by the Company have been completed. The impact of this change results
in the elimination of estimated, or unbilled receivables and related accrued
collection costs. Management believes that this change is appropriate and is
consistent with recent authoritative literature, specifically SEC Staff
Accounting Bulletin No. 101, issued December 3, 1999.
The cumulative after tax effect of this change in accounting principle was $13.8
million, net of income taxes of $8.6 million, at June 1, 1999. The cumulative
after tax effect on both the basic and diluted earnings per share was $(0.41).
The net assets of discontinued operations are summarized as follows (In
thousands):
February 29, 2000 May 31, 1999
----------------- ------------
Current assets $ 34,506 $ 56,989
Property and equipment, net 6,040 11,536
Intangible assets, net 36,453 55,248
Other assets 1,421 2,512
Current liabilities (10,885) (13,008)
Long-term debt (5,500) (5,500)
Other long-term liabilities (2,471) (3,323)
Provision for estimated losses (10,381) --
----------- -----------
Net assets of discontinued operations $ 49,183 $104,454
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Management considers the carrying value of the net assets of the discontinued
operations to be less than or equal to the approximate fair value to be received
on disposal.