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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
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 000-19480
PER-SE TECHNOLOGIES, INC.
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 58-1651222
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
2840 MT. WILKINSON PARKWAY 30339-3632
ATLANTA, GEORGIA (Zip Code)
(Address of Principal Executive Offices)
(770) 444-5300
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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None None
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.01 PAR VALUE
(Title of Class)
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Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities 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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant as of March 19, 2001 was approximately $163,526,712 calculated using
the closing price on such date of $5.4688. The number of shares outstanding of
the Registrant's common stock (the "Common Stock") as of March 19, 2001 was
29,901,754.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the Annual Meeting of Stockholders to be
held on May 3, 2001 are incorporated herein by reference in Part III.
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PER-SE TECHNOLOGIES, INC.
FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
TABLE OF CONTENTS
PAGE OF
FORM 10-K
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Item 1. Business.................................................... 1
Item 2. Properties.................................................. 6
Item 3. Legal Proceedings........................................... 6
Item 4. Submission of Matters to a Vote of Security Holders......... 6
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters......................................... 9
Item 6. Selected Financial Data..................................... 10
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 12
Item 8. Financial Statements and Supplementary Data................. 21
Item 9. Changes In and Disagreements With Accountants on Accounting
and Financial Disclosure.................................... 21
Item 10. Directors and Executive Officers of the Registrant.......... 21
Item 11. Executive Compensation...................................... 22
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 22
Item 13. Certain Relationships and Related Transactions.............. 22
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K......................................................... 22
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PART I
ITEM 1. BUSINESS
OVERVIEW OF THE COMPANY
Per-Se Technologies, Inc. ("Per-Se" or the "Company"), a corporation
organized in 1985 under the laws of the State of Delaware, is a global leader in
delivering technology-enabled business management outsourcing services,
financial and clinical software solutions and Internet-enabled e-health
solutions to healthcare providers and payers. Per-Se delivers its services and
products through its three operating segments: Physician Services, Application
Software and e-Health Solutions.
Physician Services provides business management outsourcing services to the
hospital-affiliated physician practice market, including clinical data
collection, data input, medical coding, billing, contract management, cash
collections and accounts receivable management. These services are designed to
assist healthcare providers with the business management functions associated
with the delivery of healthcare services, allowing physicians and hospital staff
to focus on providing quality patient care. These services also assist
physicians in improving cash flows and reducing administrative costs and
burdens.
The Application Software segment provides enterprise-wide financial and
clinical software to acute care healthcare organizations, including patient and
staff scheduling, clinical information systems and patient financial management
software. These applications enable healthcare organizations to simultaneously
optimize the quality of care delivered and the profitability of business
operations.
The e-Health Solutions segment provides healthcare providers and payers
with connectivity and business intelligence solutions that help reduce
administrative costs and enhance revenue cycle management. Solutions include
electronic claims processing, referral submissions, eligibility verification and
other electronic and paper transaction processing. In addition, e-Health
Solutions offers physician practice management software as Application Service
Provider ("ASP") to physician practices and managed care solutions to payers in
ASP, turnkey or outsourced formats.
Per-Se markets its products and services primarily to integrated healthcare
delivery networks ("IDNs"), hospitals, hospital-affiliated physician practices
and payer organizations.
RECENT DEVELOPMENTS
On December 8, 2000, the Company purchased all of the issued and
outstanding shares of capital stock of Health Data Services, Inc. and its
affiliate company, Patient Account Management Services, Inc. ("HDS/PAMS") for
approximately $25 million in cash. HDS/PAMS offers fully integrated electronic
medical claims clearing and other services for hospitals and integrated delivery
networks. This purchase represents a strategic addition to the Company's
e-Health Solutions segment, and substantially increases the Company's presence
in the electronic medical transaction processing market for hospitals.
DESCRIPTION OF BUSINESS BY INDUSTRY SEGMENT
The following description of the Company's business by industry segment
should be read in conjunction with Note 18 of Notes to Consolidated Financial
Statements included in Item 8. Financial Statements and Supplementary Data.
Physician Services
The healthcare industry spends approximately $1.2 trillion on an annual
basis to provide patient care. Physician Services participates in this market
and has targeted approximately $7 billion of this market by providing
comprehensive business management outsourcing services. Physician Services is
the largest provider of comprehensive business management outsourcing services,
including clinical data collection, data input, medical coding, billing,
contract management, cash collections and accounts receivable management to
hospital-affiliated physicians in the United States. Organized around
medical-specialties, Physician Services
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supports approximately 15,000 hospital-affiliated physician clients in 42
states, offering practice support services, revenue growth consulting, cost
management consulting and practice security services designed to help its
physician clients optimize the business and administrative areas of their
medical practices.
Physician Services' practice support services include physician
credentialing, scheduling, coding and accounts receivable/revenue cycle
management services. These services are designed to allow physicians to focus on
providing healthcare, maintaining a stable patient base and remaining in
compliance with complex healthcare rules and regulations without having to
manage their billing and collections.
Physician Services' revenue growth consulting provides physician practices
with a framework for revenue growth through strategic planning including merger
planning and execution, fee schedule review utilizing geographic and specialty
expertise and billing and accounts receivable management to optimize revenue
from services provided while remaining in compliance with healthcare
regulations.
In its cost management consulting services, Physician Services uses
proprietary technology solutions, industry expertise and a large scale database
of medical specialty specific information to provide operations planning,
benchmarking and productivity analysis for its physician clients. In addition,
in complete practice reviews, Physician Services analyzes client accounts
receivable and assists physician clients in optimizing payments while
maintaining compliance with healthcare regulations. This allows physicians to
better manage administrative productivity and control the expenses associated
with providing high quality healthcare.
Physician Services also provides practice security services that include
compliance program design, monitoring and consulting. These services may also be
utilized in conjunction with liability coverage for physician billing errors and
omissions through a business partner to provide physician clients with peace of
mind in the complex healthcare billing environment.
Physician Services' systems currently support the majority of medical
specialties. Physician Services' customers are in the hospital-based physician
market.
The Physician Services business is highly competitive. Physician Services
competes with regional physician reimbursement organizations and physician
groups that provide their own business management services. Competition among
these organizations is based upon the relationship with the client or
prospective client, the efficiency and effectiveness of converting medical
services to cash, the ability to provide proactive practice management services
and, to the extent that service offerings are comparable, price.
Application Software
Application Software provides a diverse, integrated suite of
patient-centric, enterprise-wide software and services that enable healthcare
organizations to more effectively deliver quality care, manage resources, reduce
costs, improve productivity and drive operational effectiveness.
Application Software's products operate across the entire scope of the
healthcare enterprise -- IDNs and hospitals -- and manage more than 26 million
lives online.
Application Software's customers, which include approximately 2,000
healthcare organizations, depend on Application Software's solutions for many
critical functions, including: providing access to real-time, point-of-care
clinical information and decision analysis capability across the continuum of
care; providing comprehensive, consolidated billing through patient financial
management solutions containing intrinsic contract management; automating
enterprise-wide staff and patient scheduling; managing surgical inventory; and
enhancing enterprise-wide staff productivity.
Application Software is a market leader in several key areas of healthcare
information technology, including nurse scheduling and productivity management,
surgical scheduling and resource management and enterprise-wide staff and
productivity management. In addition, the international market is an area of
great opportunity for Application Software's clinical information system. For
example, in the United Kingdom, the National Health Services has dictated that
all of its approximately 300 general hospitals must have electronic patient
records by 2005. Application Software has the largest presence in the United
Kingdom market with 150 customer sites and has been in that market for the past
15 years. With operations in the United Kingdom,
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Japan, Australia, Canada, Brazil and the Middle East, Application Software has
been laying the infrastructure to take advantage of international demand.
Application Software competes against a variety of information technology
companies, including those marketing comprehensive, enterprise-wide health
information systems as well as niche and "best-of-breed" software application
vendors. Application Software's competitors are primarily national companies,
many of which have longer operating histories and greater financial resources
than those of Application Software.
Competition is based on product quality, ease of use and ease of
integration of new products with other existing and planned applications. Many
competitive offerings, however, operate on disparate technologies that are
linked through complex interfaces. Application Software's integrated approach to
its products and technologies enables it to deliver real-time, patient-centric
information and process oriented management capabilities that are so critical in
today's age of enterprise-wide health care.
e-Health Solutions
e-Health Solutions, through The Per-Se Exchange, the third largest
electronic clearinghouse for healthcare transactions, delivers private and
Internet-based business-to-business solutions that help healthcare providers,
payers and patients reduce administrative inefficiencies in healthcare. e-Health
Solutions' vision is to deliver information knowledge through solutions that
optimize care delivery, care administration and revenue cycle management to the
provider, payer and patient constituents. The strategy is to gain market share
in selected markets to achieve a more optimum exchange of information sharing
for healthcare providers, insurance companies, ancillary services and others.
These solutions include electronic claims and remittance advice processing,
web-based provider compliance and productivity management reporting, managed
care/payer administration solutions, an ASP-based physician practice management
system, an Internet patient portal for healthcare statement review and
electronic payment processing, and high speed print and mail services.
The acquisition of HDS/PAMS almost doubles e-Health Solutions' presence in
the electronic medical transaction processing market for hospitals and
integrated delivery networks and increases e-Health Solutions' medical
transaction processing volume to 240 million transactions on an annual basis.
This technology supports more than 1,100 governmental and commercial payer
connections in 48 states.
e-Health Solutions competes against a variety of Internet healthcare
technology companies, including those that have merged with traditional
healthcare technology vendors. Many competitive offerings, however, are entirely
focused on the office-based physician, in contrast to e-Health Solutions, which
offers both office-based and hospital-affiliated physician solutions. Also,
e-Health Solutions is focused almost entirely on medical claims, in contrast to
many competitors that focus on pharmacy claims.
Competition in the e-health market is based on the number of electronic
connections a vendor provides between healthcare providers and payers, as well
as the value-added solutions that are offered such as front-end edits, web-based
reporting and applications.
RESULTS BY INDUSTRY SEGMENT
Information relating to the Company's industry segments, including revenue,
operating profit or loss and identifiable assets attributable to each segment
for each of the fiscal years ended 2000, 1999 and 1998 and as of December 31,
2000 and 1999, is presented in Note 18 of Notes to Consolidated Financial
Statements in Item 8. Financial Statements and Supplementary Data.
HEALTHCARE INDUSTRY
Per-Se's business is affected by, among other things, trends in the U.S.
healthcare industry. As healthcare expenditures have grown as a percentage of
the U.S. gross national product, increasing focus has been placed on the
tremendous administrative costs associated with the delivery of care and the
increasing incidence of medical errors. Payers have actively sought to control
costs by, among other things, utilizing reimbursement methodologies, such as
managed care, fixed fee and capitated reimbursement models, to supplant the more
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traditional fee-for-service structure. This shift to more restrictive
reimbursement models, coupled with extensive regulatory control and government
focus on fraud and abuse in the healthcare field, have helped to create a
significantly more complex accounting, coding, billing and collection
environment in healthcare. These issues create a positive marketing environment
for the sale of software and services that reduce the resources spent by
healthcare providers on administrative functions, that help ensure compliance in
an ever more complex regulatory environment and for solutions that can reduce
the opportunity for medical errors and improve the quality of care.
The healthcare industry, like many others, continued to experience
pressures originating in earlier years and also new pressures arising for the
first time in 2000. During 2000, healthcare providers continued to be very
focused on the effects of the Balanced Budget Act of 1997 (the "Balanced Budget
Act") on healthcare reimbursements. For the first half of 2000, healthcare
providers were also very focused on Year 2000 remediation to ensure that their
operations would not be adversely affected by the turn of the century. The
Balanced Budget Act has reduced the reimbursement available to healthcare
providers, potentially reducing the amount spent by healthcare providers for
turnkey software solutions, but at the same time, potentially shifting
information technology spending by healthcare providers to application service
provider offerings or outsourced services. Management believes that the Balanced
Budget Act will not have a significant impact on the Company's operations.
Management also believes that the increased focus on Year 2000 readiness in the
first half of 2000 resulted in reduced focus and spending on new information
technology or services projects in 2000. Management believes that the Year 2000
focus in the first half of 2000 adversely affected the revenue and profit
margins of the Company's operations in 2000, but that this will not continue
into the future.
Both governmental and private payers continue to implement measures to
restrict payments for healthcare services, including but not limited to bundling
edits, medical necessity edits and post-payment audits. These measures may
result in a decrease in revenue to the Company's provider clients and, as a
result, a decrease in revenue derived by the Company from such clients as well
as an increase in the cost of providing services.
Recently, the healthcare industry began to focus on the impact that Health
Insurance Portability and Accountability Act ("HIPAA") regulations and
implementation timeframes might have on their operations and information
technology solutions. HIPAA was designed to reduce the amount of administrative
waste in healthcare today and to further protect the privacy of any patient's
medical information. HIPAA regulations (those proposed and those already final)
identify certain standards for both human processes and automated processes and
systems for anyone handling patient medical information. HIPAA regulations
related to standard data formats and data sets for electronic transaction
processing became final in 2000, with required implementation deadlines by
October 2002. Additional HIPAA regulations for security have been proposed, but
are not yet final. The HIPAA regulations related to privacy of medical
information are final and scheduled to be implemented by April 2003. Because of
the controversial nature of the HIPAA privacy regulations, the Bush
Administration has reopened the public comment period on the regulations. The
HIPAA regulations may impose the need for additional required enhancements of
the Company's internal systems and those software applications sold, but at the
same time, potentially create increased demand for the services and solutions
provided by the Company. While the Company will incur costs to become compliant
with the HIPAA regulations for electronic transaction processing, management
believes they will not have a significant overall impact on the Company's
results of operations. Management is currently assessing the overall impact of
the privacy standards and will evaluate the overall impact of the security
standards once finalized.
REGULATION
Per-Se's business is subject to numerous federal and state laws and to a
broad range of complex regulations, programs to combat fraud and abuse and
increasing restrictions on reimbursement for healthcare services. Each of the
major federal healthcare payment programs (Medicare, Medicaid and TRICARE) has
its own set of complex and sometimes conflicting regulations. Additional
regulations have been mandated by the Balanced Budget Act and HIPAA, and a
number of states have also imposed significant regulatory programs applicable to
billing and payment for healthcare services.
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The federal government has maintained a significant emphasis on the
prevention of healthcare fraud and abuse. Pursuant to the False Claims Act, the
Medicare and Medicaid Patient and Program Protection Act of 1987 and HIPAA, the
federal government has statutory authority to impose both civil and criminal
sanctions and penalties for submission of false claims to governmental payers.
Civil monetary penalties of up to $50,000 per offense may be imposed, as well as
exclusion from participation in Medicare and other governmental healthcare
programs. In addition, the False Claims Act allows a private party to bring a
"qui tam" or "whistleblower" suit alleging the filing of false or fraudulent
Medicare or Medicaid claims or other violations of the statute and to share in
any damages and civil penalties paid to the government. The U.S. Health Care
Financing Administration ("HCFA") also offers rewards for information leading to
recovery of Medicare funds, and HCFA has begun to engage private contractors to
detect and investigate fraudulent billing practices.
The Company has a well-established compliance program modeled after the
Office of Inspector General's ("OIG") Compliance Program Guidance for
Third-Party Medical Billing Companies that is designed and maintained to detect
and prevent regulatory violations. The Company believes its compliance program
is effective. However, a compliance program cannot be expected to provide
absolute assurance of compliance with the law. The existence of an effective
compliance program, though, may reduce the severity of civil and criminal
sanctions for certain healthcare related offenses.
In accordance with HIPAA, final rules were published in 2000 regarding the
standards for electronic transactions as well as standards for privacy of
individually identifiable health information. These rules set new or higher
standards for the healthcare industry as to handling healthcare transactions and
information, with penalties for noncompliance.
The transaction standard regulations establish electronic standards for
eight of the most common healthcare transactions by reference to technical
standards promulgated by recognized standards publishing organizations. Under
the new standards, any party transmitting or receiving health transactions
electronically will send and receive data in a single format, rather than the
large number of different data formats currently used. Healthcare providers,
healthcare clearinghouses and large health plans must comply with this rule by
October 2002, while small health plans are given an additional year. Per-Se's
operations fall under the transaction standards regulations.
The Company handles patient health information in the ordinary course of
its business. HIPAA privacy standards require the Company to establish
safeguards with regard to security, access and use of the information, to
restrict the manner in which the information is used by other parties and to
provide access to individuals to inspect and correct the information. Failure to
do so may result in governmental enforcement actions. There are also state
privacy actions that can be brought by individuals who believe their personal
information has been misused.
The Company must comply with the HIPAA privacy regulations as currently
drafted by April 2003. Because of the controversial nature of the HIPAA privacy
regulations, the Bush Administration has reopened the public comment period on
the regulations. Per-Se cannot predict what impact the reopening of the comment
period will have, if any, on the regulations' scope or dates of compliance.
EMPLOYEES
The Company currently employs approximately 4,600 full-time and part-time
employees. The Company has no labor union contracts and believes relations with
its employees are satisfactory.
FORWARD LOOKING STATEMENTS
Certain statements included in Management's Discussion and Analysis of
Financial Condition and Results of Operations and elsewhere in this report are
"forward-looking statements" within the meaning of the Securities Act of 1933
and the Securities Exchange Act of 1934, as amended by the Private Securities
Litigation Reform Act of 1995 (the "Reform Act"), including certain statements
set forth under the captions "Description of Business by Industry Segment,"
"Healthcare Industry," "Regulations," "Process Improve-
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ment Project," "Cumulative Effect of Accounting Change" and "Liquidity and
Capital Resources." Forward-looking statements include the Company's
expectations with respect to industry growth segments, affect of industry and
regulatory changes on the Company's customer base, the impact of operational
improvement or cost reduction initiatives, operating margins, overall
profitability and the availability of capital. Although the Company believes
that the statements it has made are based on reasonable assumptions, they are
based on current information and beliefs and, accordingly, the Company can give
no assurance that its expectations will be achieved. In addition, these
statements are subject to factors that could cause actual results to differ
materially from those suggested by the forward-looking statements. These factors
include, but are not limited to, factors identified under the caption "Factors
That May Affect Future Results of Operations, Financial Condition or Business"
in "Management's Discussion and Analysis of Financial Condition and Results of
Operations" in Item 7. The Company disclaims any responsibility to update any
forward-looking statements.
ITEM 2. PROPERTIES
The Company's principal executive office is leased and is located in
Atlanta, Georgia. The lease for that office expires in February 2005.
Physician Services
Physician Services' principal office is leased and is located in Atlanta,
Georgia. The lease for that office expires in February 2005. In addition to its
principal office, Physician Services operates 129 business offices throughout
the United States. One of the facilities is owned. All of the remaining
facilities are leased with expiration dates from March 2001 to June 2011.
Application Software
Application Software's principal office is leased and is located in
Atlanta, Georgia. The lease for that office expires in February 2005. In
addition to its principal office, Application Software operates 6 offices in the
United States, Australia and Europe. These facilities are leased with expiration
dates from April 2001 to November 2006.
e-Health Solutions
e-Health Solutions' principal office is leased and is located in Atlanta,
Georgia. The lease for that office expires in February 2005. In addition to its
principal office, e-Health Solutions operates 10 offices in the United States.
These facilities are leased with expiration dates from March 2001 to January
2006.
ITEM 3. LEGAL PROCEEDINGS
The information required by this Item is included in Note 11 of Notes to
Financial Statements in Item 8. Financial Statements and Supplementary Data on
pages F-14 to F-16.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to security holders for a vote during the fourth
quarter of 2000.
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EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information regarding the executive
officers of the Company:
YEAR FIRST
NAME AGE POSITION ELECTED OFFICER
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Philip M. Pead....................... 48 President and Chief Executive 1999
Officer
Chris E. Perkins..................... 38 Executive Vice President and Chief 2000
Financial Officer of the Company
Karen B. Andrews..................... 46 Senior Vice President of the Company 2000
and the President of the Company's
Application Software segment
William N. Dagher.................... 37 Senior Vice President of the Company 2000
and the President of the Company's
e-Health Solutions segment
Frank B. Murphy...................... 42... Senior Vice President of the Company 2000
and the President of the Company's
Physician Services segment
Each of the above executive officers was elected by the Board of Directors
to hold office until the next annual election of officers and until his or her
successor is elected and qualified or until his or her earlier resignation or
removal.
PHILIP M. PEAD has served as the President and Chief Executive Officer of
the Company since November 2000. He has also been a member of Per-Se's Board of
Directors since November 2000. From August 1999 to November 2000, Mr. Pead
served as Executive Vice President and Chief Operating Officer of the Company.
Mr. Pead joined the Company in April 1997 as a senior executive in the
Application Software and e-Health Solutions segments of the Company's business
and he served as President of those segments from May 1997 until August 1999.
From May 1996 to April 1997, Mr. Pead was employed by Dun & Bradstreet
Application Software as a senior executive with responsibility for international
operations. From August 1994 to May 1996, he was employed by Attachmate
Corporation, a leading provider of communications software, as a senior
executive with responsibility for Asia Pacific and Latin American operations.
CHRIS E. PERKINS has served as Executive Vice President and Chief Financial
Officer of the Company since February 2001. From April 2000 to February 2001,
Mr. Perkins served as Senior Vice President of Corporate Development. Prior to
joining Per-Se in April 2000, Mr. Perkins held various executive management
positions with AGCO Corporation. He was appointed as AGCO's Chief Financial
Officer in January 1996, after serving as Vice President of Finance and
Administration, and in various roles within corporate development. In July 1998,
Mr. Perkins was named Vice President of AGCO's parts division, a $500 million
global business unit, for which he was responsible for all operations. Mr.
Perkins also spent seven years in public accounting with Arthur Andersen.
KAREN B. ANDREWS has served as President of the Application Software
segment since October 2000. In this position, Ms. Andrews is responsible for the
entire operations of the Application Software segment. From 1997 to October
2000, Ms. Andrews served as Senior Vice President of Customer Service within the
Application Software segment. Prior to joining Per-Se in 1997, Ms. Andrews was
Vice President of Professional Services for Geac SmartStream, formerly Dun &
Bradstreet Software. She also served as a senior manager with
PricewaterhouseCoopers, focusing on implementing application software solutions
and process improvement.
WILLIAM N. DAGHER has served as President of the e-Health Solutions segment
since October 2000. In this position, Mr. Dagher is responsible for the entire
operations of the e-Health Solutions segment. From 1998 to October 2000, Mr.
Dagher was Senior Vice President of Per-Se's e-Health Operations and Chief
Information Officer. Prior to 1998, he served for four years in various senior
management positions at MedPartners, Inc. (now known as Caremark Rx, Inc.). In
his four years at MedPartners, he held the positions of Vice President of
Information Systems and Vice President of Mergers and Acquisitions. Prior to
joining
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MedPartners, Mr. Dagher was Director of Client Service at Per-Se. From 1990 to
1993, he was National Director of Physician Practice Management at KPMG Peat
Marwick.
FRANK B. MURPHY has served as President of the Physician Services segment
since October 2000. In this position, Mr. Murphy is responsible for the entire
operations of the Physician Services segment. Mr. Murphy, who joined Per-Se in
1998, has also served as Senior Vice President, Operations of the Physician
Services segment and Senior Vice President of the academic and multi-specialty
services group within the Physician Services segment. Before joining Per-Se, he
worked in leadership roles with a strategic consulting company specializing in
physician practice management, and a multi-hospital division for an
investor-owned company. He also served as President and Chief Executive Officer
of Trident Regional Health Systems in Charleston, South Carolina, a wholly owned
subsidiary of Hospital Corporation of America.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock is traded on Nasdaq under the symbol PSTI.
The prices in the table below represent the high and low sales price for
the Common Stock as reported on Nasdaq for the periods presented. Such prices
are based on inter-dealer bid and asked prices without markup, markdown or
commissions and may not represent actual transactions.
YEAR ENDED DECEMBER 31, 2000 HIGH LOW
- ---------------------------- ------- ------
First Quarter............................................. $ 9.875 $5.500
Second Quarter............................................ 9.406 3.875
Third Quarter............................................. 13.875 8.625
Fourth Quarter............................................ 12.813 2.125
YEAR ENDED DECEMBER 31, 1999 HIGH LOW
- ---------------------------- ------- ------
First Quarter............................................. $16.875 $7.125
Second Quarter............................................ 17.438 7.500
Third Quarter............................................. 18.000 9.094
Fourth Quarter............................................ 10.500 6.000
The last reported sales price of the Common Stock as reported on Nasdaq on
March 19, 2001 was $5.4688 per share. As of March 19, 2001, the Company's Common
Stock was held of record by 3,739 stockholders.
Per-Se has never paid cash dividends on its Common Stock and does not
anticipate paying cash dividends in the foreseeable future, but intends instead
to retain any future earnings for reinvestment in its business. The Indenture
dated as of February 20, 1998, with respect to the Company's outstanding 9 1/2%
Senior Notes due 2005 (see Note 9), contains restrictions on the Company's
ability to declare or pay cash dividends on its Common Stock.
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ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected consolidated financial information
for Per-Se for and as of each of the five fiscal years in the period ended
December 31, 2000. The selected consolidated financial information of Per-Se has
been derived from the audited consolidated financial statements of Per-Se which
give retroactive effect to the 1996 mergers with Rapid Systems Solutions, Inc.
("Rapid Systems"), which was subsequently sold during 1999, BSG Corporation
("BSG"), which was subsequently sold in 1999 and Health Data Sciences
Corporation ("HDS"), all of which have been accounted for using the
pooling-of-interests method of accounting. All periods present the operations of
Medaphis Services Corporation ("Hospital Services") and Impact Innovations Group
("Impact"), which primarily consists of Rapid Systems and BSG, as discontinued
operations. Hospital Services was sold in 1998 and Impact was sold in 1999 as
part of management's plan to divest non-core business operations.
YEAR ENDED DECEMBER 31,
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2000 1999 1998 1997 1996
-------- -------- --------- -------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENTS OF OPERATIONS DATA
Revenue......................... $310,008 $322,129 $ 349,823 $392,420 $ 400,451
Salaries and wages.............. 193,952 212,940 226,894 242,228 247,204
Other operating expenses........ 94,364 104,192 126,183 123,094 130,007
Depreciation.................... 15,562 20,177 23,848 22,481 20,266
Amortization.................... 10,125 9,293 18,077 21,069 21,382
Interest expense, net........... 14,525 16,102 23,494 23,398 11,585
Goodwill and client lists
impairment................... -- -- 390,641 -- --
Process improvement project..... 501 -- -- -- --
Litigation settlements.......... 1,147 24,811 35,987 52,500 --
Non-recurring, restructuring and
other expenses............... 2,382 -- 5,191 16,741 119,434
Income tax (benefit) expense.... (695) (610) 58,465 (16,568) (49,783)
Loss from continuing
operations................... (21,855) (64,776) (558,957) (92,523) (99,644)
Net loss(1)..................... (48,202)(3) (33,702) (560,214)(4) (19,303)(5) (137,337)
Pro forma net loss(2)........... (48,202) (33,702) (560,214) (19,303) (136,358)
Weighted average shares
outstanding.................. 29,852 28,097 25,673 24,226 23,742
PER SHARE DATA
Pro forma basic loss from
continuing operations........ $ (0.74) $ (2.31) $ (21.77) $ (3.82) $ (4.20)
Pro forma basic net loss(2)..... $ (1.62) $ (1.20) $ (21.82) $ (0.80) $ (5.74)
AS OF DECEMBER 31,
---------------------------------------------------------
2000 1999 1998 1997 1996
-------- --------- -------- -------- --------
(IN THOUSANDS)
BALANCE SHEET DATA
Working capital.................. $ 27,179 $ 93,304 $ 86,215 $ 64,522 $ 23,708
Intangible assets................ 72,695 46,446 48,241 459,129 477,545
Total assets..................... 214,126 265,017 286,721 847,145 901,997
Total debt....................... 175,000 177,138 176,080 200,691 271,424
Stockholders' (deficit) equity... (44,136)(3) 1,440 2,323 501,781 508,525
- ---------------
(1) Reflects the income (loss) from discontinued operations of $3.4 million, $
(0.1) million, $(0.7) million and $(37.7) million for 1999, 1998, 1997 and
1996, respectively, and the gain on sale of discontinued operations of $11.3
million in 2000, $27.7 million in 1999 and $7.2 million in 1998.
10
13
(2) In 1996, the Company acquired Intelligent Visual Computing ("IVC"), Rapid
Systems and BSG in merger transactions accounted for as
poolings-of-interests. Prior to the mergers, IVC, Rapid Systems and a
company acquired by BSG prior to the Company's merger with BSG had elected
"S" corporation status for income tax purposes. As a result of the mergers
(or, in the case of the company acquired by BSG, its acquisition by BSG),
such entities terminated their "S" corporation elections. Pro forma net loss
and pro forma net loss per common share are presented in the consolidated
statements of operations as if each of these entities had been a "C"
corporation during the period presented.
(3) Reflects a $37.7 million charge for the change in accounting for revenue
pursuant to Staff Accounting Bulletin Number 101, Revenue Recognition in
Financial Statements ("SAB 101") and the corresponding increase in the
Company's deferred tax valuation allowance.
(4) Reflects an $8.4 million extraordinary charge for the early extinguishment
of debt.
(5) Reflects extraordinary income of $76.4 million related to the sale of
Healthcare Recoveries, Inc. ("HRI") and a $2.5 million charge for the change
in accounting for business process reengineering costs incurred in
connection with an information technology project, pursuant to Emerging
Issues Task Force Consensus No. 97-13, Accounting for Costs Incurred in
Connection with a Consulting or an Internal Project that Combines Business
Process Reengineering and Information Technology.
11
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
2000 compared to 1999
REVENUE. Revenue classified by the Company's reportable segments is as
follows:
YEAR ENDED DECEMBER 31,
------------------------
2000 1999
---------- ----------
(IN THOUSANDS)
Physician Services.......................................... $225,102 $240,200
Application Software........................................ 60,635 62,145
e-Health Solutions.......................................... 35,276 31,343
Eliminations................................................ (11,005) (11,559)
-------- --------
$310,008 $322,129
======== ========
Revenue for the Physician Services segment decreased 6% in 2000 compared to
1999. The revenue decline is primarily attributable to Company and
client-initiated discontinuances throughout 1999 and 2000. Client
discontinuances initiated by the Company are a result of management's ongoing
review and evaluation of marginally profitable clients that yield returns
unacceptable to management. These discontinuances are partially offset by the
addition of new business in 2000 and 1999.
Revenue for the Application Software segment decreased 2% from 1999 to
2000. The slight decline in revenue is primarily attributable to decreased
consulting revenue due to fewer conversion services being performed related to
the date change to the year 2000. The decrease in consulting revenue is
partially offset by an increase in recurring maintenance revenue due to an
increase in the customer base.
e-Health Solutions revenue increased 13% in 2000 as compared with 1999. The
increase is primarily attributable to an increase in current customer volume in
the Company's electronic statement processing center.
OPERATING PROFIT (LOSS). Operating profit (loss), which excludes
non-recurring, restructuring and other expenses, process improvement project
expenses, litigation settlements, goodwill and client lists impairment and net
interest expense, classified by the Company's different operating segments is as
follows:
YEAR ENDED DECEMBER 31,
------------------------
2000 1999
---------- ----------
(IN THOUSANDS)
Physician Services.......................................... $ 4,267 $ (5,541)
Application Software........................................ 2,859 (1,071)
e-Health Solutions.......................................... 3,401 (190)
Corporate................................................... (14,522) (17,671)
-------- --------
$ (3,995) $(24,473)
======== ========
Physician Services experienced a growth in operating profit. In 2000, the
segment had an operating profit of $4.3 million for the year ended December 31,
2000 as compared to an operating loss of $5.5 million for the year ended
December 31, 1999. The improvement is attributable to workforce reductions,
process improvements and productivity enhancements.
Application Software experienced a growth in operating profit. In 2000, the
segment had an operating profit of $2.9 million compared to a loss of $1.1
million in 1999. The improvement in operating profit is attributable to
management's continued focus on cost containment, specifically in the areas of
salaries and wages, outside services, travel and marketing expenses, as well as
other operational improvements.
The year 2000 was e-Health Solutions' first full year of operation as a
separate, externally-focused business segment and the segment experienced a
growth in operating profit. The increase in operating profit is attributable to
the previously mentioned revenue increase while operational expenses remained
constant.
12
15
The Company's corporate overhead costs decreased by 18% to $14.5 million in
2000 compared to $17.7 million in 1999. The reduction is primarily related to
management's efforts to create more efficient processes and reduce overhead
costs where feasible.
INTEREST. Net interest expense was $14.5 million for the year ended
December 31, 2000 as compared to $16.1 million in the same period in 1999. The
decrease is primarily related interest income of $3.8 million generated from the
short-term investment of cash.
PROCESS IMPROVEMENT PROJECT. The Company incurred $0.5 million of expense
in the period ended December 31, 2000 for a process improvement project within
the Physician Services segment. The process improvement project is an effort to
improve productivity in the Physician Services processing centers. In the fourth
quarter of 2000, the project produced a formalized set of productivity and
quality measures, workflow processes as well as a management operating system
within one of the processing centers which served as the project's pilot. The
Company plans to implement the improvement measures in other processing centers
throughout 2001 and into 2002.
LITIGATION SETTLEMENTS. In December 2000, the Company recorded an
estimated litigation settlement expense of $1.1 million related to a lawsuit
that was pending against Medical Management Sciences, Inc. ("MMS") when the
Company acquired MMS in December 1995, but which was not resolved until December
2000. In February 2001, the Company paid the full amount of the net award of
$1.2 million.
In June 1999, the Company recorded an estimated litigation settlement
liability of $21.5 million related to the Company's legal dispute with
Foundation Health Services, Inc. ("Foundation"), formerly Health Systems
International, Inc., arising from Per-Se's June 1996 acquisition of Health Data
Sciences Corporation ("HDS"). The estimated liability was based upon an
agreement in principle with Foundation. When the agreement was finalized in
October 1999, the cost to the Company was reduced to $17.0 million and, as a
result, the litigation settlement liability was reduced by $4.4 million.
Also in June 1999, the Company recorded litigation settlement expenses of
$6.0 million related to litigation arising from Per-Se's December 1995
acquisition of MMS. In addition, the Company paid $1.8 million to settle
contract claims against the Company's wholly-owned operating subsidiary, PST
Emergency Medicine Services, Inc. (formerly known as Gottlieb's Financial
Services, Inc. or GFS) (the "Emergency Medicine" division) which arose in
January 1998 in the ordinary course of business.
NON-RECURRING, RESTRUCTURING AND OTHER EXPENSES. In December 2000, the
Company recorded $1.4 million of non-recurring expenses related to e-Health
Solutions' retirement of a software product that will be replaced by a superior
software product at Health Data Services, Inc. and Patient Account Management
Services, Inc. ("HDS/PAMS"), companies acquired by Per-Se in December 2000. In
connection with the retirement of the software product, the Company also
recorded $0.4 million of severance for approximately 20 employees associated
with the retired software product that had been notified of their termination.
In addition, the Company recorded a net expense of $0.6 million for the
period ended December 31, 2000 for severance costs associated with former
executive management. The expense includes a $0.3 million reduction of a prior
period severance cost associated with former executive management.
In 1999, the Company reevaluated the adequacy of its reserves for lease
termination costs established in prior periods. As a result of this evaluation,
the Company increased its lease termination reserve for Physician Services by
$0.3 million and reduced Application Software's lease termination reserve by
$0.3 million.
INCOME TAXES. As of December 31, 1999 and 2000, the Company reassessed the
recoverability of its deferred tax asset. Based on its analysis, the Company
determined a full valuation allowance of $247.1 million against the deferred tax
asset was required as of December 31, 2000. The increase in the valuation
allowance from December 31, 1999 is primarily related to the elimination of the
Company's unbilled accounts receivable (see Cumulative Effect of Accounting
Change discussion below) and as such, $15.0 million was recorded against the
cumulative effect of accounting change. The increase was offset by an adjustment
to the Company's net operating loss carryforwards ("NOLs") based on 1999 actual
tax returns. When it becomes
13
16
more likely than not that the Company will generate sufficient taxable income to
realize the deferred tax asset, the Company will adjust this valuation allowance
accordingly.
DISCONTINUED OPERATIONS. Summarized financial information for the
discontinued operations for the year ended December 31, 1999 is as follows:
FOR THE YEAR ENDED
DECEMBER 31, 1999
------------------
IMPACT
------------------
(IN THOUSANDS)
Revenue..................................................... $54,916
=======
Income from discontinued operations before taxes............ 3,958
Income tax expense.......................................... 555
-------
Income from discontinued operations, net of tax............. $ 3,403
=======
In 1998, management initiated a plan to focus the Company's financial and
management resources on its three core healthcare segments in an effort to
return the Company to profitability. Management defined these segments as:
Physician Services, Application Software and e-Health Solutions. Management
began to seek alternatives for the remaining non-core business segments:
Medaphis Services Corporation ("Hospital Services") and Impact Innovations Group
("Impact"). Although Hospital Services provided business management and accounts
receivable management services to approximately 1,200 hospitals, the Company's
management deemed the segment non-core as a substantial portion of the services
offered was bad debt collection. Impact was deemed non-core as it did not
provide consulting services to the healthcare industry. The results of
operations for Hospital Services and Impact have been classified as discontinued
operations for all periods presented.
On November 30, 1998, the Company completed the sale of Hospital Services
to NCO Group, Inc. ("NCO") for initial consideration of $107.5 million. During
the first quarter of 1999, the Company received additional consideration of $0.8
million based on the Hospital Services final closing balance sheet and payment
on certain Hospital Services accounts receivable retained by the Company. The
additional consideration resulted in the recognition of an additional gain of
$0.5 million, net of tax of $0.3 million.
In addition, the Company received a purchase price adjustment of $10.0
million cash from NCO on May 5, 2000 based on Hospital Services' achievement of
various operational targets in 1999. The purchase price adjustment resulted in
the recognition of an additional gain of approximately $9.2 million in the
quarter ended June 30, 2000.
In 1999, the Company completed the sale of both divisions of Impact. The
Company sold the commercial division of Impact to Complete Business Solutions,
Inc. ("CBSI") effective April 15, 1999 for $14.4 million, net of the final
closing balance sheet adjustment of $0.6 million which was paid on July 16,
1999. Final CBSI post acquisition matters were resolved in the third quarter of
2000 resulting in an additional charge to discontinued operations of $0.4
million. The government division of Impact was sold on December 17, 1999 to J3
Technology Services Corp. for $46.5 million, including a purchase price
adjustment of $1.5 million received on March 30, 2000 based on the division's
tangible net worth at closing. The purchase price adjustment resulted in the
recognition of an additional gain of $1.5 million.
The Company accrued $5.3 million for the period ended September 30, 1999 as
a result of an agreement with SCI Management Corporation ("SCI"), a former
client of the commercial division of Impact. SCI filed a complaint against the
commercial division of Impact in January of 1998 seeking recovery for alleged
damages in connection with work performed by Impact under a consulting contract.
Although the commercial division of Impact was sold effective April 15, 1999,
the Company remained responsible for the SCI complaint. The Company paid $3.2
million to SCI on November 4, 1999. The Company issued a promissory note for the
balance of $2.1 million bearing interest at 8.25%, which was paid on October 31,
2000. This matter is now settled.
14
17
CUMULATIVE EFFECT OF ACCOUNTING CHANGE. On December 3, 1999, the
Securities and Exchange Commission (the "Commission") issued Staff Accounting
Bulletin Number 101, Revenue Recognition in Financial Statements ("SAB 101").
SAB 101 summarizes certain of the Commission's views in applying generally
accepted accounting principles to revenue recognition in financial statements.
SAB 101 provides interpretative guidance on the unbilled accounts receivable and
related revenue recognition within the Company's industry. Therefore, consistent
with the Commission's guidance and changing industry practice, the Company began
recognizing revenue in its Physician Services segment on an "as billed" basis
January 1, 2000. The Company does not expect this change to significantly impact
annual recognized revenue amounts. There is no effect on cash flow resulting
from this change.
The change in accounting method resulted in the elimination of $37.7
million of unbilled accounts receivable. The one-time, cumulative non-cash
expense in the Company's statement of operations for the year ended December 31,
2000 reflects the $22.7 million elimination of the unbilled accounts receivable
on a net of tax basis and a corresponding $15.0 million increase in the
Company's deferred tax valuation allowance.
1999 compared to 1998
REVENUE. Revenue classified by the Company's reportable segments is as
follows:
YEAR ENDED DECEMBER 31,
------------------------
1999 1998
---------- ----------
(IN THOUSANDS)
Physician Services.......................................... $240,200 $264,323
Application Software........................................ 62,145 70,849
e-Health Solutions.......................................... 31,343 25,886
Eliminations................................................ (11,559) (11,235)
-------- --------
$322,129 $349,823
======== ========
Revenue for the Physician Services segment decreased 9% in 1999 compared to
1998. The decline in revenue was primarily attributable to client
discontinuances during the last quarter of 1998 and throughout 1999. The decline
was partially offset by the addition of new business in both periods.
The decrease in Application Software's revenue of 12% from 1998 to 1999 was
primarily attributable to percentage-of-completion accounting initiated in 1999
and lower clinical systems and scheduling products sales in 1999.
Percentage-of-completion accounting initially delays software revenue
recognition over the implementation period.
e-Health Solutions revenue increased by 21% in 1999 compared to 1998. This
increase was a result of greater internal and external claims processing.
Approximately $3.1 million, or 57%, of this increase was attributable to
increases in volume in the Company's statement processing center. Approximately
$1.9 million, or 35%, of the revenue increase resulted from electronic claims
processed for Physician Services clients.
OPERATING LOSS. Operating loss, which excludes non-recurring,
restructuring and other expenses, litigation settlements, goodwill and client
lists impairment and net interest expense, classified by the Company's different
operating segments is as follows:
YEAR ENDED DECEMBER 31,
------------------------
1999 1998
---------- ----------
(IN THOUSANDS)
Physician Services.......................................... $ (5,541) $(12,608)
Application Software........................................ (1,071) (8,932)
e-Health Solutions.......................................... (190) (912)
Corporate................................................... (17,671) (22,727)
-------- --------
$(24,473) $(45,179)
======== ========
15
18
Operating loss for the Physician Services segment decreased 56% to $5.5
million in 1999 compared to $12.6 million in 1998. The decrease was primarily
attributable to the following: (i) decrease in depreciation expense due to
assets becoming fully depreciated, (ii) decrease in amortization expense due to
the goodwill and client lists impairment charge in 1998 and (iii) a gain on the
sale of an unprofitable portion of the Physician Services' emergency medicine
services operations.
Application Software's 1999 operating loss was 88% lower than in 1998. The
decrease was primarily the result of increases to the allowance for doubtful
accounts recognized in 1998 and lower salaries and wages expense in 1999.
The operating loss for e-Health Solutions in 1999 was 79% lower than in
1998 primarily due to the previously mentioned increase in revenue.
The Company's corporate overhead costs decreased by 22% to $17.7 million in
1999 compared to $22.7 million in 1998. This reduction was primarily related to
management's continued commitment to reduce operating costs while improving
process efficiency. For the year ended 1998, certain corporate overhead expenses
of $6.8 million and $2.6 million have been reclassified to the Physician
Services segment and the Application Software segment, respectively.
INTEREST. Net interest expense was $16.1 million for the year ended
December 31, 1999 compared to $23.5 million in the same period in 1998. The
decrease was primarily related to less debt outstanding and $2.4 million of
interest income of generated from the short-term investment of cash.
GOODWILL AND CLIENT LISTS IMPAIRMENT. At September 30, 1998, the Company
recorded a goodwill and client lists impairment charge of $390.6 million to
adjust the goodwill and client lists of the Physician Services segment to their
fair value. Management regularly monitors its results of operations and other
developments within the industry to adjust its cash flow forecast, as necessary,
to determine if an adjustment is necessary to the carrying value of the
Company's intangible assets.
LITIGATION SETTLEMENTS. In June 1999, the Company recorded an estimated
litigation settlement liability of $21.5 million related to the Company's legal
dispute with Foundation, formerly Health Systems International, Inc., arising
from Per-Se's June 1996 acquisition of HDS. The estimated liability was based
upon an agreement in principle with Foundation. When the agreement was finalized
in October 1999, the cost to the Company was reduced to $17.0 million and as a
result, the litigation settlement liability was reduced by $4.4 million.
Also in June 1999, the Company accrued litigation settlement charges of
$6.0 million related to litigation arising from Per-Se's December 1995
acquisition of MMS. In addition, the Company paid $1.8 million to settle
contract claims against the Company's Emergency Medicine division that arose in
January 1998 in the ordinary course of business.
The Company accrued $19.5 million during the third quarter of 1998 as a
result of its resolution of two federal investigations into billing and
collection practices of the Company's Physician Services segment.
In June 1998, the Company accrued an estimated litigation settlement
liability of $21.3 million associated with claims made on behalf of certain
former BSG Corporation ("BSG") shareholders in connection with Per-Se's
acquisition of BSG in June 1996. Such liability was estimated based upon a
proposed settlement of approximately 1.1 million shares of Common Stock. This
settlement was subsequently finalized for 1.7 million shares of Common Stock,
and, based on the prevailing market price, the settlement was valued at $15.9
million. A reduction to litigation settlements totaling approximately $5.4
million was recorded in the fourth quarter of 1998 to reflect the final
settlement value.
NON-RECURRING, RESTRUCTURING AND OTHER EXPENSES. In 1999, the Company
reevaluated the adequacy of its reserves for lease termination costs established
in prior periods. As a result of this evaluation, the Company increased its
lease termination reserve for Physician Services by $0.3 million and reduced
Application Software's lease termination reserve by $0.3 million.
16
19
In December 1998, management of Application Software adopted a plan to
restructure its operations to align Application Software's resources more
appropriately with future operational needs and new product development. In
order to accomplish these objectives, Application Software's executive
management terminated approximately 35 employees, primarily in the areas of
professional services and research and development, and recorded severance costs
of approximately $1.3 million.
Exclusive of the restructuring expenses discussed above, other expenses
aggregated approximately $3.9 million in 1998. The primary components of the
1998 charges were: (i) $0.7 million in non-cash property and equipment
impairment expenses associated with certain properties held for sale; (ii) $2.0
million in legal costs associated with various lawsuits and investigations; and
(iii) $1.2 million of severance costs, primarily related to former executive
officers.
INCOME TAXES. During 1999 and 1998, the Company reassessed the
recoverability of its deferred tax asset. Based on its analysis, the Company
recorded a full valuation allowance against the net deferred tax asset in both
years. If, during future periods, management believes the Company will generate
sufficient taxable income to realize the deferred tax asset, the Company will
adjust this valuation reserve accordingly.
DISCONTINUED OPERATIONS. Summarized financial information for the
discontinued operations for the years ended December 31, 1999 and 1998 is as
follows:
FOR THE YEAR ENDED DECEMBER 31,
------------------------------------------
1999 1998
------- -------------------------------
HOSPITAL
IMPACT SERVICES IMPACT TOTAL
------- -------- ------- --------
(IN THOUSANDS)
Revenue................................... $54,916 $100,081 $79,731 $179,812
======= ======== ======= ========
Income (loss) from discontinued operations
before taxes............................ 3,958 5,192 (5,263) (71)
Income tax expense (benefit).............. 555 2,079 (2,079) --
------- -------- ------- --------
Income (loss) from discontinued
operations,
net of tax.............................. $ 3,403 $ 3,113 $(3,184) $ (71)
======= ======== ======= ========
EXTRAORDINARY ITEM. In February 1998, the Company used the proceeds from
the February 1998 issuance of the Notes (see Liquidity and Capital Resources)
and the 1998 Credit Facility to redeem the Company's then-current debt facility.
In November 1998, the Company used $71.5 million of the $103.2 million net
proceeds received from the sale of Hospital Services to repay and terminate the
1998 Credit Facility. The Company recorded extraordinary charges in 1998 of $8.4
million, net of tax of $3.8 million, to write-off the unamortized costs
associated with the early extinguishment of both the Company's previous debt
facility and the 1998 Credit Facility.
LIQUIDITY AND CAPITAL RESOURCES
The Company had working capital of $27.2 million at December 31, 2000,
including $31.0 million of unrestricted cash and cash equivalents. The $43.4
million decrease in unrestricted cash and cash equivalents from December 31,
1999 is primarily the result of the acquisition of HDS/PAMS, other investments
in the Company's operations, payments related to a legal matter resolved in 1999
with deferred payment terms, the final payment for the resolution of SCI
litigation and the payment of semi-annual interest payments required under the
Notes described below.
On February 20, 1998, the Company issued $175 million of 9 1/2% Senior
Notes due 2005 (the "Notes") which bear interest at the rate of 9 1/2% per
annum, payable semi-annually on February 15 and August 15, commencing on August
15, 1998, and which will mature on February 15, 2005. The Notes are redeemable
at the option of the Company, in whole or in part, at any time on or after
February 15, 2002, at a declining premium to par until 2004 and at par
thereafter, plus accrued and unpaid interest.
17
20
Payment of principal, premium, if any, and interest on the Notes is fully
and unconditionally guaranteed, on a senior unsecured basis, jointly and
severally by all of the Company's present and future domestic restricted
subsidiaries (the "Subsidiary Guarantors"). The financial statements of the
Subsidiary Guarantors have not been presented as all subsidiaries have provided
guarantees and the parent company does not have any significant operations or
assets, separate from its investment in subsidiaries. Any non-guarantor
subsidiaries are insignificant individually and in the aggregate to the
consolidated financial statements.
The Company completed its divestiture of non-core operations in December
1999. The Company sold Hospital Services on November 30, 1998 for $103.2 million
in net proceeds. In February 1999, the Company received additional proceeds of
$0.5 million based on Hospital Services' tangible net worth at closing. In
addition, Per-Se received a purchase price adjustment of $10.0 million from NCO
in May 2000 based on Hospital Services' achievement of various operational
targets in 1999.
The Company sold the commercial division of Impact effective April 15, 1999
for $14.4 million, net of the final closing balance sheet adjustment of $0.6
million that was paid on July 16, 1999. The Company sold the government division
of Impact on December 17, 1999 for approximately $46.5 million, including a
purchase price adjustment of $1.5 million based on the divisions' tangible net
worth at closing.
Under the Indenture governing the Notes, the balance of net proceeds, as
defined, from the sale of Hospital Services, the two divisions of Impact or the
sale of any other asset having a fair value in excess of $1.0 million, must be
invested in the Company's business within 360 days of receipt of proceeds
related to the sale. The Company may use the net proceeds for capital
expenditures, to acquire long-term assets, to repay debt and/or to acquire a
controlling interest in another company. To the extent that such net proceeds
are not invested within 360 days, such amount constitutes "excess proceeds." If
the aggregate of excess proceeds is greater than $10.0 million, the Company is
required to offer to repurchase the Notes at par with such excess proceeds.
As of December 31, 2000, excess proceeds related to the sale of non-core
operations and other assets totaled approximately $26.4 million. The excess
proceeds are the result of various asset sales and, as such, these proceeds must
be invested in the Company's business at varying points in time during 2001. The
Company must invest a minimum of approximately $9.4 million by April 30, 2001 to
preclude the Company's obligation to make an offer of $19.4 million to
repurchase the Notes at par during the third quarter of 2001.
The degree to which the Company is leveraged could have the following
consequences: (i) the Company's ability to obtain additional financing in the
future for working capital, capital expenditures, acquisitions or other general
corporate purposes may be impaired; and (ii) a substantial portion of the
Company's cash flow from operations may be dedicated to the payment of principal
and interest on its indebtedness thereby reducing the funds available to the
Company for its operations. In addition, the Indenture for the Notes contains
restrictive covenants, including without limitation those restricting the
incurrence of additional indebtedness, the creation of liens, the payment of
dividends and sales of assets.
The Company believes that its current cash flow is sufficient to permit the
Company to meet its operating expenses, service its debt requirements as they
become due in the next twelve months and for the long-term and to invest in the
business; however, there can be no assurance that such results will be achieved.
If the Company is unable to service its indebtedness, it will be required to
adopt alternative strategies, which may include actions such as reducing or
delaying capital expenditures, selling assets, restricting or refinancing its
indebtedness or seeking additional equity capital. There can be no assurance
that any of these strategies could be effected on satisfactory terms.
FACTORS THAT MAY AFFECT FUTURE RESULTS OF OPERATIONS, FINANCIAL CONDITION OR
BUSINESS
As discussed under the caption "Forward-Looking Statements" in Item 1,
Per-Se provides the following risk factor disclosures in connection with its
continuing efforts to qualify its written and oral forward-looking statements
for the safe harbor protection of the Reform Act and any other similar safe
harbor provisions.
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21
Important factors currently known to management that could cause actual results
to differ materially from those in forward-looking statements include, but are
not limited to, the following:
Competition with Business Management Outsourcing Services Companies and
In-house Providers
The business management outsourcing business, especially surrounding the
areas of billings and collections, is highly competitive. The Company competes
with regional physician and hospital reimbursement organizations, national
information and data processing organizations, and physician groups and
hospitals that provide their own business management services. Successful
competition within this industry is dependent on numerous industry and market
conditions.
Potential industry and market changes that could adversely affect the
Company's ability to compete for business management outsourcing services
include an increase in the number of managed care providers compared to
fee-for-service providers, and new alliances between healthcare providers and
third-party payers in which healthcare providers are employed by such
third-party payers.
Competition with Information Technology Companies
The business of providing application software, information technology and
consulting services is also highly competitive. The Company competes with
national and regional companies in this regard. Some competitors have longer
operating histories and greater financial, technical and marketing resources
than that of the Company. The Company's successful competition within this
industry is dependent on numerous industry and market conditions.
Major Client Projects
The Company's application software business involves projects designed to
reengineer customer operations through the strategic use of imaging,
client/server and other advanced technologies. Failure to meet customers'
expectations with respect to a major project could, possibly, have the following
consequences: damage the Company's reputation and standing in this marketplace;
impair its ability to attract new client/server information technology business;
and inhibit its ability to collect for services performed on a project.
Changes in the Healthcare Industry
The markets for the Company's software and e-commerce products and services
as well as our business management outsourcing services are characterized by
rapidly changing technology, evolving industry standards and frequent new
product introductions. The Company's ability to keep pace with changes in the
healthcare industry may be dependent on a variety of factors, including its
ability to enhance existing products and services; introduce new products and
services quickly and cost effectively; achieve market acceptance for new
products and services; and respond to emerging industry standards and other
technological changes.
Competitors may develop competitive products that could adversely affect
the Company's operating results. It is possible that the Company will be
unsuccessful in refining, enhancing and developing our software and billing
systems going forward. The costs associated with refining, enhancing and
developing our software and billing systems may increase significantly in the
future. Existing software and technology may become obsolete as a result of
ongoing technological developments in the marketplace.
Consolidation in the Marketplace
In general, consolidation initiatives in the healthcare marketplace may
result in fewer potential customers for the Company's services. Some of these
types of initiatives include employer initiatives such as creating purchasing
cooperatives (HMOs); provider initiatives, such as risk-sharing among healthcare
providers and managed care companies through capitated contracts; and
integration among hospitals and physicians into comprehensive delivery systems.
19
22
Continued consolidation of management and billing services through
integrated delivery systems may result in a decrease in demand for the Company's
business management outsourcing services for particular physician practices.
Government Regulations
As discussed in Item 1 under the captions "Healthcare Industry" and
"Regulation," the healthcare industry is highly regulated and is subject to
changing political, economic and regulatory influences. For example, the
Balanced Budget Act contains significant changes to Medicare and Medicaid and
began to have its initial impact in 1998 due to limitations on reimbursement,
resulting in cost containment initiatives, and effects on pricing and demand for
capital-intensive systems. These factors affect the purchasing practices and
operations of healthcare organizations. Federal and state legislatures have
periodically considered programs to reform or amend the U.S. healthcare system
at both the federal and state level and to change healthcare financing and
reimbursement systems. These programs may contain proposals to increase
governmental involvement in healthcare, lower reimbursement rates or otherwise
change the environment in which healthcare industry participants operate.
Current or future government regulations or healthcare reform measures may
affect our business. Healthcare industry participants may respond by reducing
their investments or postponing investment decisions, including investments in
the Company's products and services.
Medical billing and collection activities are governed by numerous federal
and state civil and criminal laws. Federal and state regulators increasingly use
these laws to investigate healthcare providers and companies that provide
billing and collection services. In connection with these laws, the Company may
be subjected to federal or state government investigations and possible
penalties may be imposed upon the Company, false claims actions may have to be
defended, private payers may file claims against the Company, and the Company
may be excluded from Medicare, Medicaid and/or other government funded
healthcare programs.
In the past, the Company has been the subject of federal investigations,
and it may become the subject of false claims litigation or additional
investigations relating to its billing and collection activities. Any such
proceeding or investigation could have a material adverse effect on the
Company's business.
The final HIPAA rules for the standards for electronic transactions and
standards of privacy of individually identifiable health information were
published in 2000 with an implementation deadline of October 2002. These rules
set new or higher standards for the healthcare industry as to handling
healthcare transactions and information and will require changes to the manner
in which the industry handles such information. One of the most contentious
areas of further HIPAA reform is in the area of privacy and security.
Currently in the area of privacy and security of health information,
numerous federal and state civil and criminal laws govern the collection, use,
storage and disclosure of health information. Penalties for noncompliance, both
criminal and civil, may be brought by federal or state governments. Persons who
believe their health information has been misused or disclosed improperly may
bring claims and payers who believe instances of noncompliance with privacy and
security standards have occurred may bring administrative sanctions or remedial
actions against offending parties.
Passage of HIPAA is part of a wider healthcare reform initiative. The
Company expects that healthcare reform will continue to be widely debated. The
Company also expects that the federal government as well as state governments
will pass laws and issue regulations addressing healthcare issues and
reimbursement of healthcare providers. The Company cannot predict whether new
legislation and regulations will be enacted and, if enacted, whether such new
developments will affect its business.
Debt
The Company has a significant amount of long-term indebtedness and, as a
result, obligations to make interest payments on that debt. If unable to make
the required debt payments, the Company could be required to reduce or delay
capital expenditures, sell certain assets, restructure or refinance its
indebtedness or seek additional equity capital. The Company's ability to make
payments on its debt obligations will depend on
20
23
future operating performance, which will be affected by certain conditions that
are beyond the Company's control.
Litigation
The Company is involved in litigation arising in the ordinary course of its
business, which may expose it to loss contingencies. These matters include, but
are not limited to, claims brought by former customers with respect to the
operation of our business. The Company has also received written demands from
customers and former customers that have not yet resulted in legal action. Many
of the Company's software products provide data for use by healthcare providers
in providing care to patients. Although no claims have been brought against the
Company to date regarding injuries related to the use of its products, such
claims may be made in the future.
The Company may not be able to successfully resolve such legal matters, or
other legal matters that may arise in the future. In the event of an adverse
outcome with respect to such legal matters or other legal matters in which the
Company may become involved, there is the risk that its insurance coverage,
product liability coverage or otherwise, may not fully cover any damages
assessed against the Company. Although the Company maintains all insurance
coverage in amounts that it believes are sufficient for its business, there can
be no assurance that such coverage will prove to be adequate or that such
coverage will continue to remain available on acceptable terms, if at all. A
successful claim brought against the Company, which is uninsured or
under-insured, could materially harm its business, results of operations or
financial condition.
Stock Price Volatility
The trading price of the Company's Common Stock may be volatile. The market
for the Company's Common Stock may experience significant price and volume
fluctuations in response to a number of factors including actual or anticipated
quarterly variations in operating results, changes in expectations of future
financial performance or changes in estimates of securities analysts, government
regulatory action, healthcare reform measures, client relationship developments
and other factors, many of which are beyond the Company's control. Furthermore,
the stock market in general and the market for software, healthcare and high
technology companies in particular, has experienced extreme volatility that
often has been unrelated to the operating performance of particular companies.
These broad market and industry fluctuations may adversely affect the trading
price of the Company's Common Stock, regardless of actual operating performance.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's Consolidated Financial Statements appear beginning at page
F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item with respect to directors and
executive officers of the Registrant, except certain information regarding
executive officers which is contained in Part I of this Report pursuant to
General Instruction G of this Form 10-K, is included in the sections entitled
"Management of the Company" and "Compliance with Section 16(a) of the Securities
Exchange Act of 1934" of the Proxy Statement for the Annual Meeting of
Stockholders to be held on May 3, 2001, and is incorporated herein by reference.
21
24
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is included in the sections entitled
"Certain Information Regarding Executive Officers," "Compensation Committee
Report on Executive Compensation," "Compensation Committee Interlocks and
Insider Participation" and "Stock Price Performance Graph" of the Proxy
Statement for the Annual Meeting of Stockholders to be held on May 3, 2001, and
is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is included in the sections entitled
"Management Common Stock Ownership" and "Principal Stockholders" of the Proxy
Statement for the Annual Meeting of Stockholders to be held on May 3, 2001, and
is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is included in the section entitled
"Certain Relationships and Related Transactions" of the Proxy Statement for the
Annual Meeting of Stockholders to be held on May 3, 2001, and is incorporated
herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)1. Financial Statements
Report of Independent Accountants;
Consolidated Balance Sheets -- as of December 31, 2000 and 1999;
Consolidated Statements of Operations -- years ended December 31,
2000, 1999 and 1998;
Consolidated Statements of Cash Flows -- years ended December 31,
2000, 1999 and 1998;
Consolidated Statements of Stockholders' (Deficit) Equity -- years
ended December 31, 2000, 1999 and 1998; and
Notes to Consolidated Financial Statements.
2. Financial Statement Schedules
Included in Part IV of the report:
Report of Independent Accountants on Financial Statement Schedule;
Schedule II -- Valuation and Qualifying Accounts -- years ended
December 31, 2000, 1999 and 1998
Schedules, other than Schedule II, are omitted because of the absence
of the conditions under which they are required.
22
25
3. Exhibits
The following list of exhibits includes both exhibits submitted with this
Form 10-K as filed with the Commission and those incorporated by reference to
other filings:
EXHIBIT
NUMBER DOCUMENT
- ------- --------
2.1 -- Stock Purchase Agreement dated as of October 15, 1998,
between Registrant and NCO Group, Inc. (incorporated by
reference to Exhibit 2.1 to Quarterly Report on Form 10-Q
for the quarter ended September 30, 1998).
2.2 -- Stock Purchase Agreement dated as of April 20, 1999, among
Complete Business Solutions, Inc., E-Business Solutions.com,
Inc., Impact Innovations Holdings, Inc. and Registrant
(incorporated by reference to Exhibit 2.1 to Current Report
on Form 8-K filed on May 5, 1999).
2.3 -- Stock Purchase Agreement dated as of November 4, 1999, among
J3 Technology Services Corp., Impact Innovations Holdings,
Inc., Impact Innovations Government Group, Inc. and
Registrant (incorporated by reference to Exhibit 2.3 to
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1999).
2.4 -- Stock Purchase Agreement dated as of December 8, 2000, among
Registrant, Health Data Services, Inc., Patient Account
Management Services, Inc., and Marc Saltzberg, Raymond
DelBrocco, Charles Moore, and Larry Shaw (incorporated by
reference to Exhibit 2.1 to Current Report on Form 8-K filed
on December 20, 2000).
3.1 -- Restated Certificate of Incorporation of Registrant
(incorporated by reference to Exhibit 3.1 to Annual Report
on Form 10-K for the year ended December 31, 1999 (the "1999
Form 10-K")).
3.2 -- Restated By-laws of Registrant (incorporated by reference to
Exhibit 3.2 to the 1999 Form 10-K).
4.1 -- Specimen Common Stock Certificate (incorporated by reference
to Exhibit 4.1 to the 1999 Form 10-K).
4.2 -- Form of Option Agreement relating to Registrant's Second
Amended and Restated Non-Qualified Stock Option Plan
(incorporated by reference to Exhibit 4.2 to the 1999 Form
10-K).
4.3 -- Form of Option Agreement relating to Registrant's
Non-Qualified Stock Option Plan for Employees of Acquired
Companies (incorporated by reference to Exhibit 4.4 to
Registration Statement on Form S-3, File No. 33-71552).
4.4 -- Form of Option Agreement relating to Registrant's
Non-Employee Director Stock Option Plan (incorporated by
reference to Exhibit 4.5 to the 1999 Form 10-K).
4.5 -- Form of Option Agreement relating to Registrant's
Non-Qualified Stock Option Plan for Non-Executive Employees
(incorporated by reference to Exhibit 4.6 to the 1999 Form
10-K).
4.6 -- Form of Option Agreement relating to Registrant's Restricted
Stock Plan (incorporated by reference to Exhibit 4.5 to
Annual Report on Form 10-K for the year ended December 31,
1995 (the "1995 Form 10-K")).
4.7 -- Indenture dated as of February 20, 1998, among Registrant,
as Issuer, the Subsidiary Guarantors named in the Indenture
and State Street Bank and Trust Company, as Trustee
(including form of note) (incorporated by reference to
Exhibit 10.3 to Current Report on Form 8-K filed on March 3,
1998).
4.8 -- Warrant Agreement dated as of July 8, 1998, between
Registrant and SunTrust Bank, Atlanta, as Warrant Agent
(including form of warrant certificate) (incorporated by
reference to Exhibit 4.2 to Registration Statement on Form
8-A filed on July 21, 1998).
23
26
EXHIBIT
NUMBER DOCUMENT
- ------- --------
4.9 -- Rights Agreement dated as of February 11, 1999, between
Registrant and American Stock Transfer & Trust Company
(including form of rights certificates) (incorporated by
reference to Exhibit 4 to Current Report on Form 8-K filed
on February 12, 1999).
4.10 -- First Amendment to Rights Agreement dated as of February 11,
1999, between Registrant and American Stock Transfer & Trust
Company, entered into as of May 4, 2000 (incorporated by
reference to Exhibit 4.4 to Quarterly Report of Form 10-Q
for the quarter ended March 31, 2000).
10.1 -- Second Amended and Restated Per-Se Technologies, Inc.
Non-Qualified Stock Option Plan (incorporated by reference
to Exhibit 10.1 to the 1999 Form 10-K).
10.2 -- First Amendment to Second Amended and Restated Per-Se
Technologies, Inc. Non-Qualified Stock Option Plan
(incorporated by reference to Exhibit 10.45 to the 1999 Form
10-K).
10.3 -- Registrant's Non-Qualified Stock Option Plan for Employees
of Acquired Companies (incorporated by reference to Exhibit
99.1 to Registration Statement on Form S-8, File No.
33-67752).
10.4 -- First Amendment to Registrant's Non-Qualified Stock Option
Plan for Employees of Acquired Companies (incorporated by
reference to Exhibit 99 to Registration Statement on Form
S-8, File No. 33-71556).
10.5 -- Second Amendment to Registrant's Non-Qualified Stock Option
Plan for Employees of Acquired Companies (incorporated by
reference to Exhibit 99 to Registration Statement on Form
S-8, File No. 33-88442).
10.6 -- Third Amendment to Registrant's Non-Qualified Stock Option
Plan for Employees of Acquired Companies (incorporated by
reference to Exhibit 10.14 to the 1995 Form 10-K).
10.7 -- Fourth Amendment to Registrant's Non-Qualified Stock Option
Plan for Employees of Acquired Companies (incorporated by
reference to Exhibit 99.2 to Registration Statement on Form
S-8, File No. 333-3213).
10.8 -- Fifth Amendment to Registrant's Non-Qualified Stock Option
Plan for Employees of Acquired Companies (incorporated by
reference to Exhibit 99.1 to Registration Statement on Form
S-8, File No. 333-07627).
10.9 -- Sixth Amendment to Registrant's Non-Qualified Stock Option
Plan for Employees of Acquired Companies (incorporated by
reference to Exhibit 10.21 to Annual Report on Form 10-K for
the year ended December 31, 1996 (the "1996 Form 10-K")).
10.10 -- Seventh Amendment to Registrant's Non-Qualified Stock Option
Plan for Employees of Acquired Companies (incorporated by
reference to Exhibit 10.23 to Annual Report on Form 10-K for
the year ended December 31, 1998 (the "1998 Form 10-K")).
10.11 -- Eighth Amendment to Registrant's Non-Qualified Stock Option
Plan For Employees of Acquired Companies (incorporated by
reference to Exhibit 10.12 to the 1999 Form 10-K).
10.12 -- Ninth Amendment to Registrant's Non-Qualified Stock Option
Plan For Employees of Acquired Companies.
10.13 -- Registrant's Non-Employee Director Stock Option Plan, dated
as of August 12, 1994 (incorporated by reference to Exhibit
10.2 to Quarterly Report on Form 10-Q for the quarter ended
September 30, 1994).
10.14 -- First Amendment to Registrant's Non-Employee Director Stock
Option Plan (incorporated by reference to Exhibit 10.25 to
the 1998 Form 10-K).
10.15 -- Second Amendment to Registrant's Non-Employee Director Stock
Option Plan (incorporated by reference to Exhibit 10.1 to
Quarterly Report on Form 10-Q for the quarter ended March
31, 1999).
24
27
EXHIBIT
NUMBER DOCUMENT
- ------- --------
10.16 -- Third Amendment to Registrant's Non-Employee Director Stock
Option Plan (incorporated by reference to Exhibit 10.16 to
the 1999 Form 10-K).
10.17 -- Fourth Amendment to Registrant's Non-Employee Director Stock
Option Plan (incorporated by reference to Exhibit 10.46 to
the 1999 Form 10-K).
10.18 -- Registrant's Non-Qualified Stock Option Plan for
Non-Executive Employees (incorporated by reference to
Exhibit 10.23 to the 1996 Form 10-K).
10.19 -- First Amendment to Registrant's Non-Qualified Stock Option
Plan for Non-Executive Employees (incorporated by reference
to Exhibit 10.24 to the 1996 Form 10-K).
10.20 -- Second Amendment to Registrant's Non-Qualified Stock Option
Plan for Non-Executive Employees (incorporated by reference
to Exhibit 10.25 to Annual Report on Form 10-K for the year
ended December 31, 1997 (the "1997 Form 10-K")).
10.21 -- Third Amendment to Registrant's Non-Qualified Stock Option
Plan for Non-Executive Employees (incorporated by reference
to Exhibit 10.26 to the 1997 Form 10-K).
10.22 -- Fourth Amendment to Registrant's Non-Qualified Stock Option
Plan for Non-Executive Employees (incorporated by reference
to Exhibit 10.27 to the 1997 Form 10-K).
10.23 -- Fifth Amendment to Registrant's Non-Qualified Stock Option
Plan for Non-Executive Employees (incorporated by reference
to Exhibit 10.28 to the 1997 Form 10-K).
10.24 -- Sixth Amendment to Registrant's Non-Qualified Stock Option
Plan for Non-Executive Employees (incorporated by reference
to Exhibit 10.32 to the 1998 Form 10-K).
10.25 -- Seventh Amendment to Registrant's Non-Qualified Stock Option
Plan for Non-Executive Employees (incorporated by reference
to Exhibit 10.24 to the 1999 Form 10-K).
10.26 -- Eighth Amendment to Registrant's Non-Qualified Stock Option
Plan for Non-Executive Employees.
10.27 -- Restricted Stock Plan of the Registrant, dated as of August
12, 1994 (incorporated by reference to Exhibit 10.2 to
Registration Statement on Form S-4, File No. 33-88910).
10.28 -- The Per-Se Technologies Employees' Retirement Savings Plan
(incorporated by reference to Exhibit 10.26 to the 1999 Form
10-K).
10.29 -- First Amendment to the Per-Se Technologies Employees'
Retirement Savings Plan.
10.30 -- Retirement Savings Trust (incorporated by reference to
Exhibit 10.10 to Registration Statement on Form S-1, File
No. 33-42216).
10.31 -- Registrant's Deferred Compensation Plan (incorporated by
reference to Exhibit 99 to Registration Statement on Form
S-8, Registration No. 33-90874).
10.32 -- First Amendment to Registrant's Deferred Compensation Plan
(incorporated by reference to Exhibit 10.2 to Quarterly
Report on Form 10-Q for the quarter ended September 30,
1997).
10.33 -- Second Amendment to Registrant's Deferred Compensation Plan
(incorporated by reference to Exhibit 10.3 to Quarterly
Report on Form 10-Q for the quarter ended September 30,
1997).
10.34 -- Third Amendment to Registrant's Deferred Compensation Plan
(incorporated by reference to Exhibit 10.76 to the 1997 Form
10-K).
10.35 -- Fourth Amendment to Registrant's Deferred Compensation Plan
(incorporated by reference to Exhibit 10.32 to the 1999 Form
10-K).
10.36 -- Fifth Amendment to Registrant's Deferred Compensation Plan.
10.37 -- Written description of Registrant's Non-Employee Director
Compensation Plan (incorporated by reference to Exhibit 10.4
to Quarterly Report on Form 10-Q for the quarter ended
September 30, 1997).
25
28
EXHIBIT
NUMBER DOCUMENT
- ------- --------
10.38 -- Registrant's Non-Employee Director Deferred Stock Credit
Plan (incorporated by reference to Exhibit 10.5 to Quarterly
Report on Form 10-Q for the quarter ended September 30,
1997).
10.39 -- Registrant's Long Term Incentive Plan (incorporated by
reference to Exhibit 10.3 to Quarterly Report on Form 10-Q
for the quarter ended September 30, 1998).
10.40 -- Employment Agreement dated November 19, 1996, between
Registrant and David E. McDowell (incorporated by reference
to Exhibit 10.49 to the 1996 Form 10-K).
10.41 -- Amendment Number 1 to Employment Agreement between
Registrant and David E. McDowell, dated October 20, 1999
(incorporated by reference to Exhibit 10.37 to the 1999 Form
10-K).
10.42 -- Employment Agreement dated as of November 13, 2000, between
Registrant and Philip M. Pead.
10.43 -- Employment Agreement dated April 14, 2000, between
Registrant and Chris E. Perkins.
10.44 -- Amendment Number 1 to Employment Agreement between
Registrant and Chris E. Perkins, dated as of February 7,
2001.
10.45 -- Employment Agreement dated January 30, 1998, between
Registrant and William Dagher.
10.46 -- Employment Agreement dated June 5, 1998, between Registrant
and Frank B. Murphy.
10.47 -- Corporate Integrity Agreement between the Office of the
Inspector General of the Department of Health and Human
Services and Registrant (incorporated by reference to
Exhibit 10.4 to Quarterly Report on Form 10-Q for the
quarter ended September 30, 1998).
10.48 -- Employment Agreement dated as of March 22, 2001, between
Registrant and Karen B. Andrews.
21 -- Subsidiaries of Registrant.
23.1 -- Consent of PricewaterhouseCoopers LLP.
- ---------------
* The exhibits, which are referenced in the above documents, are hereby
incorporated by reference. Such exhibits have been omitted for purposes of
this filing but will be furnished supplementary to the Commission upon
request.
(b) Reports on Form 8-K
One report on Form 8-K was filed during the quarter ended December 31,
2000:
FINANCIAL
STATEMENTS
ITEM REPORTED FILED DATE OF REPORT
- ------------- ---------- --------------
Registrant's stock purchase of all of the issued and
outstanding shares of capital stock of Health Data
Services, Inc. and its affiliate company, Patient Account
Management Services, Inc. on December 8, 2000............. No December 20, 2000
26
29
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Per-Se Technologies, Inc.
(Registrant)
By: /s/ CHRIS E. PERKINS
------------------------------------
Chris E. Perkins
Executive Vice President and
Chief Financial Officer
/s/ MARY C. BLACKADAR
------------------------------------
Mary C. Blackadar
Vice President and Controller
(Principal Accounting Officer)
Date: March 23, 2001
27
30
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
March 23, 2001 /s/ DAVID E. MCDOWELL
-----------------------------------------------------
David E. McDowell
Chairman and Director
March 23, 2001 /s/ PHILIP M. PEAD
-----------------------------------------------------
Philip M. Pead
President, Chief Executive Officer and Director
March 23, 2001 /s/ CHRIS E. PERKINS
-----------------------------------------------------
Chris E. Perkins
Executive Vice President and Chief Financial Officer
March 23, 2001 /s/ MARY C. BLACKADAR
-----------------------------------------------------
Mary C. Blackadar
Vice President and Controller (Principal Accounting
Officer)
March 23, 2001 /s/ RODERICK M. HILLS
-----------------------------------------------------
Roderick M. Hills
Director
March 23, 2001 /s/ DAVID R. HOLBROOKE, M.D.
-----------------------------------------------------
David R. Holbrooke, M.D.
Director
March 23, 2001 /s/ KEVIN E. MOLEY
-----------------------------------------------------
Kevin E. Moley
Director
March 23, 2001 /s/ JOHN C. POPE
-----------------------------------------------------
John C. Pope
Director
March 23, 2001 /s/ C. CHRISTOPHER TROWER
-----------------------------------------------------
C. Christopher Trower
Director
28
31
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Per-Se Technologies, Inc.:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, stockholders' (deficit) equity and cash
flows present fairly, in all material respects, the financial position of Per-Se
Technologies, Inc. and its subsidiaries (the "Company") at December 31, 2000 and
1999, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 2000 in conformity with accounting
principles generally accepted in the United States of America. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
Atlanta, Georgia
February 5, 2001
F-1
32
PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PAR VALUE DATA)
DECEMBER 31,
---------------------
2000 1999
--------- ---------
Current Assets:
Cash:
Cash and cash equivalents.............................. $ 30,970 $ 74,354
Restricted cash........................................ 7,352 7,519
--------- ---------
Total cash........................................ 38,322 81,873
Accounts receivable, billed (less allowances of $7,635 and
$11,613, respectively)................................. 53,309 46,097
Accounts receivable, unbilled (less allowances of $4,338
and $2,888, respectively).............................. 5,786 42,813
Other..................................................... 5,793 7,394
--------- ---------
Total current assets.............................. 103,210 178,177
Property and equipment, net................................. 32,813 34,103
Intangible assets, net...................................... 72,695 46,446
Other....................................................... 5,408 6,291
--------- ---------
$ 214,126 $ 265,017
========= =========
Current Liabilities:
Accounts payable.......................................... $ 11,002 $ 10,005
Accrued compensation...................................... 18,652 21,842
Accrued expenses.......................................... 21,712 26,449
Accrued litigation settlements............................ 1,602 4,043
Current portion of long-term debt......................... -- 2,138
--------- ---------
52,968 64,477
Deferred revenue.......................................... 23,063 20,396
--------- ---------
Total current liabilities......................... 76,031 84,873
Long-term debt.............................................. 175,000 175,000
Other obligations........................................... 7,231 3,704
--------- ---------
Total liabilities................................. 258,262 263,577
--------- ---------
Commitments and contingencies (Notes 10 and 11)
Stockholders' (Deficit) Equity:
Preferred stock, no par value, 20,000 authorized; none
issued................................................. -- --
Common stock, voting, $0.01 par value, 200,000 authorized,
29,902 and 29,575 issued and outstanding as of December
31, 2000 and 1999, respectively........................ 299 296
Common stock, non-voting, $0.01 par value, 600 authorized;
none issued............................................ -- --
Paid-in capital........................................... 774,603 771,864
Warrants.................................................. 1,495 1,495
Accumulated deficit....................................... (820,533) (772,215)
--------- ---------
Total stockholders' (deficit) equity.............. (44,136) 1,440
--------- ---------
$ 214,126 $ 265,017
========= =========
See notes to consolidated financial statements.
F-2
33
PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31,
-------------------------------
2000 1999 1998
-------- -------- ---------
Revenue..................................................... $310,008 $322,129 $ 349,823
-------- -------- ---------
Salaries and wages.......................................... 193,952 212,940 226,894
Other operating expenses.................................... 94,364 104,192 126,183
Depreciation................................................ 15,562 20,177 23,848
Amortization................................................ 10,125 9,293 18,077
Interest expense, net....................................... 14,525 16,102 23,494
Goodwill and client lists impairment........................ -- -- 390,641
Process improvement project................................. 501 -- --
Litigation settlements...................................... 1,147 24,811 35,987
Non-recurring, restructuring and other expenses............. 2,382 -- 5,191
-------- -------- ---------
Total expenses.................................... 332,558 387,515 850,315
-------- -------- ---------
Loss before income taxes.................................... (22,550) (65,386) (500,492)
Income tax (benefit) expense................................ (695) (610) 58,465
-------- -------- ---------
Loss from continuing operations............................. (21,855) (64,776) (558,957)
-------- -------- ---------
Discontinued operations, net of tax:
Income (loss) from discontinued operations............. -- 3,403 (71)
Gain on sale of subsidiaries........................... 11,337 27,671 7,214
-------- -------- ---------
11,337 31,074 7,143
-------- -------- ---------
Loss before extraordinary item and cumulative effect of
accounting change......................................... (10,518) (33,702) (551,814)
Extraordinary item, net of tax.............................. -- -- (8,400)
Cumulative effect of accounting change, net of tax.......... (37,684) -- --
-------- -------- ---------
Net loss.......................................... $(48,202) $(33,702) $(560,214)
======== ======== =========
Basic net (loss) income per share:
Loss from continuing operations........................ $ (0.74) $ (2.31) $ (21.77)
Income from discontinued operations, net of tax........ 0.38 1.11 0.28
Extraordinary item, net of tax......................... -- -- (0.33)
Cumulative effect of accounting change, net of tax..... (1.26) -- --
-------- -------- ---------
Net loss............................................... $ (1.62) $ (1.20) $ (21.82)
======== ======== =========
Weighted average shares outstanding......................... 29,852 28,097 25,673
======== ======== =========
See notes to consolidated financial statements.
F-3
34
PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEAR ENDED DECEMBER 31,
-------------------------------
2000 1999 1998
-------- -------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................... $(48,202) $(33,702) $(560,214)
Adjustments to reconcile net loss to net cash used for
operating activities:
(Income) loss from discontinued operations................ -- (3,403) 71
Depreciation and amortization............................. 25,687 29,470 41,925
Gain on sale of subsidiaries.............................. (11,337) (27,997) (12,229)
Goodwill and client lists impairment loss................. -- -- 390,641
Impairment loss (gain) on long-lived assets............... 1,185 (4,772) 681
Cumulative effect of accounting change.................... 37,684 -- --
Non-cash litigation settlement costs...................... -- 16,433 --
Early extinguishment of debt.............................. -- -- 12,145
Deferred income taxes..................................... -- -- 58,465
Changes in assets and liabilities, excluding effects of
acquisitions and divestitures:
Restricted cash......................................... (1,002) (572) (2,504)
Accounts receivable, billed............................. (5,834) 8,703 13,800
Accounts receivable, unbilled........................... (503) 3,863 13,471
Accounts payable........................................ 760 1,455 (514)
Accrued compensation.................................... (3,207) 608 (5,392)
Accrued expenses........................................ (6,650) (6) (3,712)
Accrued litigation settlements.......................... (2,441) (11,971) 32,639
Deferred revenue........................................ 2,667 2,107 2,124
Other, net.............................................. 2,477 820 6,966
-------- -------- ---------
Net cash used for continuing operations................. (8,716) (18,964) (11,637)
Net cash (used for) provided by discontinued
operations........................................... (2,100) (2,942) 5,240
-------- -------- ---------
Net cash used for operating activities............. (10,816) (21,906) (6,397)
-------- -------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions, net of cash acquired.......................... (25,193) (32) (670)
Purchases of property and equipment......................... (18,801) (10,418) (23,789)
Net proceeds from sale of subsidiaries...................... 11,337 47,986 103,204
Proceeds from sale of property and equipment................ 5,658 12,003 915
Software development costs.................................. (6,137) (7,498) (4,515)
-------- -------- ---------
Net cash (used for) provided by investing
activities....................................... (33,136) 42,041 75,145
-------- -------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of stock............................. 298 920 1,447
Proceeds from the exercise of stock options................. 379 217 5,688
Proceeds from borrowings.................................... -- -- 386,969
Payments of debt............................................ (38) (1,042) (410,712)
Deferred financing/debt issuance costs...................... (71) (285) (12,460)
-------- -------- ---------
Net cash provided by (used for) financing
activities....................................... 568 (190) (29,068)
-------- -------- ---------
CASH AND CASH EQUIVALENTS:
Net change.................................................. (43,384) 19,945 39,680
Balance at beginning of period.............................. 74,354 54,409 14,729
-------- -------- ---------
Balance at end of period.................................... $ 30,970 $ 74,354 $ 54,409
======== ======== =========
See notes to consolidated financial statements.
F-4
35
PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' (DEFICIT) EQUITY
(IN THOUSANDS)
COMMON PREFERRED TREASURY
COMMON STOCK PREFERRED STOCK PAID-IN ACCUMULATED STOCK
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT WARRANTS AMOUNT
------- ------ --------- --------- -------- ----------- -------- --------
BALANCE AT DECEMBER 31,
1997.................... 73,204 $ 732 -- $ -- $678,998 $(177,949) $ -- $ --
Issuance of common
stock................... 272 3 -- -- 1,444 -- -- --
Exercise of stock
options................. 1,242 12 -- -- 5,582 (49) -- 143
Funding of litigation
settlements............. 3,985 40 -- -- 53,587 -- -- (70)
Net loss.................. -- -- -- -- -- (560,214) -- --
Other..................... 42 -- -- -- 403 (178) -- (161)
------- ----- -- ------ -------- --------- ------ -----
BALANCE AT DECEMBER 31,
1998.................... 78,745 787 -- -- 740,014 (738,390) -- (88)
Issuance of common
stock................... 316 3 -- -- 917 -- -- --
Exercise of stock
options................. 159 2 -- -- 215 -- -- --
Funding of litigation
settlements............. 9,500 95 -- -- 30,131 -- 1,495 --
Reverse 1 for 3 stock
split (see Note 12)..... (59,151) (591) -- -- 567 -- -- --
Net loss.................. -- -- -- -- -- (33,702) -- --
Other..................... 6 -- -- -- 20 (123) 88
------- ----- -- ------ -------- --------- ------ -----
BALANCE AT DECEMBER 31,
1999.................... 29,575 296 -- -- 771,864 (772,215) 1,495 --
Issuance of common
stock................... 42 -- -- -- 298 -- -- --
Issuance of common stock
in acquisitions......... 236 2 -- -- 1,998 -- -- --
Exercise of stock
options................. 48 1 -- -- 378 -- -- --
Net loss.................. -- -- -- -- -- (48,202) -- --
Other..................... 1 -- -- -- 65 (116)
------- ----- -- ------ -------- --------- ------ -----
BALANCE AT DECEMBER 31,
2000.................... 29,902 $ 299 -- $ -- $774,603 $(820,533) $1,495 $ --
======= ===== == ====== ======== ========= ====== =====
TOTAL
STOCKHOLDERS'
(DEFICIT) EQUITY
----------------
BALANCE AT DECEMBER 31,
1997.................... $ 501,781
Issuance of common
stock................... 1,447
Exercise of stock
options................. 5,688
Funding of litigation
settlements............. 53,557
Net loss.................. (560,214)
Other..................... 64
---------
BALANCE AT DECEMBER 31,
1998.................... 2,323
Issuance of common
stock................... 920
Exercise of stock
options................. 217
Funding of litigation
settlements............. 31,721
Reverse 1 for 3 stock
split (see Note 12)..... (24)
Net loss.................. (33,702)
Other..................... (15)
---------
BALANCE AT DECEMBER 31,
1999.................... 1,440
Issuance of common
stock................... 298
Issuance of common stock
in acquisitions......... 2,000
Exercise of stock
options................. 379
Net loss.................. (48,202)
Other..................... (51)
---------
BALANCE AT DECEMBER 31,
2000.................... $ (44,136)
=========
See notes to consolidated financial statements.
F-5
36
PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION. The consolidated financial statements include the
accounts of Per-Se Technologies, Inc. and its subsidiaries ("Per-Se" or the
"Company"). All significant intercompany transactions have been eliminated.
Certain amounts in the prior years' consolidated financial statements have been
reclassified to conform to the current year presentation. Per-Se completed the
sale of Medaphis Services Corporation ("Hospital Services") in 1998 and Impact
Innovations Group ("Impact") in 1999. The results of these segments are
classified as discontinued operations for all periods presented. See Note 3 for
further discussion of the Company's discontinued operations.
NATURE OF OPERATIONS. Per-Se provides business management outsourcing
services, clinical and financial software applications and connectivity with
business intelligence to the healthcare industry, primarily in the United
States. The Company historically has not experienced any significant losses
related to individual clients, classes of clients or groups of clients in any
geographical area.
USE OF ESTIMATES. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from those estimates.
REVENUE RECOGNITION. Fees for the Company's business management
outsourcing services are primarily based on a percentage of net collections on
clients' patient accounts, and revenue is recognized as payment for such
business management outsourcing services is received. Accounts receivable,
billed, represents amounts invoiced to clients. Accounts receivable, unbilled,
represented amounts recognized for services rendered but not yet invoiced and
was based on the Company's estimate of the fees that would be invoiced when
collections on patient accounts were received. Effective January 1, 2000, the
Company's Physician Services segment no longer recognized accounts receivable,
unbilled (see Cumulative Effect of Accounting Change below).
For software license sales where no significant contractual obligations
remain outstanding, the Company recognizes revenue upon shipment. For contracts
under which the Company is required to make significant production, modification
or customization changes, revenue from software licenses is recognized using the
percentage-of-completion method over the implementation period. Where services
are considered essential to the functionality of the arrangement, the software
license is recognized over the implementation period using the
percentage-of-completion method. When the Company receives payment prior to
shipment or fulfillment of significant vendor obligations, such payments are
recorded as deferred revenue and are recognized as revenue upon shipment or
fulfillment of significant vendor obligations. The license agreements typically
provide for partial payments upon shipment; such terms result in an unbilled
receivable at the date the revenue is recognized. Revenue from software
implementation services is recognized as the services are performed. Software
maintenance payments received in advance are deferred and recognized ratably
over the term of the maintenance agreement, which is typically one year.
Revenue from systems integration contracts is recorded based on the terms
of the underlying contracts, which are primarily time and material or fixed
price contracts. Revenue from time and material type contracts is recognized as
services are rendered and costs are incurred based on contractual rates. Revenue
from fixed price contracts is recorded using the percentage-of-completion
method. Anticipated losses, if any, are charged to operations in the period that
such losses are determined. Revenue for which customers have not yet been
invoiced is reflected as unbilled accounts receivable in the accompanying
consolidated balance sheets.
CASH AND CASH EQUIVALENTS. Cash and cash equivalents include all highly
liquid investments with an initial maturity of no more than three months.
F-6
37
PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
RESTRICTED CASH. As of December 31, 2000, restricted cash principally
represents restrictions on $5.3 million of the Company's cash as security for
certain of the Company's letters of credit. The remaining balance represents
amounts collected on behalf of certain clients, a portion of which is held in
trust until remitted to such clients, and amounts held in escrow.
PROPERTY AND EQUIPMENT. Property and equipment, including equipment under
capital leases, are stated at cost, less accumulated depreciation. Depreciation
is computed using the straight line method over the estimated useful lives of
the assets, generally ten years for furniture and fixtures, three to ten years
for equipment and twenty years for buildings.
INTANGIBLE ASSETS. Intangible assets are composed principally of goodwill,
client lists and software development costs.
Goodwill and Client Lists. Goodwill represents the excess of the cost of
the businesses acquired over the fair value of net identifiable assets at the
date of the acquisition and is amortized over its estimated useful life using
the straight-line method. The Company is amortizing its goodwill over its
remaining useful life of four to twenty years and its client lists over their
remaining estimated eight-year period of benefit.
The Company monitors events and changes in circumstances that could
indicate the carrying amounts of the intangible assets may not be recoverable.
When events or changes in circumstances are present that indicate the carrying
amount of intangible assets may not be recoverable, the Company assesses the
recoverability of the intangible assets by determining whether the carrying
value of such intangible assets will be recovered through undiscounted expected
future cash flows. Should the Company determine that the carrying values of
specific intangible assets are not recoverable, as was the case during 1998, the
Company would record a charge to reduce the carrying value of such assets to
their fair values. The Company determines fair value based on discounted
expected future cash flows during the period of benefit. See Note 7 where the
1998 impairment of intangibles assets is discussed. No impairment losses that
were related to goodwill or clients lists from continuing operations were
recorded in 2000 or 1999.
Software Development Costs. Intangible assets include software development
costs incurred in the development or the enhancement of software developed by
the Application Software and e-Health Solutions segments for resale. Software
development costs are capitalized upon the establishment of technological
feasibility for each product and capitalization ceases when the product or
process is available for general release to customers. Software development
costs are amortized using the straight-line method over the estimated economic
lives of the assets, which are generally three to five years.
In December 2000, the Company recorded $1.4 million of non-recurring
expenses related to the e-Health Solutions' retirement of a software product
that will be replaced by a superior software product at Health Data Services,
Inc. and its affiliate company, Patient Account Management Services, Inc.
("HDS/PAMS"), a company acquired by Per-Se in December 2000.
RESEARCH AND DEVELOPMENT COSTS. Research and development costs are
expensed as incurred. The Company recorded research and development costs of
approximately $7.4 million, $9.2 million and $10.8 million in 2000, 1999 and
1998, respectively.
STOCK-BASED COMPENSATION PLANS. The Company accounts for its stock-based
compensation plans under Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees ("APB No. 25"). In Note 14, the Company presents
the disclosure requirements of Statement of Financial Accounting Standards No.
123, Accounting for Stock-based Compensation ("SFAS No. 123"). SFAS No. 123
requires that companies which elect to not account for stock-based compensation
as prescribed by that statement shall disclose, among other things, the pro
forma effects on net income (loss) and basic net income (loss) per share as if
SFAS No. 123 had been adopted.
F-7
38
PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
LEGAL COSTS. The Company records charges for the legal and administrative
fees, costs and expenses and damages or settlements it anticipates incurring in
conjunction with its legal matters when management can reasonably estimate these
costs.
INCOME TAXES. Deferred income taxes are recognized for the tax
consequences of "temporary differences" between financial statement carrying
amounts and the tax bases of existing assets and liabilities. The measurement of
deferred tax assets and liabilities is predominantly determined by reference to
the tax laws and changes to such laws. Management includes the consideration of
future events in assessing the likelihood that tax benefits will be realized.
See Note 15 where the Company discusses the realizability of the deferred tax
assets.
BASIC NET LOSS PER COMMON SHARE. Basic net loss per common share is based
on the weighted average number of shares of common stock outstanding during the
period. Diluted net loss per common share is not presented as it is
antidilutive. Stock options and warrants are the only instruments issued that
would have been included in the pro forma diluted earnings per share
calculation.
CUMULATIVE EFFECT OF ACCOUNTING CHANGE. On December 3, 1999, the
Securities and Exchange Commission (the "Commission") issued Staff Accounting
Bulletin Number 101, Revenue Recognition in Financial Statements ("SAB 101").
SAB 101 summarizes certain of the Commission's views in applying generally
accepted accounting principles to revenue recognition in financial statements.
SAB 101 provides interpretative guidance on the unbilled accounts receivable and
related revenue recognition within the Company's industry. Therefore, consistent
with the Commission's guidance and changing industry practice, the Company began
recognizing revenue in its Physician Services segment on an "as billed" basis
January 1, 2000. The Company does not expect this change to significantly impact
annual recognized revenue amounts. There is no effect on cash flow resulting
from this change.
The change in accounting method resulted in the elimination of $37.7
million of unbilled accounts receivable. The one-time, cumulative non-cash
expense in the Company's statement of operations for the year ended December 31,
2000 reflects the $22.7 million elimination of the unbilled accounts receivable
on a net of tax basis and a corresponding $15.0 million increase in the
Company's deferred tax valuation allowance.
SEGMENT REPORTING. In June 1997, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards No. 131, Disclosures
about Segments of an Enterprise and Related Information ("SFAS No. 131"). SFAS
No. 131 establishes standards for the way companies report information about
operating segments including the related disclosures about products and
services. See Note where the Company discloses information about its
reportable segments.
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. In June 1998, the FASB
issued SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities. SFAS No. 133 requires companies to record derivatives as assets or
liabilities and measure those instruments at fair value. Gains or losses
resulting from changes in the values of those derivatives will be recorded
either in current earnings or as a component of comprehensive income. The
Company adopted SFAS No. 133 effective January 1, 2001. SFAS No. 133 will not
have a material effect on the Company's Consolidated Balance Sheet, Statement of
Operations or Statement of Cash Flows.
COMPREHENSIVE INCOME. On January 1, 1998, the Company adopted Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive Income. The
Company's net loss, as presented in the Consolidated Statements of Operations,
approximates the Company's other comprehensive income amount, as defined, for
all periods presented.
F-8
39
PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. ACQUISITIONS
On February 9, 2000, the Company acquired the outstanding capital stock of
Knowledgeable Healthcare Solutions, Inc. ("KHS") for consideration of $3.1
million, consisting of $1.1 million cash and approximately 236,000 shares, or
$2.0 million, of the Company's Common Stock. In addition, the purchase agreement
provides for a purchase price adjustment of up to $6.0 million, that was
recorded in December 2000, payable in cash and the Company's Common Stock,
should KHS meet certain operational targets over the next three years. KHS has
developed a managed care software product that is used by the Company to provide
business management services to numerous independent physician associations and
sold as turnkey software to healthcare payers and providers.
The KHS acquisition was recorded using the purchase method of accounting
and, accordingly, the purchase price has been allocated to the assets acquired
and the liabilities assumed based on their estimated fair market value at the
date of acquisition. Approximately $8.9 million of the purchase price has been
allocated to goodwill and will be amortized using the straight-line method over
five years. The operating results of KHS, which were not material to the
Company's operations, are included in the Company's Consolidated Statements of
Operations from the date of acquisition.
On December 8, 2000, the Company acquired all the issued and outstanding
shares of capital stock of HDS/PAMS for consideration of approximately $25
million. HDS/PAMS offer fully integrated electronic medical claims clearing and
other services for hospitals and integrated delivery networks.
The HDS/PAMS acquisition was recorded using the purchase method of
accounting and, accordingly, the purchase price has been allocated to the assets
acquired and the liabilities assumed based on their estimated fair market value
at the date of acquisition. Approximately $21 million of the purchase price has
been allocated to goodwill and will be amortized using the straight-line method
over twenty years. The operating results of HDS/PAMS, which were not material to
the Company's operations, are included in the Company's Consolidated Statements
of Operations from the date of acquisition.
3. DISCONTINUED OPERATIONS AND DIVESTITURES
In 1998, management initiated a plan to focus the Company's financial and
management resources on its three core healthcare segments in an effort to
return the Company to profitability. Management defined these segments as:
Physician Services, Application Software and e-Health Solutions. Management
began to seek alternatives for the remaining non-core business segments:
Medaphis Services Corporation ("Hospital Services") and Impact Innovations Group
("Impact"). Although Hospital Services provided business management and accounts
receivable management services to approximately 1,200 hospitals, the Company's
management deemed the segment non-core as a substantial portion of the services
offered was bad debt collection. Impact was deemed non-core as it did not
provide consulting services to the healthcare industry. Pursuant to APB No. 30,
Reporting the Results of Operations -- Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions, the consolidated financial statements of the Company
have been presented to reflect both Hospital Services and Impact as discontinued
operations for all periods presented.
On November 30, 1998, the Company completed the sale of Hospital Services
to NCO Group, Inc. ("NCO") for initial consideration of $107.5 million. During
the first quarter of 1999, the Company received additional consideration of $0.8
million based on the Hospital Services final closing balance sheet and payment
on certain Hospital Services accounts receivable retained by the Company. The
additional consideration resulted in the recognition of an additional gain of
$0.5 million, net of tax of $0.3 million.
In addition, the Company received a purchase price adjustment of $10.0
million from NCO on May 5, 2000 based on Hospital Services' achievement of
various operational targets in 1999. The purchase price
F-9
40
PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
adjustment resulted in the recognition of an additional gain of approximately
$9.2 million in the quarter ended June 30, 2000.
In 1999, the Company completed the sale of both divisions of Impact. The
Company sold the commercial division of Impact to Complete Business Solutions,
Inc. ("CBSI") effective April 15, 1999 for $14.4 million, net of the final
closing balance sheet adjustment of $0.6 million which was paid on July 16,
1999. Final CBSI post acquisition matters were resolved in the third quarter of
2000 resulting in an additional expense to discontinued operations of $0.4
million. The government division of Impact was sold on December 17, 1999 to J3
Technology Services Corp. for $46.5 million, including a purchase price
adjustment of $1.5 million received on March 30, 2000 based on the division's
tangible net worth at closing. The purchase price adjustment resulted in the
recognition of an additional gain of $1.5 million.
The Company accrued $5.3 million for the period ended September 30, 1999 as
a result of an agreement with SCI Management Corporation ("SCI"), a former
client of the commercial division of Impact. SCI filed a complaint against the
commercial division of Impact in January of 1998 seeking recovery for alleged
damages in connection with work performed by Impact under a consulting contract.
Although the commercial division of Impact was sold effective April 15, 1999,
the Company remained responsible for the SCI complaint. The Company paid $3.2
million to SCI on November 4, 1999. The Company issued a promissory note for the
balance of $2.1 million bearing interest at 8.25%, which was paid on October 31,
2000. This matter is now settled.
The net operating results of these segments have been reported in the
Consolidated Statements of Operations as "Income (loss) from discontinued
operations" and the net cash flows have been reported in the Consolidated
Statements of Cash Flows as "Net cash (used for) provided by discontinued
operations."
Summarized financial information for the discontinued operations is as
follows:
FOR THE YEAR ENDED DECEMBER 31,
------------------------------------------
1999 1998
------- -------------------------------
HOSPITAL
IMPACT SERVICES IMPACT TOTAL
------- -------- ------- --------
(IN THOUSANDS)
Revenue........................................... $54,916 $100,081 $79,731 $179,812
======= ======== ======= ========
Income (loss) from discontinued operations before
income taxes.................................... 3,958 5,192 (5,263) (71)
Income tax expense (benefit)...................... 555 2,079 (2,079) --
------- -------- ------- --------
Income (loss) from discontinued operations, net of
tax............................................. $ 3,403 $ 3,113 $(3,184) $ (71)
======= ======== ======= ========
4. NON-RECURRING, RESTRUCTURING AND OTHER EXPENSES
Components of non-recurring, restructuring and other expenses are as
follows:
2000 1999 1998
------ ---- ------
(IN THOUSANDS)
Restructuring expenses..................................... $ -- $-- $1,289
Property and equipment impairment.......................... -- -- 681
Legal costs................................................ -- -- 1,999
Severance costs............................................ 562 -- 1,222
Other...................................................... 1,820 -- --
------ --- ------
$2,382 $-- $5,191
====== === ======
F-10
41
PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Restructuring Expenses. In early 1995, the Company initiated a
reengineering program focused upon its billing and accounts receivable
management operations (the "Reengineering Project"). There were two components
of the Reengineering Project: (i) workflow, process and operational improvements
along with new technology development; and (ii) office consolidation within
Physician Services (the "Physician Services Restructuring Plan"). The Company
periodically reevaluates the adequacy of the reserves established for the
Physician Services Restructuring Plan and in 1999 recorded an additional expense
of $0.3 million for lease termination costs.
In 1997, the Company adopted a plan to combine the operations of its
software and consulting companies. In 1999, the Company revised its plan to
combine the operations of its software and consulting companies and reduced the
reserve for lease termination costs by $0.3 million.
In 1998, Application Software recorded approximately $1.3 million of
restructuring costs for severance when management decided to restructure its
operations to more appropriately align Application Software's resources with
future operational needs and new product development. The severance costs relate
to approximately 35 employees, primarily in the areas of professional services
and research and development, who had been notified of their termination.
A description of the type and amount of restructuring costs recorded at the
commitment date and subsequently incurred for all of the restructurings
discussed above is as follows:
RESERVE COSTS RESERVE COSTS RESERVE COSTS
BALANCE APPLIED BALANCE APPLIED BALANCE APPLIED
JANUARY 1, RESERVE AGAINST DECEMBER 31, AGAINST DECEMBER 31, RESERVE AGAINST
1998 ADJUSTMENTS RESERVE 1998 RESERVE 1999 ADJUSTMENTS RESERVE
---------- ----------- ------- ------------ ------- ------------ ----------- -------
Lease termination
costs.............. $5,455 $ -- $(1,163) $4,292 $ (764) $3,528 $ -- $(655)
Severance............ 158 1,289 (299) 1,148 (875) 273 (273) --
------ ------ ------- ------ ------- ------ ----- -----
$5,613 $1,289 $(1,462) $5,440 $(1,639) $3,801 $(273) $(655)
====== ====== ======= ====== ======= ====== ===== =====
RESERVE
BALANCE
DECEMBER 31,
2000
------------
Lease termination
costs.............. $2,873
Severance............ --
------
$2,873
======
The terminated leases have various expiration dates through 2005.
Property and Equipment Impairment. In 1998, the Company recorded an
expense of $0.7 million related to the write-down of certain properties held for
sale to their net realizable value.
Legal Costs. In 1998, the Company evaluated the adequacy of its reserves
for the legal and administrative fees, costs and expenses associated with
various legal matters and recorded a net charge of $2.0 million.
Severance Costs. In 2000 and 1998, the Company recorded net expenses of
$0.6 million and $1.2 million, respectively, for severance costs associated with
former executive management. In 2000, the expense includes a $0.3 million
reduction of a prior period severance cost associated with former executive
management.
Other. In December 2000, the Company recorded $1.4 million of
non-recurring expenses related to the e-Health Solutions' retirement of a
software product that will be replaced by a superior software product at
HDS/PAMS, a company acquired by Per-Se in December 2000. In connection with the
retirement of the software product, the Company also recorded $0.4 million of
severance for approximately 20 employees associated with the retired software
product that had been notified of their termination.
5. PROCESS IMPROVEMENT PROJECT
The Company incurred $0.5 million of expense in the period ended December
31, 2000 for a process improvement project within the Physician Services
segment. The process improvement project is an effort to improve productivity in
the Physician Services processing centers. In the fourth quarter of 2000, the
project produced a formalized set of productivity and quality measures, workflow
processes and a management
F-11
42
PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
operating system within one of the processing centers which served as the
project's pilot. The Company plans to implement the improvement measures in
other processing centers throughout 2001 and into 2002.
6. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
2000 1999
-------- --------
(IN THOUSANDS)
Land........................................................ $ 590 $ 1,790
Buildings................................................... 2,750 5,536
Furniture and fixtures...................................... 26,293 25,373
Equipment................................................... 114,611 102,844
Leasehold improvements...................................... 9,628 9,134
-------- --------
153,872 144,677
Less accumulated depreciation............................... 121,059 110,574
-------- --------
$ 32,813 $ 34,103
======== ========
7. INTANGIBLE ASSETS
Intangible assets consist of the following:
2000 1999
-------- -------
(IN THOUSANDS)
Goodwill.................................................... $ 42,401 $12,317
Client lists................................................ 39,681 39,681
Other....................................................... 769 --
Software development costs.................................. 49,718 44,814
-------- -------
132,569 96,812
Less accumulated amortization............................... 59,874 50,366
-------- -------
$ 72,695 $46,446
======== =======
At September 30, 1998, the Company recorded a goodwill and client lists
impairment charge of $390.6 million to adjust the goodwill and client lists of
the Physician Services segment to their fair value. Management regularly
monitors its results of operations and other developments within the industry to
adjust its cash flow forecast, as necessary, to determine if an adjustment is
necessary to the carrying value of the Company's intangible assets.
Expenditures on capitalized software development costs were approximately
$6.1 million, $7.5 million and $4.5 million in 2000, 1999 and 1998,
respectively. Amortization expense related to the Company's capitalized software
costs totaled $4.7 million, $4.5 million and $5.0 million in 2000, 1999 and
1998, respectively. The unamortized balance of software development costs at
December 31, 2000 and 1999 was $15.5 million and $14.8 million, respectively.
F-12
43
PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. ACCRUED EXPENSES
Accrued expenses consist of the following:
2000 1999
------- -------
(IN THOUSANDS)
Interest.................................................... $ 6,668 $ 6,264
Accrued restructuring and severance costs................... 1,450 2,331
Accrued legal costs......................................... 469 532
Accrued taxes............................................... 725 1,842
Funds due clients........................................... 1,710 3,419
Accrued costs of businesses acquired........................ 2,861 406
Other....................................................... 7,829 11,655
------- -------
$21,712 $26,449
======= =======
9. LONG-TERM DEBT
Long-term debt consists of the following:
2000 1999
-------- --------
(IN THOUSANDS)
9 1/2% Senior Notes due 2005 (the "Notes").................. $175,000 $175,000
Capital lease obligations, weighted average effective
interest rate of 8.7% in 1999............................. -- 38
Other....................................................... -- 2,100
-------- --------
175,000 177,138
Less current portion........................................ -- 2,138
-------- --------
$175,000 $175,000
======== ========
On February 20, 1998, the Company sold the Notes. The Notes bear interest
at the rate of 9 1/2% per annum, payable semi-annually on February 15 and August
15, which commenced on August 15, 1998 and will mature on February 15, 2005. The
Notes will be redeemable at the option of the Company, in whole or in part, at
any time on or after February 15, 2002, at a declining premium to par until 2004
and at par thereafter, plus accrued and unpaid interest.
Payment of principal, premium, if any, and interest on the Notes is fully
and unconditionally guaranteed, on a senior unsecured basis, jointly and
severally by all of the Company's present and future domestic restricted
subsidiaries (the "Subsidiary Guarantors"). The financial statements of the
Subsidiary Guarantors have not been presented as all subsidiaries, except for
certain insignificant foreign subsidiaries, have provided guarantees and the
parent company does not have any significant operations or assets, separate from
its investment in subsidiaries. Any non-guarantor subsidiaries are
inconsequential individually and in the aggregate to the consolidated financial
statements.
At December 31, 2000, the estimated fair value of the Notes is
approximately $131.3 million based on the quoted market price for these Notes.
The fair value of the Notes at December 31, 2000 is not necessarily indicative
of the cost to retire the Notes.
The Company entered into a $100 million credit facility (the "1998 Credit
Facility") on February 20, 1998. The Company used the proceeds from the offering
of the Notes, together with the initial borrowing under this 1998 Credit
Facility and available cash, to repay $210 million under a previous debt
facility plus accrued interest. The Company paid a quarterly commitment fee on
the unused portion of the 1998 Credit Facility ranging from 0.25% to 0.75% per
annum based on the Company's leverage ratio. On November 30,
F-13
44
PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1998, the Company used $71.5 million of the $103.2 million net proceeds received
from the sale of Hospital Services to repay and terminate the 1998 Credit
Facility. The Company recorded charges in 1998 of $8.4 million, net of tax of
$3.8 million, to write-off the unamortized costs associated with both the
Company's previous debt facility and the 1998 Credit Facility.
It is the Company's policy to amortize debt issuance costs using the
straight-line method over the life of the debt agreement. Amortization expense
related to debt issuance costs for the years ended 2000, 1999 and 1998 were $1.1
million, $1.2 million and $2.5 million, respectively.
The Company's capital leases consisted principally of leases for equipment.
As of December 31, 1999, the net book value of equipment subject to capital
leases totaled $0.1 million. As of December 31, 2000, the Company did not have
any capital leases.
The aggregate maturities of long-term debt are as follows (in thousands):
2001........................................................ $ --
2002........................................................ --
2003........................................................ --
2004........................................................ --
2005........................................................ 175,000
Thereafter.................................................. --
--------
$175,000
========
10. LEASE COMMITMENTS
The Company leases office space and equipment under noncancelable operating
leases, which expire at various dates through 2011. Rent expense was $17.5
million, $16.7 million and $15.3 million for the years ended December 31, 2000,
1999 and 1998, respectively.
Future minimum lease payments under noncancelable operating leases are as
follows (in thousands):
2001........................................................ $15,493
2002........................................................ 14,074
2003........................................................ 11,799
2004........................................................ 9,570
2005........................................................ 4,045
Thereafter.................................................. 6,908
-------
$61,889
=======
11. LEGAL MATTERS
SETTLED LEGAL MATTERS
In October 1999, the Company and Foundation Health Services, Inc.
("Foundation"), formerly Health Systems International, Inc., settled litigation
arising out of Per-Se's acquisition of Health Data Sciences Corporation ("HDS")
in June of 1996. Pursuant to the settlement, Foundation realized $25.0 million
from its investment in HDS, consisting of $3.6 million from the sale of 325,590
shares of Per-Se Common Stock received by Foundation in the June 1996 HDS
transaction, $4.6 million in cash funded by the Company's insurers, $5.0 million
in cash paid by the Company and $11.8 million from the October 1999 sale by
Foundation of 1,333,333 shares of Per-Se Common Stock issued to Foundation.
F-14
45
PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On June 24, 1999, the Company entered into a settlement agreement with the
former shareholders of Medical Management Sciences, Inc. ("MMS") related to
claims arising out of Per-Se's acquisition of MMS in December of 1995. The
litigation has been dismissed with prejudice. The settlement agreement provided
for the issuance by the Company to the MMS shareholders of 166,667 shares of
Common Stock and warrants to purchase an additional 166,667 shares of Common
Stock. In addition, the Company entered into a five-year consulting agreement
with Providence Management Corporation, a company controlled by a former MMS
shareholder, providing for a $300,000 up front payment and $150,000 a year for
the five-year term. The Company also paid the MMS shareholders $375,000 for the
MMS shareholders' interest in a legal malpractice claim.
On June 21, 1999, the Company finalized a settlement with the United States
government concerning its investigation of the Company's wholly-owned
subsidiary, PST Emergency Medicine Services, Inc. (the "Emergency Medicine
division"), formerly Gottlieb's Financial Services, Inc., requiring the Company
to pay to the United States and the various states a total of $15.0 million. The
Company paid $6.8 million to the United States on June 29, 1999, $1.2 million on
September 30, 1999, $2.2 million, in the aggregate, to the participating states
on October 1, 1999 and $1.2 million to the United States on December 31, 1999.
The balance of $3.6 million was paid in $0.9 million increments to the United
States on March 31, 2000, July 3, 2000, October 2, 2000 and January 2, 2001. The
interest rate on the deferred portion of the settlement payment was the one-year
Treasury Bill rate. All pending claims against the Company by the United States
and the Relator in underlying qui tam litigation have been dismissed with
prejudice and the United States has released the Company from all civil and
administrative claims arising out of the emergency room billing of government
programs services provided by the Emergency Medicine division from 1993 through
the date of the settlement agreement with the United States. The settlement
agreements with the participating states provide for the release of the Company
by the states of all civil and administrative claims arising out of the
emergency room billing services provided by the Emergency Medicine division from
1993 through the date of the settlement agreement with the individual state.
On June 16, 1999, the Company agreed to settle certain contract claims
arising out of a 1996 contract for emergency room billing services to be
provided by the Emergency Medicine division to Spectrum Healthcare, Inc.
("Spectrum") and Emcare, Inc. ("Emcare"), the successor to Spectrum's emergency
business. The Company paid Emcare $1.75 million in cash in exchange for a
release by Spectrum and Emcare of all claims against the Emergency Medicine
division for breach of contract.
On January 28, 1998, SCI Management Corporation ("SCI") filed a complaint
against BSG Alliance/ IT, Inc. (later known as Impact Innovations Group, Inc.)
seeking recovery for alleged damages in connection with work performed by the
commercial division of Impact under a consulting contract. The Company sold the
commercial division of Impact effective April 15, 1999 but retained
responsibility for this matter. The Company and SCI reached an agreement to
refund $5.3 million to SCI and on November 4, 1999, the Company paid $3.2
million to SCI and issued a promissory note for $2.1 million bearing interest at
8.25%, which was paid on October 31, 2000.
On January 8, 1997, the Commission notified the Company that it was
conducting a formal, non-public investigation into, among other things, former
officers and Company transactions including the restatements of the Company's
consolidated financial statements for the three months and year ended December
31, 1995 and its unaudited balance sheets as of March 31, 1996 and June 30,
1996. The Company cooperated with the Commission during its investigation. The
Company and the Commission staff entered into an Offer of Settlement and Consent
Order in June 2000, subject to approval by the Commission. On October 17, 2000,
the Commission approved the settlement and the Consent Order became final. In
the Consent Order, the Company, while neither admitting nor denying wrongdoing,
agreed not to violate certain of the federal securities laws, including books
and records requirements and filing requirements, in the future. The
F-15
46
PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Commission investigation was concluded by the Consent Order with no fines or
monetary impact on the Company.
In December 1995, the Company acquired MMS (now a part of the Company's
Physician Services segment). At acquisition, a lawsuit was pending against MMS
for the alleged breach of two related billing and asset purchase contracts
entered into by MMS in 1994. In November 1996, a jury in that lawsuit returned a
verdict that produced a net award to MMS of approximately $900,000. The trial
court reversed the net award to MMS and awarded the plaintiffs approximately
$1.2 million in 1998, which was reduced to $950,000 by an appeals court in May
2000. In July 2000, MMS was granted a stay of the judgment against it pending a
petition by MMS to the U.S. Supreme Court. MMS filed a Petition for Writ of
Certiorari with the U.S. Supreme Court in October 2000 seeking to overturn the
decision of the appeals court and reinstate the jury verdict in MMS' favor. That
petition was denied in December 2000, and the Company accrued $1.1 million at
December 31, 2000 for the estimated amount of the net award. In February 2001,
the Company paid the full amount of the net award of $1.2 million in favor of
the plaintiffs. This matter is now concluded.
PENDING LEGAL MATTERS
The Company is subject to claims, litigation and official billing inquiries
in the ordinary course of its business. Within the Company's industry, federal
and state civil and criminal laws govern medical billing and collection
activities. These laws provide for various fines, penalties, multiple damages,
assessments and sanctions for violations, including possible exclusion from
federal and state healthcare programs.
The Company believes that it has meritorious defenses to the claims and
other issues asserted in existing legal matters. There can be no assurance that
existing or future claims, government investigations and legal matters will not
have an adverse effect on the Company. Since the Company is often unable to
estimate a range of awards or losses, if any, on pending legal matters, amounts
have not been reflected in the financial statements unless estimable and
probable.
12. CAPITAL STOCK
On November 23, 1999, a special meeting of the Company's stockholders was
held at which the stockholders approved a one-for-three reverse split of the
Company's Common Stock (the "Reverse Split"). The Reverse Split reduced the
number of shares of the Company's Common Stock outstanding to approximately 30
million from approximately 90 million. This enabled the Company to bring its
number of outstanding shares down to a level more consistent with companies of
similar size and to maintain compliance with The Nasdaq Stock Market(R)
("Nasdaq") listing requirements. The Reverse Split had no effect on the number
of shares that the Company is authorized to issue and no effect on the $0.01 par
value of the Common Stock. No fractional shares were issued in the Reverse
Split; instead, stockholders were paid cash for any fractional shares. The
numbers of shares, per share amounts and market prices of the Company's Common
Stock set forth herein have been retroactively adjusted for all periods
presented to reflect the Reverse Split.
13. STOCKHOLDERS' RIGHTS PLAN
On January 21, 1999, the Company's Board of Directors approved a
stockholders' rights plan (the "Rights Plan"). Pursuant to the Rights Plan, the
Company declared a dividend of one right for each outstanding share of Common
Stock to stockholders of record at the close of business on February 16, 1999
(the "Record Date"). Each right entitles the registered holder to purchase from
the Company a unit consisting of one one-hundredth of a share (a "Unit") of
Series A Junior Participating Preferred Stock, without par value (the "Series A
Preferred Stock"), at a purchase price of $75 per Unit, as adjusted for the
Reverse Split.
F-16
47
PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Initially, the rights will be attached to all Common Stock certificates
representing shares then outstanding, and no separate rights certificates will
be distributed. Subject to certain exceptions specified in the Rights Plan, the
rights will separate from the Common Stock and a distribution date will occur
upon the earlier of (i) 10 business days following a public announcement that a
person or group of affiliated or associated persons (an "Acquiring Person") has
acquired beneficial ownership of 15% or more of the outstanding shares of Common
Stock other than as a result of repurchases of stock by the Company or certain
inadvertent actions by institutional or certain other stockholders or the date a
person has entered into an agreement or arrangement with the Company or any
subsidiary of the Company providing for an Acquisition Transaction (the "Stock
Acquisition Date") or (ii) 10 business days following the commencement of a
tender offer.
In the event that a person becomes an Acquiring Person, except pursuant to
an offer for all outstanding shares of Common Stock which the independent
directors determine to be fair and not inadequate to and to otherwise be in the
best interests of the Company and its stockholders, after receiving advice from
one or more investment banking firms (a "Qualifying Offer"), each holder of a
right will thereafter have the right to receive, upon exercise, Common Stock
(or, in certain circumstances, cash, property or other securities of the
Company) having a value equal to two times the exercise price of the right.
Until a right is exercised, the holder thereof, as such, will have no
rights as a stockholder of the Company, including, without limitation, the right
to vote or to receive dividends. While the distribution of the rights will not
be taxable to stockholders or to the Company, stockholders may, depending upon
the circumstances, recognize taxable income in the event that the rights become
exercisable for Common Stock (or other consideration) of the Company or for
common stock of the acquiring company or in the event of the redemption of the
rights as set forth above. As of December 31, 2000 and 1999, no rights have been
exercised under this plan.
On May 4, 2000, the Company amended the Rights Plan to provide that the
meaning of the term "Acquiring Person" shall not include Basil P. Regan and
Regan Partners, L.P. (collectively, "Regan Fund Management"), so long as Regan
Fund Management does not become the beneficial owner of 20% or more of the
outstanding shares of Common Stock. As of December 31, 2000, Regan Fund
Management was the beneficial owner of approximately 14% of the outstanding
shares of Common Stock.
14. COMMON STOCK OPTIONS AND STOCK AWARDS
The Company has several stock option plans including a Non-Qualified Stock
Option Plan, a Non-Qualified Stock Option Plan for Employees of Acquired
Companies and a Non-Qualified Stock Option Plan for Non-Executive Employees.
Granted options expire 10 to 11 years after the date of grant and generally vest
over a three-to-five-year period. The total number of options available for
future grant under these stock option plans was approximately 3.4 million at
December 31, 2000.
The Company also has a Non-Qualified Non-Employee Director Stock Option
Plan (the "Director Plan") for non-employees who serve on the Company's Board of
Directors. The Director Plan provides for an initial grant of 10,000 options at
a strike price corresponding to the average of the fair market values for the
five trading days prior to the date of the grant. Additionally, each
non-employee director receives an annual grant of 10,000 options at each
subsequent annual meeting in which the non-employee director is a member of the
Board of Directors. All options granted under the Director Plan originally
vested over a five-year period and expired eleven years from the date of grant.
On April 1, 1999, the Director Plan was amended so that all future options
granted under the Director Plan fully vest as of the date of grant, but shall
not become exercisable until one year after the date of grant. As of December
31, 2000, the Company had 157,211 options available for future grant under this
plan.
F-17
48
PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company had a Senior Executive Non-Qualified Stock Option Plan that
permitted certain of the Company's former executive officers to purchase shares
of the Company's Common Stock. All options under this plan expired January 16,
2001.
In June of 1999, in connection with the settlement with the former
shareholders of MMS, the Company issued warrants to purchase 166,667 shares of
Common Stock. These warrants are currently exercisable at an exercise price of
$15.9375 per share and will expire in 2004.
During 1998, in connection with the settlement of a putative class action
lawsuit, the Company issued warrants to purchase 1,769,841 shares of Common
Stock. These warrants are currently exercisable at an exercise price of $36.00
per share and will expire in 2003.
Activity related to all stock option plans and warrants is summarized as
follows (shares in thousands):
2000 1999 1998
-------------------------- ------------------------- -------------------------
WEIGHTED-AVERAGE WEIGHTED-AVERAGE WEIGHTED-AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE
------- ---------------- ------ ---------------- ------ ----------------
Options outstanding as of
January 1.............. 3,120 $16.00 3,705 $16.62 3,048 $17.89
Granted.................. 2,660 6.19 401 10.15 1,997 16.23
Exercised................ (48) 7.95 (53) 4.03 (414) 13.91
Canceled................. (1,283) 13.64 (933) 16.65 (926) 21.13
------- ------ ------
Options outstanding as of
December 31............ 4,449 $10.90 3,120 $16.00 3,705 $16.62
======= ====== ======
Options exercisable as of
December 31............ 1,685 $16.66 1,592 $17.23 1,281 $16.85
======= ====== ======
Weighted-average fair
value of options
granted during the
year................... $ 4.06 $ 6.31 $ 7.53
The following table summarizes information about stock options outstanding
and excercisable at December 31, 2000 (shares in thousands):
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------- --------------------------
WEIGHTED- NUMBER
NUMBER AVERAGE WEIGHTED- EXERCISABLE WEIGHTED-
OUTSTANDING AT REMAINING AVERAGE AT AVERAGE
DECEMBER 31, CONTRACTUAL EXERCISE DECEMBER 31, EXERCISE
RANGE OF EXERCISE PRICES 2000 LIFE PRICE 2000 PRICE
- ------------------------ -------------- ----------- --------- -------------- ---------
$0.66 to $6.00......................... 1,014 10.07 $ 3.81 80 $ 3.48
$6.638 to $13.05....................... 2,039 9.63 8.23 483 9.75
$13.594 to $22.50...................... 1,117 7.11 16.95 862 17.10
$26.10 to $29.625...................... 229 6.86 28.49 212 28.42
$30.00 to $135.00...................... 50 5.28 47.69 48 47.69
----- -----
$0.66 to $135.00....................... 4,449 8.90 10.90 1,685 16.66
===== =====
The Company accounts for its stock-based compensation plans under APB No.
25. As a result, the Company has not recognized compensation expense for stock
options granted to employees with an exercise price equal to the quoted market
price of the Common Stock on the date of grant and which vest based solely on
continuation of employment by the recipient of the option award. The Company
adopted SFAS No. 123 for disclosure purposes in 1996. For SFAS No. 123 purposes,
the fair value of each option grant and stock based
F-18
49
PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
award has been estimated as of the date of grant using the Black-Scholes option
pricing model with the following weighted-average assumptions:
2000 1999 1998
----- ----- -----
Expected life (years)....................................... 4.0 4.50 3.74
Risk-free interest rate..................................... 6.23% 5.78% 5.09%
Dividend rate............................................... 0.00% 0.00% 0.00%
Expected volatility......................................... 80.88% 76.22% 61.66%
Had compensation cost been determined consistent with SFAS No. 123,
utilizing the assumptions detailed above, the Company's pro forma net loss and
pro forma basic loss per share would have increased to the following pro forma
amounts:
2000 1999 1998
---------- ---------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Net loss:
As reported......................................... $(48,202) $(33,702) $(560,214)
Pro forma -- for SFAS No. 123....................... $(64,224) $(52,686) $(573,791)
Basic net loss per share:
As reported......................................... $ (1.62) $ (1.20) $ (21.82)
Pro forma -- for SFAS No. 123....................... $ (2.15) $ (1.88) $ (22.35)
Because the method of accounting under SFAS No. 123 has not been applied to
options granted prior to January 1, 1995, the resulting pro forma compensation
cost may not be representative of that expected in future years.
Per-Se has never paid cash dividends on its Common Stock. The Indenture
dated as of February 20, 1998, with respect to the Company's outstanding 9 1/2%
Senior Notes due 2005, contains restrictions on the Company's ability to declare
or pay cash dividends on its Common Stock.
15. INCOME TAXES
Income tax (benefit) expense is comprised of the following:
2000 1999 1998
-------- ------- ---------
(IN THOUSANDS)
Current:
Federal................................................... $ -- $ -- $ --
State..................................................... (695) (1,165) 1,234
Deferred:
Federal................................................... (9,062) (5,806) (127,783)
State..................................................... (1,243) (797) (17,524)
Valuation allowance......................................... 10,305 6,603 203,772
-------- ------- ---------
Total income tax (benefit) expense................ (695) (1,165) 59,699
Income tax expense on extraordinary item.................... -- -- 3,779
Income tax (benefit) expense on discontinued operations..... -- 555 (5,013)
-------- ------- ---------
Income tax (benefit) expense on continuing operations....... $ (695) $ (610) $ 58,465
======== ======= =========
F-19
50
PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A reconciliation between the amount determined by applying the federal
statutory rate to loss before income taxes and income tax (benefit) expense is
as follows:
2000 1999 1998
-------- -------- ---------
(IN THOUSANDS)
Income tax benefit at federal statutory rate................ $ (9,453) $(11,582) $(175,172)
State taxes, net of federal benefit......................... (1,296) (1,588) (24,024)
Nondeductible goodwill amortization......................... 195 -- 2,927
Nondeductible litigation settlement......................... 6,749 6,900
Nondeductible write-off of goodwill......................... -- -- 43,558
Valuation allowance......................................... 10,305 6,603 203,772
Other....................................................... (446) (792) 504
-------- -------- ---------
$ (695) $ (610) $ 58,465
======== ======== =========
Deferred taxes are recorded based upon differences between the financial
statement and tax bases of assets and liabilities and available tax credit
carryforwards. The components of deferred taxes at December 31, 2000 and 1999
are as follows:
2000 1999
--------- ---------
(IN THOUSANDS)
Current:
Accounts receivable, unbilled............................... $ (943) $ (23,310)
Acquisition accruals........................................ 155 663
Accrued expenses............................................ 26,684 20,164
Valuation allowance......................................... (23,686) (5,496)
Other....................................................... (2,210) 7,979
--------- ---------
$ -- $ --
========= =========
Noncurrent:
Net operating loss carryforwards............................ $ 153,742 $ 151,266
Valuation allowance......................................... (223,454) (231,339)
Depreciation and amortization............................... 67,699 78,060
Other....................................................... 2,013 2,013
--------- ---------
$ -- $ --
========= =========
At December 31, 2000, the Company had federal net operating loss
carryforwards ("NOLs") for income tax purposes of approximately $386 million,
which consist of $320 million of consolidated NOLs and $66 million of separate
return limitation year NOLs. The NOLs will expire at various dates between 2004
and 2020.
As of December 31, 2000, the Company has a net deferred tax asset of $247.1
million, which is offset by a valuation allowance of $247.1 million. Realization
of the net deferred tax asset is dependent upon the Company generating
sufficient taxable income prior to the expiration of the NOLs. If, during future
periods, management believes the Company will generate sufficient taxable income
to realize the net deferred tax asset, the Company will adjust this valuation
reserve accordingly.
16. EMPLOYEE BENEFIT PLANS
The Company has various defined contribution plans whereby employees
meeting certain eligibility requirements can make specified contributions to the
plans, a percentage of which are matched by the
F-20
51
PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Company. The Company's contribution expense was $1.7 million, $1.8 million and
$1.7 million for the years ended December 31, 2000, 1999 and 1998, respectively.
The Company maintains a noncontributory money purchase pension plan that
covers substantially all employees who are retained by the Company primarily to
service specific physician clients. Contributions are determined annually by the
Company not to exceed the maximum amount deductible for federal income tax
purposes. The Company's contributions to the plan were $37,000, $0.3 million and
$0.7 million for the years ended December 31, 2000, 1999 and 1998, respectively.
Effective as of the close of business on December 31, 2000, the Company's
noncontributory money purchase pension plan was terminated.
In July 1999, the Company's Board of Directors approved the termination of
the Company's Employee Stock Purchase Plan ("ESPP") effective as of the close of
business on December 31, 1999.
17. CASH FLOW INFORMATION
Supplemental disclosures of cash flow information and non-cash investing
and financing activities are as follows:
2000 1999 1998
------- ------- -------
(IN THOUSANDS)
Non-cash investing and financing activities:
Additions to capital lease obligations.................. $ -- $ -- $ 42
Liabilities assumed in acquisitions..................... 7,672 -- --
Common Stock issued upon funding of litigation
settlements.......................................... -- 30,266 53,557
Common Stock issued in acquisition...................... 2,000 -- --
Issuance of promissory note............................. -- 2,100 --
Issuance of stock warrants.............................. -- 1,495 --
Cash paid for:
Interest................................................ 16,987 16,956 15,371
Income taxes............................................ 1,017 946 1,484
18. SEGMENT REPORTING
The Company's reportable segments are operating units that offer different
services and products. Per-Se provides its services and products through its
three operating segments: Physician Services, Application Software and e-Health
Solutions.
Physician Services provides business management outsourcing services to the
hospital-affiliated physician practice market, including clinical data
collection, data input, medical coding, billing, contract management, cash
collections and accounts receivable management. These services are designed to
assist healthcare providers with the business management functions associated
with the delivery of healthcare services, allowing physicians and hospital staff
to focus on providing quality patient care. These services also assist
physicians in improving cash flows and reducing administrative costs and
burdens.
The Application Software segment provides enterprise-wide financial and
clinical software to acute care healthcare organizations, including patient and
staff scheduling, clinical information systems and patient financial management
software. These applications enable healthcare organizations to simultaneously
optimize the quality of care delivered and the profitability of business
operations.
The e-Health Solutions segment provides healthcare providers and payers
with connectivity and business intelligence solutions that help reduce
administrative costs and enhance revenue cycle management. Solutions include
electronic claims processing, referral submissions, eligibility verification and
other electronic and paper transaction processing. In addition, e-Health
Solutions offers physician practice management software as
F-21
52
PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Application Service Provider ("ASP") to physician practices and managed care
solutions to payers in ASP, turnkey or outsourced formats.
Certain expenses previously included in Corporate overhead have been
reclassified to the Physician Services segment and the Application Software
segment for 1998.
Per-Se evaluates each segment's performance based on operating profit or
loss. The Company accounts for intersegment sales as if the sales were to third
parties.
Information concerning the operations in these reportable segments is as
follows:
2000 1999 1998
-------- -------- ---------
(IN THOUSANDS)
Revenue:
Physician Services.................................. $225,102 $240,200 $ 264,323
Application Software................................ 60,635 62,145 70,849
e-Health Solutions.................................. 35,276 31,343 25,886
Eliminations........................................ (11,005) (11,559) (11,235)
-------- -------- ---------
$310,008 $322,129 $ 349,823
======== ======== =========
Operating (loss) profit (1):
Physician Services.................................. $ 4,267 $ (5,541) $ (12,608)
Application Software................................ 2,859 (1,071) (8,932)
e-Health Solutions.................................. 3,401 (190) (912)
Corporate........................................... (14,522) (17,671) (22,727)
-------- -------- ---------
$ (3,995) $(24,473) $ (45,179)
======== ======== =========
Interest expense, net................................. $ 14,525 $ 16,102 $ 23,494
======== ======== =========
Non-recurring, restructuring and other expenses
(including goodwill and client lists impairment,
process improvement project expenses and litigation
settlements):
Physician Services.................................. $ 1,793 $ 2,086 $ 411,139
Application Software................................ (273) (336) 1,245
e-Health Solutions.................................. 1,820 -- --
Corporate........................................... 690 23,061 19,435
-------- -------- ---------
$ 4,030 $ 24,811 $ 431,819
======== ======== =========
Loss before income taxes.............................. $(22,550) $(65,386) $(500,492)
======== ======== =========
Depreciation and amortization:
Physician Services.................................. $ 12,988 $ 15,674 $ 28,340
Application Software................................ 7,295 6,793 7,342
e-Health Solutions.................................. 2,716 2,429 1,912
Corporate........................................... 2,688 4,574 4,331
-------- -------- ---------
$ 25,687 $ 29,470 $ 41,925
======== ======== =========
Capital expenditures:
Physician Services.................................. $ 11,377 $ 7,422 $ 15,836
Application Software................................ 2,996 1,242 2,863
e-Health Solutions.................................. 2,987 882 2,300
Corporate........................................... 1,441 872 2,790
-------- -------- ---------
$ 18,801 $ 10,418 $ 23,789
======== ======== =========
F-22
53
PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2000 1999
-------- --------
(IN THOUSANDS)
Identifiable Assets:
Physician Services........................................ $ 70,241 $116,423
Application Software...................................... 54,488 39,265
e-Health Solutions........................................ 44,033 18,904
Corporate................................................. 45,364 90,425
-------- --------
$214,126 $265,017
======== ========
- ---------------
(1) Excludes non-recurring, restructuring and other expenses, Physician Services
process improvement project, litigation settlements, goodwill and client
lists impairment and interest expense.
19. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
QUARTER ENDED
------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- -------- ------------ -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
2000 (1)(2)
Revenue........................................... $ 78,829 $ 78,879 $75,381 $76,919
Loss from continuing operations................... (6,829) (1,821) (3,569) (9,636)
Discontinued operations, net of tax............... 1,654 9,241 (351) 793
(Loss) income before extraordinary item and
cumulative effect of accounting change......... (5,175) 7,420 (3,920) (8,843)
Cumulative effect of accounting change, net of
tax............................................ (37,684) -- -- --
Net (loss) income................................. (42,859) 7,420 (3,920) (8,843)
Loss per common share from continuing
operations..................................... (0.23) (0.06) (0.12) (0.33)
Discontinued operations, net of tax, per common
share.......................................... 0.06 0.31 (0.01) 0.03
(Loss) income before extraordinary item and
cumulative effect of accounting change per
common share................................... (0.17) 0.25 (0.13) (0.30)
Cumulative effect of accounting change, net of
tax, per common share.......................... (1.27) -- -- --
Net (loss) income per common share................ (1.44) 0.25 (0.13) (0.30)
Weighted average shares outstanding............... 29,757 29,868 29,882 29,902
1999 (3)(4)
Revenue........................................... $ 81,374 $ 82,357 $81,270 $77,128
Loss from continuing operations................... (14,570) (39,984) (4,685) (5,537)
Discontinued operations, net of tax............... 774 4,374 (4,604) 30,530
Net (loss) income................................. (13,796) (35,610) (9,289) 24,993
Loss per common share from continuing
operations..................................... (0.55) (1.44) (0.16) (0.19)
Discontinued operations, net of tax, per common
share.......................................... 0.03 0.16 (0.15) 1.03
Net (loss) income per common share................ (0.52) (1.28) (0.31) 0.84
Weighted average shares outstanding............... 26,309 27,775 28,465 29,798
- ---------------
(1) The quarterly period ended December 31, 2000 also included the impact of
$0.5 million of Physician Services process improvement project, $1.1 million
of litigation settlements and $2.4 million of non-recurring, restructuring
and other expenses.
(2) The quarterly periods ended March 31, 2000, June 30, 2000, September 30,
2000 and December 31, 2000 also included the impact of $1.7 million, $9.2
million, $(0.4) million and $0.8 million, respectively, of gain (loss) on
the sale of discontinued operations.
F-23
54
PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(3) The quarterly periods ended June 30, 1999 and September 30, 1999 also
included the impact of $29.2 million and $(4.4) million, respectively, of
expenses for litigation settlements.
(4) The quarterly periods ended March 31, 1999, June 30, 1999, September 30,
1999 and December 31, 1999 also included the impact of $0.5 million, $4.0
million, $(6.0) million and $29.2 million, respectively, of gain (loss) on
the sale of discontinued operations.
F-24
55
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and Stockholders of Per-Se Technologies, Inc.:
Our audits of the consolidated financial statements referred to in our
report dated February 5, 2001 appearing in the 2000 Annual Report on Form 10-K
also included an audit of the financial statement schedule listed in Item
14(a)(2) of this Form 10-K. In our opinion, this financial statement schedule
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.
/s/ PricewaterhouseCoopers LLP
Atlanta, Georgia
February 5, 2001
F-25
56
PER-SE TECHNOLOGIES, INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
ADDITIONS
---------------------
BALANCE AT CHARGED TO CHARGED
BEGINNING COSTS AND TO OTHER BALANCE AT
DESCRIPTION OF YEAR EXPENSES ACCOUNTS DEDUCTIONS END OF YEAR
----------- ---------- ---------- -------- ---------- -----------
Year Ended December 31, 2000
Allowance for doubtful accounts........... $ 14,501 $ 4,651 -- $ (7,179) $ 11,973
Valuation allowance for deferred taxes.... 236,835 10,305 -- -- 247,140
Year Ended December 31, 1999
Allowance for doubtful accounts........... $ 20,723 $ 4,991 -- $(11,213) $ 14,501
Valuation allowance for deferred taxes.... 230,232 6,603 -- -- 236,835
Year Ended December 31, 1998
Allowance for doubtful accounts........... $ 10,746 $ 14,269 -- $ (4,292) $ 20,723
Valuation allowance for deferred taxes.... 26,460 203,772 -- -- 230,232
F-26
57
to be filed
3. Exhibits
The following list of exhibits includes both exhibits submitted with
this Form 10-K as filed with the Commission and those incorporated by
reference to other filings:
EXHIBIT
NUMBER DOCUMENT
------ --------
2.1 -- Stock Purchase Agreement dated as of October 15,
1998, between Registrant and NCO Group, Inc.
(incorporated by reference to Exhibit 2.1 to
Quarterly Report on Form 10-Q for the quarter
ended September 30, 1998).
2.2 -- Stock Purchase Agreement dated as of April 20,
1999, among Complete Business Solutions, Inc.,
E-Business Solutions.com, Inc., Impact Innovations
Holdings, Inc. and Registrant (incorporated by
reference to Exhibit 2.1 to Current Report on Form
8-K filed on May 5, 1999).
2.3 -- Stock Purchase Agreement dated as of November 4,
1999, among J3 Technology Services Corp., Impact
Innovations Holdings, Inc., Impact Innovations
Government Group, Inc. and Registrant
(incorporated by reference to Exhibit 2.3 to
Quarterly Report on Form 10-Q for the quarter
ended September 30, 1999).
2.4 -- Stock Purchase Agreement dated as of December 8,
2000, among Registrant, Health Data Services,
Inc., Patient Account Management Services, Inc.,
and Marc Saltzberg, Raymond DelBrocco, Charles
Moore, and Larry Shaw (incorporated by reference
to Exhibit 2.1 to Current Report on Form 8-K filed
on December 20, 2000).
3.1 -- Restated Certificate of Incorporation of
Registrant (incorporated by reference to Exhibit
3.1 to Annual Report on Form 10-K for the year
ended December 31, 1999 (the "1999 Form 10-K")).
3.2 -- Restated By-laws of Registrant (incorporated by
reference to Exhibit 3.2 to the 1999 Form 10-K).
4.1 -- Specimen Common Stock Certificate (incorporated by
reference to Exhibit 4.1 to the 1999 Form 10-K).
4.2 -- Form of Option Agreement relating to Registrant's
Second Amended and Restated Non-Qualified Stock
Option Plan (incorporated by reference to Exhibit
4.2 to the 1999 Form 10-K).
4.3 -- Form of Option Agreement relating to Registrant's
Non-Qualified Stock Option Plan for Employees of
Acquired Companies (incorporated by reference to
Exhibit 4.4 to Registration Statement on Form S-3,
File No. 33-71552).
4.4 -- Form of Option Agreement relating to Registrant's
Non-Employee Director Stock Option Plan
(incorporated by reference to Exhibit 4.5 to the
1999 Form 10-K).
4.5 -- Form of Option Agreement relating to Registrant's
Non-Qualified Stock Option Plan for Non-Executive
Employees (incorporated by reference to Exhibit
4.6 to the 1999 Form 10-K).
4.6 -- Form of Option Agreement relating to Registrant's
Restricted Stock Plan (incorporated by reference
to Exhibit 4.5 to Annual Report on Form 10-K for
the year ended December 31, 1995 (the "1995 Form
10-K")).
4.7 -- Indenture dated as of February 20, 1998, among
Registrant, as Issuer, the Subsidiary Guarantors
named in the Indenture and State Street Bank and
Trust Company, as Trustee (including form of note)
(incorporated by reference to Exhibit 10.3 to
Current Report on Form 8-K filed on March 3,
1998).
4.8 -- Warrant Agreement dated as of July 8, 1998,
between Registrant and SunTrust Bank, Atlanta, as
Warrant Agent (including form of warrant
certificate) (incorporated by reference to Exhibit
4.2 to Registration Statement on Form 8-A filed on
July 21, 1998).
B-1
58
4.9 -- Rights Agreement dated as of February 11, 1999,
between Registrant and American Stock Transfer &
Trust Company (including form of rights
certificates) (incorporated by reference to
Exhibit 4 to Current Report on Form 8-K filed on
February 12, 1999).
4.10 -- First Amendment to Rights Agreement dated as of
February 11, 1999, between Registrant and American
Stock Transfer & Trust Company, entered into as of
May 4, 2000 (incorporated by reference to Exhibit
4.4 to Quarterly Report of Form 10-Q for the
quarter ended March 31, 2000).
10.1 -- Second Amended and Restated Per-Se Technologies,
Inc. Non-Qualified Stock Option Plan (incorporated
by reference to Exhibit 10.1 to the 1999 Form
10-K).
10.2 -- First Amendment to Second Amended and Restated
Per-Se Technologies, Inc. Non-Qualified Stock
Option Plan (incorporated by reference to Exhibit
10.45 to the 1999 Form 10-K).
10.3 -- Registrant's Non-Qualified Stock Option Plan for
Employees of Acquired Companies (incorporated by
reference to Exhibit 99.1 to Registration
Statement on Form S-8, File No. 33-67752).
10.4 -- First Amendment to Registrant's Non-Qualified
Stock Option Plan for Employees of Acquired
Companies (incorporated by reference to Exhibit 99
to Registration Statement on Form S-8, File No.
33-71556).
10.5 -- Second Amendment to Registrant's Non-Qualified
Stock Option Plan for Employees of Acquired
Companies (incorporated by reference to Exhibit 99
to Registration Statement on Form S-8, File No.
33-88442).
10.6 -- Third Amendment to Registrant's Non-Qualified
Stock Option Plan for Employees of Acquired
Companies (incorporated by reference to Exhibit
10.14 to the 1995 Form 10-K).
10.7 -- Fourth Amendment to Registrant's Non-Qualified
Stock Option Plan for Employees of Acquired
Companies (incorporated by reference to Exhibit
99.2 to Registration Statement on Form S-8, File
No. 333-3213).
10.8 -- Fifth Amendment to Registrant's Non-Qualified
Stock Option Plan for Employees of Acquired
Companies (incorporated by reference to Exhibit
99.1 to Registration Statement on Form S-8, File
No. 333-07627).
10.9 -- Sixth Amendment to Registrant's Non-Qualified
Stock Option Plan for Employees of Acquired
Companies (incorporated by reference to Exhibit
10.21 to Annual Report on Form 10-K for the year
ended December 31, 1996 (the "1996 Form 10-K")).
10.10 -- Seventh Amendment to Registrant's Non-Qualified
Stock Option Plan for Employees of Acquired
Companies (incorporated by. reference to Exhibit
10.23 to Annual Report on Form 10-K for the year
ended December 31, 1998 (the "1998 Form 10-K")).
10.11 -- Eighth Amendment to Registrant's Non-Qualified
Stock Option Plan For Employees of Acquired
Companies (incorporated by reference to Exhibit
10.12 to the 1999 Form 10-K).
10.12 -- Ninth Amendment to Registrant's Non-Qualified
Stock Option Plan For Employees of Acquired
Companies.
10.13 -- Registrant's Non-Employee Director Stock Option
Plan, dated as of August 12, 1994 (incorporated by
reference to Exhibit 10.2 to Quarterly Report on
Form 10-Q for the quarter ended September 30,
1994).
10.14 -- First Amendment to Registrant's Non-Employee
Director Stock Option Plan (incorporated by
reference to Exhibit 10.25 to the 1998 Form 10-K).
10.15 -- Second Amendment to Registrant's Non-Employee
Director Stock Option Plan (incorporated by
reference to Exhibit 10.1 to Quarterly Report on
Form 10-Q for the quarter ended March 31, 1999).
B-2
59
10.16 -- Third Amendment to Registrant's Non-Employee
Director Stock Option Plan (incorporated by
reference to Exhibit 10.16 to the 1999 Form 10-K).
10.17 -- Fourth Amendment to Registrant's Non-Employee
Director Stock Option Plan (incorporated by
reference to Exhibit 10.46 to the 1999 Form 10-K).
10.18 -- Registrant's Non-Qualified Stock Option Plan for
Non-Executive Employees (incorporated by reference
to Exhibit 10.23 to the 1996 Form 10-K).
10.19 -- First Amendment to Registrant's Non-Qualified
Stock Option Plan for Non-Executive Employees
(incorporated by reference to Exhibit 10.24 to the
1996 Form 10-K).
10.20 -- Second Amendment to Registrant's Non-Qualified
Stock Option Plan for Non-Executive Employees
(incorporated by reference to Exhibit 10.25 to
Annual Report on Form 10-K for the year ended
December 31, 1997 (the "1997 Form 10-K")).
10.21 -- Third Amendment to Registrant's Non-Qualified
Stock Option Plan for Non-Executive Employees
(incorporated by reference to Exhibit 10.26 to the
1997 Form 10-K).
10.22 -- Fourth Amendment to Registrant's Non-Qualified
Stock Option Plan for Non-Executive Employees
(incorporated by reference to Exhibit 10.27 to the
1997 Form 10-K).
10.23 -- Fifth Amendment to Registrant's Non-Qualified
Stock Option Plan for Non-Executive Employees
(incorporated by reference to Exhibit 10.28 to the
1997 Form 10-K).
10.24 -- Sixth Amendment to Registrant's Non-Qualified
Stock Option Plan for Non-Executive Employees
(incorporated by reference to Exhibit 10.32 to the
1998 Form 10-K).
10.25 -- Seventh Amendment to Registrant's Non-Qualified
Stock Option Plan for Non-Executive Employees
(incorporated by reference to Exhibit 10.24 to the
1999 Form 10-K).
10.26 -- Eighth Amendment to Registrant's Non-Qualified
Stock Option Plan for Non-Executive Employees.
10.27 -- Restricted Stock Plan of the Registrant, dated as
of August 12, 1994 (incorporated by reference to
Exhibit 10.2 to Registration Statement on Form
S-4, File No. 33-88910).
10.28 -- The Per-Se Technologies Employees' Retirement
Savings Plan (incorporated by reference to Exhibit
10.26 to the 1999 Form 10-K).
10.29 -- First Amendment to the Per-Se Technologies
Employees' Retirement Savings Plan.
10.30 -- Retirement Savings Trust (incorporated by
reference to Exhibit 10.10 to Registration
Statement on Form S-1, File No. 33-42216).
10.31 -- Registrant's Deferred Compensation Plan
(incorporated by reference to Exhibit 99 to
Registration Statement on Form S-8, Registration
No. 33-90874).
10.32 -- First Amendment to Registrant's Deferred
Compensation Plan (incorporated by reference to
Exhibit 10.2 to Quarterly Report on Form 10-Q for
the quarter ended September 30, 1997).
10.33 -- Second Amendment to Registrant's Deferred
Compensation Plan (incorporated by reference to
Exhibit 10.3 to Quarterly Report on Form 10-Q for
the quarter ended September 30, 1997).
10.34 -- Third Amendment to Registrant's Deferred
Compensation Plan (incorporated by reference to
Exhibit 10.76 to the 1997 Form 10-K).
10.35 -- Fourth Amendment to Registrant's Deferred
Compensation Plan (incorporated by reference to
Exhibit 10.32 to the 1999 Form 10-K).
B-3
60
10.36 -- Fifth Amendment to Registrant's Deferred
Compensation Plan.
10.37 -- Written description of Registrant's Non-Employee
Director Compensation Plan (incorporated by
reference to Exhibit 10.4 to Quarterly Report on
Form 10-Q for the quarter ended September 30,
1997).
10.38 -- Registrant's Non-Employee Director Deferred Stock
Credit Plan (incorporated by reference to Exhibit
10.5 to Quarterly Report on Form 10-Q for the
quarter ended September 30, 1997).
10.39 -- Registrant's Long Term Incentive Plan
(incorporated by reference to Exhibit 10.3 to
Quarterly Report on Form 10-Q for the quarter
ended September 30, 1998).
10.40 -- Employment Agreement dated November 19, 1996,
between Registrant and David E. McDowell
(incorporated by reference to Exhibit 10.49 to the
1996 Form 10-K).
10.41 -- Amendment Number 1 to Employment Agreement between
Registrant and David E. McDowell, dated October
20, 1999 (incorporated by reference to Exhibit
10.37 to the 1999 Form 10-K).
10.42 -- Employment Agreement dated as of November 13,
2000, between Registrant and Philip M. Pead.
10.43 -- Employment Agreement dated April 14, 2000, between
Registrant and Chris E. Perkins.
10.44 -- Amendment Number 1 to Employment Agreement between
Registrant and Chris E. Perkins, dated as of
February 7, 2001.
10.45 -- Employment Agreement dated January 30, 1998,
between Registrant and William Dagher.
10.46 -- Employment Agreement dated June 5, 1998, between
Registrant and Frank B. Murphy.
10.47 -- Corporate Integrity Agreement between the Office
of the Inspector General of the Department of
Health and Human Services and Registrant
(incorporated by reference to Exhibit 10.4 to
Quarterly Report on Form 10-Q for the quarter
ended September 30, 1998).
10.48 -- Employment Agreement dated as of March 22, 2001,
between Registrant and Karen B. Andrews.
21 -- Subsidiaries of Registrant.
23.1 -- Consent of PricewaterhouseCoopers LLP.
- ----------------
* The exhibits, which are referenced in the above documents, are hereby
incorporated by reference. Such exhibits have been omitted for purposes of
this filing but will be furnished supplementary to the Commission upon
request.
B-4