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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
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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
ATLANTA, GEORGIA (Zip code)
(Address of principal executive offices)
(770) 444-5300
Registrant's telephone number, including area code:
NOT APPLICABLE
(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check 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 the number of shares of stock outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
SHARES OUTSTANDING
TITLE OF CLASS AT MAY 11, 2001
- -------------- ------------------
Common Stock $0.01 Par Value 29,901,750 Shares
Non-voting Common Stock $0.01 Par Value 0 Shares
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PER-SE TECHNOLOGIES, INC.
FORM 10-Q
FOR THE FISCAL QUARTER ENDED MARCH 31, 2001
PAGE
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Part I: Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 2001 and December 31, 2000 ..................... 2
Consolidated Statements of Operations for the three months ended March 31, 2001 and 2000 ... 3
Consolidated Statements of Cash Flows for the three months ended March 31, 2001 and 2000 ... 4
Notes to Consolidated Financial Statements ................................................. 5
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations .............................................................................. 9
Part II: Other Information
Item 1. Legal Proceedings ................................................................. 14
Item 6. Exhibits and Reports on Form 8-K .................................................. 14
Index to Exhibits .......................................................................... 17
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PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(IN THOUSANDS, EXCEPT PAR VALUE DATA)
MARCH 31, DECEMBER 31,
2001 2000
--------- ------------
Current Assets:
Cash and cash equivalents .............................................. $ 21,015 $ 30,970
Restricted cash ........................................................ 7,170 7,352
--------- ---------
Total cash ....................................................... 28,185 38,322
Accounts receivable, billed (less allowances of $8,197 and
$7,635, respectively) ................................................ 51,110 53,309
Accounts receivable, unbilled (less allowances of $2,684 and
$4,338, respectively) ................................................ 4,657 5,786
Other .................................................................. 6,592 5,793
--------- ---------
Total current assets ............................................. 90,544 103,210
Property and equipment, net .............................................. 30,388 32,813
Intangible assets, net ................................................... 70,661 72,695
Other .................................................................... 5,343 5,408
--------- ---------
$ 196,936 $ 214,126
========= =========
Current Liabilities:
Accounts payable ...................................................... $ 7,601 $ 11,002
Accrued compensation ................................................... 16,090 18,652
Accrued expenses ....................................................... 17,371 21,712
Accrued litigation settlements ......................................... -- 1,602
--------- ---------
41,062 52,968
Deferred revenue ....................................................... 23,935 23,063
--------- ---------
Total current liabilities ........................................ 64,997 76,031
Long-term debt ........................................................... 175,000 175,000
Other obligations ........................................................ 7,249 7,231
--------- ---------
Total liabilities ................................................ 247,246 258,262
--------- ---------
Stockholders' Deficit:
Preferred stock, no par value, 20,000 authorized; none issued .......... -- --
Common stock, voting, $0.01 par value, 200,000 authorized,
29,902 and 29,902 issued and outstanding as of March 31, 2001
and December 31, 2000, respectively .................................. 299 299
Common stock, non-voting, $0.01 par value, 600 authorized; none
issued .............................................................. -- --
Paid-in capital ........................................................ 774,621 774,603
Warrants ............................................................... 1,495 1,495
Accumulated deficit .................................................... (826,725) (820,533)
--------- ---------
Total stockholders' deficit ...................................... (50,310) (44,136)
--------- ---------
$ 196,936 $ 214,126
========= =========
See notes to consolidated financial statements.
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PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED
MARCH 31,
-------------------------
2001 2000
-------- --------
Revenue .................................................... $ 79,978 $ 78,829
-------- --------
Salaries and wages ......................................... 50,004 52,258
Other operating expenses ................................... 23,938 24,478
Depreciation ............................................... 3,249 3,964
Amortization ............................................... 3,177 2,419
Interest expense, net ...................................... 4,015 3,653
Process improvement project ................................ 965 --
Non-recurring expenses ..................................... 641 --
-------- --------
Total expenses ....................................... 85,989 86,772
-------- --------
Loss before income taxes ................................... (6,011) (7,943)
Income tax expense (benefit) ............................... 176 (1,114)
-------- --------
Loss from continuing operations ............................ (6,187) (6,829)
-------- --------
Discontinued operations, net of tax:
(Loss) gain from sale of subsidiaries .................... (31) 1,654
-------- --------
Loss before cumulative effect of accounting change ......... (6,218) (5,175)
Cumulative effect of accounting change, net of tax ......... -- (37,684)
-------- --------
Net loss ............................................. $ (6,218) $(42,859)
======== ========
Basic net (loss) income per common share:
Loss from continuing operations before process
improvement project and non-recurring expenses ........... $ (0.15) $ (0.23)
Process improvement project and non-recurring expenses ... (0.06) --
Income from discontinued operations, net of tax .......... -- 0.06
Cumulative effect of accounting change, net of tax ....... -- (1.27)
-------- --------
Net loss ............................................. $ (0.21) $ (1.44)
======== ========
Weighted average shares outstanding ........................ 29,902 29,757
======== ========
See notes to consolidated financial statements.
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PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
THREE MONTHS ENDED
MARCH 31,
-------------------------
2001 2000
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss .......................................................... $ (6,218) $(42,859)
Adjustments to reconcile net loss to net cash used for operating
activities:
Depreciation and amortization ................................... 6,426 6,383
Loss (gain) on sale of subsidiaries ............................. 31 (1,654)
Cumulative effect of accounting change .......................... -- 37,684
Changes in assets and liabilities, excluding effects of
acquisitions and divestitures:
Restricted cash ............................................... 273 353
Accounts receivable, billed ................................... 1,492 (541)
Accounts receivable, unbilled ................................. 1,129 616
Accounts payable .............................................. (3,414) (1,905)
Accrued compensation .......................................... (2,562) (8,354)
Accrued expenses .............................................. (4,656) (9,519)
Accrued litigation settlements ................................ (1,602) (956)
Deferred revenue .............................................. 1,699 (977)
Other, net .................................................... (1,215) (613)
-------- --------
Net cash used for operating activities ....................... (8,617) (22,342)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions, net of cash acquired ................................ (226) (955)
Purchases of property and equipment ............................... (1,021) (2,216)
Net (disbursements) proceeds from sale of subsidiaries ............ (31) 1,654
Proceeds from sale of property and equipment ...................... 1,544 21
Software development costs ........................................ (1,377) (1,773)
-------- --------
Net cash used for investing activities ....................... (1,111) (3,269)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of stock ................................... -- 299
Proceeds from the exercise of stock options ....................... -- 82
Payments of debt .................................................. -- (29)
Deferred financing costs .......................................... (227) (4)
-------- --------
Net cash (used for) provided by financing activities ......... (227) 348
-------- --------
CASH AND CASH EQUIVALENTS
Net change ........................................................ (9,955) (25,263)
Balance at beginning of period .................................... 30,970 74,354
-------- --------
Balance at end of period .......................................... $ 21,015 $ 49,091
======== ========
See notes to consolidated financial statements.
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PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 -- BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
of Per-Se Technologies, Inc. (the "Company") are presented in accordance with
the requirements of Form 10-Q and Rule 10-01 of Regulation S-X. For further
information, the reader of this Form 10-Q may wish to refer to the audited
consolidated financial statements of the Company for the fiscal year ended
December 31, 2000 included in the Company's Annual Report on Form 10-K filed
March 23, 2001.
The unaudited condensed financial information has been prepared in
accordance with the Company's customary accounting policies and practices. In
the opinion of management, all adjustments, consisting of normal recurring
adjustments considered necessary for a fair presentation of results for the
interim period, have been included.
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, liabilities, revenues
and expenses. Actual results could differ from those estimates.
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 securities issued that would have been included in the pro forma
diluted earnings per share calculation.
The Medaphis Services Corporation ("Hospital Services") and Impact
Innovations Group ("Impact") segments have been presented as discontinued
operations for all periods presented.
NOTE 2 -- RESTRICTED CASH
At March 31, 2001, restricted cash primarily 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 held in escrow and
amounts collected on behalf of certain clients, a portion of which is held in
trust until remitted to such clients.
NOTE 3 -- ACQUISITIONS
On February 9, 2000, the Company acquired the outstanding capital stock
of Knowledgeable Healthcare Solutions, Inc. ("KHS"). The purchase agreement
provides for a purchase price adjustment of up to $6.0 million, payable in cash
and the Company's common stock, should KHS meet certain operational targets over
the next three years. The Company was required under the purchase agreement to
make a purchase price adjustment in April 2001 totaling $0.1 million, 25% of
which was paid through the issuance of the Company's common stock.
On December 8, 2000, the Company acquired 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.
On April 27, 2001, the Company acquired all of the assets of Virtual
Information Systems, Incorporated ("VIS") for consideration of $7.0 million
cash. The purchase agreement also provides for a purchase price adjustment of up
to $1.5 million payable in cash should VIS meet certain operational targets over
the next twelve months. The VIS acquisition will be recorded using the purchase
method of accounting and, accordingly, the purchase price will be allocated to
the assets acquired and the liabilities assumed based on their estimated fair
market value at the date of acquisition. VIS's core product, Virtual Remittance
Processing System, is an automated remittance processing solution, which ensures
accurate and efficient processing of cash collections.
Additionally, on April 27, 2001, the Company acquired all of the assets
of Officemed.com LLC ("Officemed") for consideration of $3.25 million cash of
which $150,000 is payable over the next six months. The Officemed acquisition
will be recorded using the purchase method of accounting and, accordingly, the
purchase price will be allocated to the assets acquired and the liabilities
assumed based on their estimated fair market value at the date of acquisition.
Officemed offers a web-based application service provider (ASP)
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solution, Real-Time Solution, which gives healthcare and payer organizations the
ability to perform secure, real-time benefits inquiries against patients'
insurance plans ensuring eligibility at the point-of-care.
NOTE 4 -- DISCONTINUED OPERATIONS AND DIVESTITURES
On December 17, 1999, the government division of Impact was sold 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.
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.
NOTE 5 -- 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. This
change has not significantly impacted annual recognized revenue amounts and has
no effect on cash flow.
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 three months ended
March 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. See Note 10 for further
discussion of income taxes.
NOTE 6 -- 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
thereof have not been reflected in the financial statements unless estimable and
probable.
NOTE 7 --NON-RECURRING AND RESTRUCTURING EXPENSES
During the first quarter of 2001, the Company recorded a severance
expense associated with former executive management.
The amount of lease termination costs associated with the 1995
restructuring applied against the reserve in the quarter ended March 31, 2001 is
as follows:
RESERVE RESERVE
BALANCE COSTS APPLIED BALANCE
12/31/00 AGAINST RESERVE 3/31/01
-------- --------------- -------
(IN THOUSANDS)
Lease termination costs......... $ 2,873 $ (97) $ 2,776
------- ------ -------
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NOTE 8 -- PROCESS IMPROVEMENT PROJECT
The Company incurred approximately $1.0 million of expense in the
quarter ended March 31, 2001 associated with the implementation of a process
improvement project within the Physician Services segment (the "Project"). The
Project installs a formalized set of productivity and quality measures, workflow
processes and a management operating system in certain of the Company's major
processing centers. The Project focuses on productivity improvements that result
in both improved client service for the segment's clients as well as improved
profitability for the segment. The costs associated with the Project primarily
consist of professional fees paid to outside consultants retained exclusively
for implementation of the Project.
NOTE 9 -- LONG-TERM DEBT
Under the Indenture governing the 9 1/2% $175 million of Senior Notes
due 2005 (the "Notes"), the balance of net proceeds, as defined, from the sale
of any assets 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 secured debt or to acquire a controlling interest in
another company. To the extent net proceeds are not invested within 360 days,
such amount constitutes "excess proceeds." If the aggregate amount of excess
proceeds is greater than $10.0 million, the Company is required to offer to
repurchase the Notes at par with such proceeds. The Company has invested the
excess proceeds from all asset sales in accordance with the Indenture.
The Company entered into a $50 million credit facility (the "Credit
Facility") on April 6, 2001. Availability under the Credit Facility is
determined by a borrowing base calculated based on eligible billed accounts
receivable of the Borrowing Base Parties, as defined in the Credit Facility. The
Company has the option of making "LIBOR" based loans or "index rate" loans under
the Credit Facility. LIBOR based loans bear interest at LIBOR plus amounts
ranging from 1.85% to 2.65% based on the Company's leverage ratio, as defined in
the Credit Facility, after the first year. Index rate loans bear interest at
rates approximating Prime plus amounts ranging from 0.35% to 1.15% based on the
Company's leverage ratio, as defined, after the first year. LIBOR based loans
bear interest at LIBOR plus 2.50% and index rate loans bear interest at rates
approximating Prime plus 1.0% for the first twelve months of the Credit
Facility. In addition the Company pays a quarterly commitment fee on the unused
portion of the Credit Facility of 0.375% per annum.
The Credit Facility contains financial and other restrictive covenants,
including, without limitation, those restricting the incurrence of additional
indebtedness, creation of liens, payment of dividends, sales of assets, stock
offerings, capital expenditures and prepayment of the Notes and those requiring
maintenance of minimum EBITDA, as defined, and minimum fixed charge coverage, as
defined. The initial term of the Credit Facility is 42 months. The Company and
the lender can mutually agree to extend this term by 18 months if certain
conditions have been met. The Company intends to use the Credit Facility for
future investments in its operations including capital expenditures,
acquisitions and other general corporate purposes, as needed. There are no
outstanding borrowings under the Credit Facility.
NOTE 10 -- INCOME TAXES
As of March 31, 2001, the Company has a net deferred tax asset, which
is fully offset by a valuation allowance. Realization of the net deferred tax
asset is dependent upon the Company generating sufficient taxable income prior
to the expiration of the federal net operating loss carryforwards. The Company
will adjust this valuation reserve accordingly, if during future periods,
management believes the Company will generate sufficient taxable income to
realize the net deferred tax asset.
The Company recognized a $1.2 million tax benefit in the quarter ended
March 31, 2000 related to a state income tax refund.
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NOTE 11 -- 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
hospital-affiliated physician practices, physicians in academic settings and
other large physician practices. Services include 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.
The Company 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 Company's reportable operating segments is
as follows:
THREE MONTHS ENDED
MARCH 31,
-------------------------
2001 2000
-------- --------
(IN THOUSANDS)
Revenue:
Physician Services .................. $ 55,141 $ 58,822
Application Software ................ 14,879 14,352
e-Health Solutions .................. 12,671 8,487
Eliminations ........................ (2,713) (2,832)
-------- --------
$ 79,978 $ 78,829
======== ========
Operating profit (loss)(1):
Physician Services .................. $ 888 $ 80
Application Software ................ 1,238 (1,692)
e-Health Solutions .................. (28) 905
Corporate ........................... (2,488) (3,583)
-------- --------
$ (390) $ (4,290)
======== ========
Interest expense, net ................. $ 4,015 $ 3,653
======== ========
Loss before income taxes .............. $ (6,011) $ (7,943)
======== ========
Depreciation and amortization:
Physician Services .................. $ 2,930 $ 3,332
Application Software ................ 1,843 1,764
e-Health Solutions .................. 1,320 610
Corporate ........................... 333 677
-------- --------
$ 6,426 $ 6,383
======== ========
Capital expenditures:
Physician Services .................. $ 451 $ 1,049
Application Software ................ 165 161
e-Health Solutions .................. 404 641
Corporate ........................... 1 365
-------- --------
$ 1,021 $ 2,216
======== ========
AS OF
---------------------------
MARCH 31, DECEMBER 31,
2001 2000
---------- -----------
(IN THOUSANDS)
Identifiable Assets:
Physician Services ........................ $ 66,533 $ 70,241
Application Software ...................... 40,745 54,488
e-Health Solutions ........................ 53,600 44,033
Corporate ................................. 36,058 45,364
-------- --------
$196,936 $214,126
======== ========
(1) Excludes process improvement project, restructuring and other expenses,
and interest expense, net.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
Per-Se Technologies, Inc. (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.
For more information on the Company's reportable segments, refer to
"Note 11 - Segment Reporting" in the Company's Notes to the Consolidated
Financial Statements.
Per-Se markets its products and services primarily to integrated
healthcare delivery networks ("IDNs"), hospitals, hospital-affiliated physician
practices and payer organizations.
RESULTS OF OPERATIONS
Three months ended March 31, 2001 as compared to three months ended
March 31, 2000
Revenue. Revenue classified by the Company's reportable segments is as
follows:
THREE MONTHS ENDED
MARCH 31,
----------------------
2001 2000
--------- ---------
(IN THOUSANDS)
Physician Services.................... $ 55,141 $ 58,822
Application Software.................. 14,879 14,352
e-Health Solutions.................... 12,671 8,487
Eliminations.......................... (2,713) (2,832)
--------- ---------
$ 79,978 $ 78,829
========= =========
Physician Services' revenue decreased approximately 6% in the three
months ended March 31, 2001 as compared to the same period in 2000. The decline
is primarily attributable to the Company and client-initiated discontinuances
throughout 2000 partially offset by new sales during the same period. The
Company initiated discontinuances were a result of management's review and
evaluation process of unprofitable or marginally profitable clients that yield
returns unacceptable to management.
Application Software's revenue increased approximately 4% in the three
months ended March 31, 2001 as compared to the same period in 2000. The increase
is attributable to the recognition of revenue from higher sales in the three
months ended December 31, 2000 partially offset by lower consulting revenue.
e-Health Solution's revenue increased approximately 49% in the three
months ended March 31, 2001 as compared to the same period in 2000. The increase
is primarily the result of revenue from the recent acquisition of HDS/PAMS,
which was not included in the prior year period, as well as increased
transaction volume from the existing client base.
Operating Profit (Loss). Operating profit (loss), which excludes the
process improvement project, restructuring and other expenses, and interest
expense, net, classified by the Company's reportable operating segments is as
follows:
THREE MONTHS ENDED
MARCH 31,
---------------------
2001 2000
-------- --------
(IN THOUSANDS)
Physician Services.................... $ 888 $ 80
Application Software.................. 1,238 (1,692)
e-Health Solutions.................... (28) 905
Corporate............................. (2,488) (3,583)
-------- --------
$ (390) $ (4,290)
======== ========
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The increase in Physician Services' operating profit for the three
months ended March 31, 2001 as compared to the same period in 2000 is primarily
attributable to management's efforts to focus on profitable business and cost
containment initiatives in the prior year.
The increase in Application Software's operating profit for the three
months ended March 31, 2001 as compared to the same period in 2000 is
attributable to lower operating expenses due to management's continued focus on
cost containment, specifically salaries and wages, contract labor, travel
expenses, and outside services.
The decrease in e-Health Solution's operating results for the three
months ended March 31, 2001 as compared to the same period in 2000 is primarily
attributable to HDS/PAMS transition costs as well as increased spending in
preparation for future growth.
The decrease in Corporate overhead for the three months ended March 31,
2001 as compared to the same period in 2000 is primarily attributable to
management's continued commitment to reduce costs where feasible and create more
efficient processes.
Interest. Net interest expense was $4.0 million for the three months
ended March 31, 2001 as compared with $3.7 million for the same period in 2000.
The increase is attributable to a reduction in interest income due to lower cash
balances because of prior year acquisitions.
Income Taxes. Income tax expense was $0.2 million for the three months
ended March 31, 2001 as compared to an income tax benefit of $1.1 million for
the same period in 2000. The Company recognized a $1.2 million tax benefit in
the three months ended March 31, 2000 related to a state income tax refund. As
of March 31, 2001, the Company has a net deferred tax asset, which is fully
offset by a valuation allowance. Realization of the net deferred tax asset is
dependent upon the Company generating sufficient taxable income prior to the
expiration of the federal net operating loss carryforwards. The Company will
adjust this valuation reserve accordingly, if during future periods, management
believes the Company will generate sufficient taxable income to realize the net
deferred tax asset.
Discontinued Operations. On December 17, 1999 the government division
of Impact was sold 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.
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. This change has not significantly impacted annual recognized
revenue amounts and has no effect on cash flow.
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 three months ended
March 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.
LIQUIDITY AND CAPITAL RESOURCES
The Company had working capital of $25.6 million at March 31, 2001
including $21.0 million of unrestricted cash and cash equivalents. The $1.6
million decrease in working capital from December 31, 2000 is primarily the
result of the timing of payments on accruals, the payment of semi-annual
interest payments required under the $175 million of 9 1/2% Senior Notes due
2005 and investment in the Company's operations.
For more information about the Company's long term debt, refer to "Note
9 - Long-Term Debt" in the Company's Notes to the Consolidated Financial
Statements.
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.
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FORWARD-LOOKING STATEMENTS
Certain statements included in the Notes to Consolidated Financial
Statements, 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, including certain statements set forth under the captions "Note 6 -
Legal Matters," "Note 8 - Process Improvement Project," "Note 9 - Long-Term
Debt" 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 below under the caption
"Factors That May Affect Future Results of Operations, Financial Condition or
Business." The Company disclaims any responsibility to update any
forward-looking statements.
FACTORS THAT MAY AFFECT FUTURE RESULTS OF OPERATIONS, FINANCIAL CONDITION OR
BUSINESS
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
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developing its 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
could 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.
Continued consolidation of management and billing services through
integrated delivery systems could result in a decrease in demand for the
Company's business management outsourcing services for particular physician
practices.
Government Regulations
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 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 and 2001, respectively, with implementation deadlines of 2002
and 2003, respectively. 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. The security regulations under HIPAA are currently in the proposed
stage.
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.
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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 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 is 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.
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PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The information required by this Item is included in Note 6 of Notes to
Consolidated Financial Statements in Item 1 on page 6.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits
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).
2.5 -- Asset Purchase Agreement dated as of April
27, 2001, among Registrant, Health Data
Services, Inc., Virtual Information Systems,
Inc., and Paul M. Helmick and William T.
Adams.
2.6 -- Asset Purchase Agreement dated as of April
27, 2001, among Registrant, Per-Se
Transaction Services, Inc., officemed.com
LLC, SoftLinc, Inc., and Daniel Mansfield.
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).
3.2 -- Restated By-laws of Registrant (incorporated
by reference to Exhibit 3.2 to Annual Report
on Form 10-K for the year ended December 31,
1999).
4.1 -- 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).
4.2 -- 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).
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EXHIBIT
NUMBER DOCUMENT
------ --------
4.3 -- 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).
4.4 -- 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 on Form 10-Q for the quarter ended
March 31, 2000).
10.1 -- Credit Agreement dated as of April 6, 2001,
among the Registrant, as Borrower, certain
subsidiaries of the Registrant, as the other
Credit Parties, the lenders signatory
thereto from time to time, as Lenders, and
General Electric Capital Corporation, as
Agent and Lender (incorporated by reference
to Exhibit 10.1 to Current Report on Form
8-K filed on April 23, 2001).
(B) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the quarter
ended March 31, 2001.
On April 23, 2001, the Company filed a report on Form 8-K reporting
that on April 6, 2001 the Company entered into the Credit Facility.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Per-Se Technologies, Inc.
(Registrant)
By: /s/ CHRIS E. PERKINS
--------------------------------
Chris E. Perkins
Executive Vice President and
Chief Financial Officer
By: /s/ MARY C. CHISHOLM
--------------------------------
Mary C. Chisholm
Vice President and Controller
(Principal Accounting Officer)
Date: May 14, 2001
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INDEX TO EXHIBITS
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).
2.5 -- Asset Purchase Agreement dated as of April
27, 2001, among Registrant, Health Data
Services, Inc., Virtual Information Systems,
Inc., and Paul M. Helmick and William T.
Adams.
2.6 -- Asset Purchase Agreement dated as of April
27, 2001, among Registrant, Per-Se
Transaction Services, Inc., officemed.com
LLC, SoftLinc, Inc., and Daniel Mansfield.
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).
3.2 -- Restated By-laws of Registrant (incorporated
by reference to Exhibit 3.2 to Annual Report
on Form 10-K for the year ended December 31,
1999).
4.1 -- 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).
4.2 -- 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).
4.3 -- 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).
4.4 -- 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 on Form 10-Q for the quarter ended
March 31, 2000.
10.1 -- Credit Agreement dated as of April 6, 2001,
among the Registrant, as Borrower, certain
subsidiaries of the Registrant, as the other
Credit Parties, the lenders signatory
thereto from time to time, as Lenders, and
General Electric Capital Corporation, as
Agent and Lender (incorporated by reference
to Exhibit 10.1 to Current Report on Form
8-K filed on April 23, 2001).
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