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EXHIBIT 99.2
T0
CURRENT REPORT ON
FORM 8-K
OF
MEDAPHIS CORPORATION
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[MEDAPHIS LOGO]
INVESTOR CONTACT: CARYN DICKERSON
(770) 444-5348
MEDIA CONTACTS: MICHAEL SITRICK
DONNA WALTERS
(800) 288-8809
(770) 444-5707
MEDAPHIS TO RESTATE FY '94-'96, HALF OF '97; TAKES THIRD-QUARTER CHARGES;
CREDIT FACILITY EXTENDED TO JUNE 30, 1998; FORMER AUDITOR WITHDRAWS OPINIONS;
COMPANY REPORTS 9% POSITIVE SWING IN THIRD QUARTER EBITDA BEFORE CHARGES
ATLANTA, GEORGIA - (NOVEMBER 19, 1997) - Medaphis Corporation (NASDAQ:
MEDA) said today that, as a result of an ongoing review by management and its
independent accountants, it is restating its financial statements for fiscal
years 1994, 1995, 1996 and the first six months of fiscal year 1997. Medaphis
had disclosed the restatement possibility in October 1997.
The Company also stated that, due in part to a previously announced
class-action litigation settlement, it has taken $84.9 million in pre-tax
charges against earnings in the third quarter 1997, but its core businesses were
continuing to show improvement, as evidenced by a 9% improvement in earnings
before interest, taxes, depreciation and amortization (EBITDA) to $9.9 million
in this year's third quarter from $9.1 million in last year's third quarter,
before restructuring and other unusual charges. After charges, the Company
reported a loss in EBITDA of $8.7 million in the third quarter of this year,
versus a loss in EBITDA of $13.7 million in the third quarter last year.
Including pre-tax charges against earnings of $84.9 million in the third
quarter of this year, the Company reported a net loss of $80.0 million, compared
with a restated net loss in last year's third quarter of $32.0 million. Revenue
declined in the third quarter of this year to $124.6 million from $132.1 million
in the same period of last year. Last year's third quarter revenues
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included $7.8 million from the Company's Health Care Recoveries, Inc. (HRI) unit
which was sold in May of this year.
The Company said that restatements for the prior years and periods are due
to revenue recognition issues in 1994, 1995, 1996 and the first half of 1997 at
the Company's Health Data Sciences subsidiary, which was merged with the Company
in a June, 1996, transaction that was accounted for as a "pooling of interests."
The restatements result in a reduction of pre-tax earnings of $8.7 million in
1994 and increased pre-tax losses of $1.7 million in 1995 and $11.6 million in
1996. The restatement results in an increase in pre-tax earnings of $2.2 million
for the first half of 1997. Medaphis said that the restatements also result in a
cumulative reduction in assets of $20.5 million.
The $84.9 million in pre-tax charges in the third quarter of 1997
consisted of (i) $52.5 million charge for the settlement of class-action
litigation announced on August 14, 1997; (ii) $13.8 million in restructuring and
other charges principally for severance and other costs related to the
previously announced combination of Medaphis' HIT and BSG units and the
write-down of certain of the Company's fixed assets; and (iii) $18.6 million in
other unusual items.
Medaphis said that, subsequent to its decision to restate, its former
auditor, Deloitte & Touche, has advised the Company that it intends to withdraw
its opinions for fiscal years 1996 and prior. Price Waterhouse was named the
Company's independent auditors in July 1997. Medaphis said that Price Waterhouse
was engaged today to audit fiscal years 1995 and 1996. Price Waterhouse said it
expects to complete the audit by the end of this year.
The Company also announced it has obtained an agreement from the lenders
under its existing bank and lease finance facilities that (i) extends its
existing financing agreements through June 30, 1998; (ii) provides for continued
borrowings after the restatement; (iii) waives the mandatory reduction on
January 31, 1998 of the lenders' commitments to $150 million: (iv) establishes
certain monthly and quarterly financial covenants to be applicable during the
first two quarters of the Company's 1998 fiscal year; and (v) requires a minimum
EBITDA level for the
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1997 fiscal year. Last month, the Company announced that it had received an
extension from its lenders through January 31, 1998. Medaphis' existing bank
facility has approximately $168 million in commitments, of which approximately
$154 million is currently utilized. The facility is secured by substantially all
of the Company's assets.
Medaphis said that during the remainder of 1997 and, if necessary, the
first quarter of 1998, the Company expects to continue to explore a refinancing
of its bank credit facilities to enhance its credit, liquidity and financial
flexibility and to enable the Company under its current financial forecast to
meet its committed and other capital needs and scheduled debt repayments
throughout 1998 and later years. In that connection, the Company also intends to
explore other alternatives, including the possible divestiture of additional
assets and the sale of debt or equity securities. As previously announced, the
refinancing efforts include, but are not necessarily limited to: (i) discussions
with its existing lending syndicate for a longer-term committed facility and
increased liquidity; and (ii) a refinancing package, the components of which are
a $100 million senior bank financing facility and the completion of an offering
of at least $125 million in senior subordinated notes. Although the Company s
liquidity is presently sufficient to meet its current and -- subject to
effecting the the refinancings or other alternatives currently being pursued by
the Company, its anticipated needs -- should events negatively impact the
Company s forecasts, the Company may need to consider alternative sources of
funds, a reduction in capital expenditures, a more significant restructuring of
its capital structure or a combination of one or more of the foregoing. The
Company stated that while its financing efforts are continuing, there can be no
assurance that the Company will be able to effect any such alternatives on a
timely basis.
David E. McDowell, chairman and chief executive officer of Medaphis, said,
"While the restatements and non-recurring charges are certainly a serious
matter, we must make sure that historical issues are kept in the proper
perspective. Although I certainly am not happy about the chain of events that
resulted in today's announcements, and quite frankly, this process has been
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very time consuming, neither these restatements nor charges should change the
outlook for the future of this company.
"Despite the numerous setbacks in recent years suffered by this Company, we
continue to make significant progress on our business objectives. It is my
belief that the core business is not only sound, but has significant potential,"
he said.
For the first nine-months of 1997, Medaphis reported EBITDA before charges
of $44.5 million, versus $66.0 million in last year's restated nine-month
period. After the charges, the Company reported EBITDA for the nine-month period
this year of $25.8 million versus EBITDA for the same period last year of $43.1
million. Revenues decreased during the first nine months of fiscal 1997 to
$423.2 million, from $455.1 million for the same period last year as restated.
The Company reported a net loss of $5.5 million for the first nine months
of this year, including $84.9 million in pre-tax charges and a gain of $76.4
million net of tax on the sale of its HRI subsidiary, compared with a restated
net loss of $29.7 million for the same period last year. The prior year's
nine-month results included $41.2 million in pre-tax charges for that period.
Medaphis said that revenue for fiscal 1996 has been restated to $596.7
million, from $608.3 million, and the net loss has been restated to $131.9
million from a net loss of $124.6 million. Revenue for fiscal 1995 has been
restated to $558.2 million. from $559.9 million and the net loss has been
restated to $6.7 million from a net loss of $5.6 million. Revenue for fiscal
1994 has been restated to $390.2 million, from $398.9 million and net income has
been restated to $26.7 million from $32.5 million.
Mr. McDowell stated that since joining the Company, new management has been
reviewing every aspect of the Company in an effort to put the past behind it and
focus on the future.
"In February 1997, after assessing various alternatives and refinancing the
Company senior debt, new management announced its operating plan refocusing the
Company on its core
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businesses of providing business management services and information products
primarily to healthcare providers," he said. "The major components of that plan
were (i) exiting non-core businesses; (ii) achieving improved predictability of
business results through enhanced management accountability; (iii) reducing
costs and increasing efficiencies in the core business; (iv) achieving
excellence in client service; and (v) implementing cross-selling initiatives.
"We have already successfully completed certain phases of this operating
plan," Mr. McDowell said. "We look forward to being able to concentrate all of
our efforts in the future to effect the turnaround of this company."
Mr. McDowell added, "We are grateful for the continued confidence in the
Company and its future demonstrated by our lenders."
Medaphis is a leading provider of business management services and
information products to healthcare providers, corporations and other
organizations. Based in Atlanta, Georgia, Medaphis currently services
approximately 20,700 physicians and 2.700 hospitals across the nation and more
than 100 systems integration customers in industries including multiunit
retailing, energy, telecommunications, financial services, manufacturing and
transportation.
This Press Release contains statements which constitute "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. "Forward-looking statements" in this Press Release include the intent,
belief or current expectations of the Company and members of its senior
management team with respect to the timing of, completion of and scope of the
current reassessment of accounting matters, the availability, timing and terms
of bank and other forms of financing, and the public or private offering of debt
securities. debt and equity market conditions and the Company's future liquidity
prospects for the Company's core business, timing and results of any re-audit of
the Company's financial statement, as well as the assumptions upon which such
statements are based. Prospective investors are cautioned that any such
forward-looking statements are not guarantees of future performance, and involve
risks and uncertainties, and the actual results may differ materially from those
contemplated by such forward-looking statements. Important factors currently
known to management that could cause actual results to differ materially from
those contemplated by the forward-looking statements in the Press Release
include, but are not limited to, adverse developments with respect to the
Company's liquidity position or
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operations of the Company's various business units, adverse developments in the
Company's efforts to renegotiate its funding and adverse developments in the
bank financing or public or private markets for debt or equity securities, or
adverse developments in the timing or results of the Company's current
reassessment of accounting matters or delays in completing any required re-audit
of its financial statements. Additional information on matters discussed in this
press release, including factors that would cause actual results to differ
materially from those contemplated within this Press Release can be found in the
Company's Form 1O-Q for the quarter ended September 30, 1997 which was filed
with the U.S. Securities and Exchange Commission today.
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MEDAPHIS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands except per share data)
THREE MONTHS ENDED NINE MONTHS ENDED
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SEPTEMBER 30, September 30, SEPTEMBER 30, September 30,
1997 1996 1997 1996
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Revenue $124,649 $132,121 $423,162 $455,138
Salaries and wages 95,544 106,473 281,508 293,425
Other operating expenses 37,818 39,370 115,841 118,594
Depreciation 7,505 7,201 21,540 19,981
Amortization 4,374 4,809 13,729 15,026
Interest expense, net 7,246 3,284 19,417 8,019
Litigation settlement 52,500 -- 52,500 --
Restructuring and other charges 13,837 24,350 16,661 4,181
-------- -------- -------- --------
Total expenses 218,824 185,487 521,196 496,226
Income (loss) before income taxes and
extraordinary item (94,175) (53,366) (98,034) (41,088)
Income tax (benefit) expense (14,191) (20,767) (16,176) (10,443)
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Income (loss) before extraordinary item (79,984) (32,599) (81,858) (30,645)
Extraordinary income on sale of HRI, net of tax -- -- 76,391 --
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Net income (loss) (79,984) (32,599) (5,467) (30,645)
Pro forma income tax adjustments -- 625 -- 979
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Pro forma net income (loss) $(79,984) $(31,974) $ (5,467) $(29,666)
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Pro forma net income (loss) per common share:
Pro forma net income (loss) before
extraordinary item (1.10) (0.45) (1.13) (0.42)
Extraordinary income on sale of HRI -- -- 1.05 --
Pro forma net income (loss) $ (1.10) $ (0.45) $ (0.08) $ (0.42)
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Weighted average shares outstanding 72,942 71,665 72,542 71,123
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CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
SEPTEMBER 30, DECEMBER 31,
1997 1996
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ASSETS
Current assets $199,682 $255,239
Property and equipment 80,756 97,850
Deferred income taxes 75,599 50,211
Intangible assets 374,453 389,033
Other 4,972 1,570
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$735,462 $793,903
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities $296,291 $198,747
Long-term debt and capital lease obligations 6,595 215,752
Accrued litigation settlement 52,500 --
Other long-term obligations 11,737 13,830
Stockholders' equity 368,339 368,339
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$735,462 $793,903
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