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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 SEPTEMBER 30, 1999
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
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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, SUITE 300 30339
ATLANTA, GEORGIA (Zip code)
(Address of principal executive offices)
(770) 444-5300
(Registrant's telephone number, including area code)
MEDAPHIS CORPORATION
(Former name, former address and former fiscal year,
if changed since last report)
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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 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 NOVEMBER 5, 1999
-------------- -------------------
Common Stock $0.01 Par Value................................ 88,724,301 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 SEPTEMBER 30, 1999
PAGE
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Part I: FINANCIAL INFORMATION
Item 1: Financial Statements................................ 1
Consolidated Balance Sheets as of September 30, 1999 and
December 31, 1998...................................... 1
Consolidated Statements of Operations for the three and
nine months ended September 30, 1999 and 1998.......... 2
Consolidated Statements of Cash Flows for the nine months
ended September 30, 1999 and 1998...................... 3
Notes to Consolidated Financial Statements................ 4
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 11
Part II: OTHER INFORMATION
Item 1: Legal Proceedings................................... 18
Item 5: Other Matters....................................... 18
Item 6: Exhibits and Reports on Form 8-K.................... 18
Index to Exhibits........................................... 21
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THIS FORM 10-Q AND OTHER STATEMENTS ISSUED OR MADE FROM TIME TO TIME BY
PER-SE TECHNOLOGIES, INC. OR ITS REPRESENTATIVES CONTAIN STATEMENTS WHICH MAY
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. FIFTEEN U.S.C.A. SECTIONS 77Z-2 AND
78U-5 (SUPP. 1996). THOSE STATEMENTS INCLUDE STATEMENTS REGARDING THE INTENT,
BELIEF OR CURRENT EXPECTATIONS OF PER-SE TECHNOLOGIES, INC. AND MEMBERS OF ITS
MANAGEMENT TEAM AS WELL AS THE ASSUMPTIONS ON 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
THAT 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 IN FORWARD-LOOKING
STATEMENTS ARE SET FORTH IN THE SAFE HARBOR COMPLIANCE STATEMENT FOR
FORWARD-LOOKING STATEMENTS INCLUDED AS EXHIBIT 99.1 TO THIS FORM 10-Q, AND ARE
HEREBY INCORPORATED HEREIN BY REFERENCE. THE COMPANY UNDERTAKES NO OBLIGATION TO
UPDATE OR REVISE FORWARD-LOOKING STATEMENTS TO REFLECT CHANGED ASSUMPTIONS, THE
OCCURRENCE OF UNANTICIPATED EVENTS OR CHANGES TO FUTURE OPERATING RESULTS OVER
TIME.
3
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(IN THOUSANDS, EXCEPT PAR VALUE DATA)
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
Current Assets:
Cash and cash equivalents................................. $ 38,101 $ 54,409
Restricted cash........................................... 5,585 5,754
Accounts receivable, billed............................... 48,362 54,800
Accounts receivable, unbilled............................. 43,467 46,757
Other..................................................... 5,184 8,022
--------- ---------
Total current assets.............................. 140,699 169,742
Property and equipment, net................................. 37,796 47,954
Intangible assets........................................... 47,147 48,241
Net assets of discontinued operations....................... 8,345 11,872
Other....................................................... 5,785 8,912
--------- ---------
$ 239,772 $ 286,721
========= =========
Current Liabilities:
Accounts payable.......................................... $ 7,043 $ 8,550
Accrued compensation...................................... 21,387 21,234
Accrued expenses.......................................... 17,031 22,361
Accrued litigation settlements............................ 9,297 12,026
Current portion of long-term debt......................... 42 1,067
Deferred revenue.......................................... 20,760 18,289
--------- ---------
Total current liabilities......................... 75,560 83,527
Long-term debt.............................................. 175,000 175,013
Accrued litigation settlements.............................. 3,865 20,250
Other obligations........................................... 3,714 5,608
--------- ---------
Total liabilities................................. 258,139 284,398
--------- ---------
Stockholders' Equity:
Preferred stock, no par value, 20,000 authorized; none
issued................................................. -- --
Common stock, voting, $0.01 par value, 200,000 authorized;
90,924 and 78,745 issued and outstanding in 1999 and
1998, respectively..................................... 909 787
Common stock, non voting, $0.01 par value, 600 authorized;
none issued............................................ -- --
Paid-in capital........................................... 776,257 740,014
Warrants.................................................. 1,495 --
Accumulated deficit....................................... (797,028) (738,390)
--------- ---------
(18,367) 2,411
Less treasury stock, at cost -- 15 shares in 1998........... -- 88
--------- ---------
Total stockholders' equity........................ (18,367) 2,323
--------- ---------
$ 239,772 $ 286,721
========= =========
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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- ---------------------
1999 1998 1999 1998
------- --------- -------- ---------
Revenue...................................... $81,270 $ 81,979 $245,001 $ 266,657
------- --------- -------- ---------
Salaries and wages........................... 53,388 59,680 160,311 173,095
Other operating expenses..................... 26,363 39,083 84,260 95,699
Depreciation................................. 4,189 5,603 16,629 17,420
Amortization................................. 2,357 5,045 6,872 15,743
Interest expense, net........................ 4,075 6,196 11,858 18,418
Intangible asset impairment.................. -- 390,641 -- 390,641
Legal settlements............................ (4,439) 19,500 24,811 41,375
Restructuring and other charges.............. -- 1,770 -- 3,377
------- --------- -------- ---------
Total expenses..................... 85,933 527,518 304,741 755,768
------- --------- -------- ---------
Loss before income taxes..................... (4,663) (445,539) (59,740) (489,111)
Income tax expense (benefit)................. 22 67,621 (502) 62,582
------- --------- -------- ---------
Loss from continuing operations.............. (4,685) (513,160) (59,238) (551,693)
------- --------- -------- ---------
Discontinued operations, net of tax:
Income (loss) from discontinued
operations............................ 1,351 (2,845) 2,012 723
Gain (loss) on sale of subsidiary, net
of additional expenses................ (5,955) -- (1,468) --
------- --------- -------- ---------
(4,604) (2,845) 544 723
------- --------- -------- ---------
Loss before extraordinary item............... (9,289) (516,005) (58,694) (550,970)
Extraordinary item, net of tax............... -- -- -- (5,557)
------- --------- -------- ---------
Net loss........................... $(9,289) $(516,005) $(58,694) $(556,527)
======= ========= ======== =========
Basic net (loss) income per common share:
Loss from continuing operations......... $ (0.06) $ (6.52) $ (0.72) $ (7.22)
(Loss) income from discontinued
operations, net of tax................ (0.05) (0.04) 0.01 0.01
Extraordinary item, net of tax.......... -- -- -- (0.07)
------- --------- -------- ---------
Net loss................................ $ (0.11) $ (6.56) $ (0.71) $ (7.28)
======= ========= ======== =========
Weighted average shares outstanding.......... 85,394 78,655 82,573 76,442
======= ========= ======== =========
See notes to consolidated financial statements.
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PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------
1999 1998
-------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................... $(58,694) $(556,527)
Adjustments to reconcile net loss to net cash used for
operating activities:
Income from discontinued operations....................... (2,012) (723)
Depreciation and amortization............................. 23,501 33,163
Loss on sale of subsidiaries.............................. 1,141 --
Impairment losses on long-lived assets.................... -- 390,641
Early extinguishment of debt.............................. -- 9,231
Non-cash legal settlement costs........................... 21,433 --
Deferred income taxes..................................... -- 60,857
Changes in assets and liabilities, excluding effects of
acquisitions and divestitures:
Restricted cash......................................... 392 2,500
Accounts receivable, billed............................. 6,438 8,605
Accounts receivable, unbilled........................... 3,290 11,556
Accounts payable........................................ (1,507) (1,341)
Accrued compensation.................................... 153 (1,701)
Accrued expenses........................................ (8,572) (6,962)
Accrued litigation settlements.......................... (8,153) 41,375
Deferred revenue........................................ 2,471 187
Other, net.............................................. 3,811 6,010
-------- ---------
Net cash used for continuing operations............ (16,308) (3,129)
Net cash (used for) provided by discontinued
operations........................................ (3,292) 2,351
-------- ---------
Net cash used for operating activities............. (19,600) (778)
-------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment....................... (6,210) (18,590)
Software development costs................................ (5,777) (3,217)
Proceeds from sale of subsidiaries, net................... 12,664 --
Proceeds from sale of property and equipment.............. 2,751 764
Other..................................................... -- (468)
-------- ---------
Net cash provided by (used for) investing
activities........................................ 3,428 (21,511)
-------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock.................... 920 1,446
Proceeds from the exercise of stock options............... 214 5,683
Proceeds from borrowings.................................. -- 339,467
Payments of debt.......................................... (1,038) (315,248)
Debt issuance costs....................................... (232) (12,432)
-------- ---------
Net cash (used for) provided by financing
activities........................................ (136) 18,916
-------- ---------
CASH AND CASH EQUIVALENTS:
Net change................................................ (16,308) (3,373)
Balance at beginning of period............................ 54,409 14,729
-------- ---------
Balance at end of period.................................. $ 38,101 $ 11,356
======== =========
SUPPLEMENTAL DISCLOSURES:
Cash paid for:
Interest................................................ $ 16,761 $ 13,926
Income taxes............................................ 946 1,482
Non-cash investing and financing activities:
Issuance of Common Stock upon funding of litigation
settlement............................................ 32,710 52,500
Issuance of stock warrants.............................. 1,495 --
Additions to capital lease obligations.................. -- 42
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. ("Per-Se" or the "Company"), formerly Medaphis
Corporation, 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, 1998 included in the Company's
Annual Report on Form 10-K filed March 19, 1999.
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.
As more thoroughly discussed in Note 2, the Medaphis Services Corporation
("Hospital Services") and Impact Innovations Group ("Impact") segments have been
presented as discontinued operations for all periods presented.
NOTE 2. DISCONTINUED OPERATIONS
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 Hospital Services' final closing balance sheet and payment on
certain Hospital Services' accounts receivable retained by Per-Se. The
additional consideration resulted in the recognition of an additional gain of
$0.5 million, net of tax of $0.3 million. Also, Per-Se could receive a purchase
price adjustment of up to $10.0 million subject to Hospital Services'
achievement of various operational targets in 1999.
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.
On November 4, 1999, the Company entered into a definitive stock purchase
agreement for the sale of the government division of Impact to J3 Technology
Services Corp. The initial purchase price is $45.0 million subject to certain
closing adjustments. The transaction is expected to close by the end of 1999.
Pursuant to Accounting Principles Board Opinion 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" ("APB No. 30"), the consolidated financial statements of the
Company have been presented to reflect both Hospital Services and Impact as
discontinued operations for all periods presented.
The net operating results of these segments have been reported in the
Consolidated Statements of Operations as "Income (loss) from discontinued
operations"; the net assets have been reported in the Consolidated Balance
Sheets as "Net assets of 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."
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PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
Summarized financial information for the discontinued operations is as
follows (the 1999 Impact results include the commercial division through April
15, 1999 -- the effective date of the sale):
FOR THE THREE MONTHS ENDED SEPTEMBER 30,
------------------------------------------
1999 1998
-------- -------------------------------
HOSPITAL
IMPACT SERVICES IMPACT TOTAL
------ -------- ------ -----
(IN THOUSANDS)
Revenue........................................... $11,234 $29,124 $19,375 $48,499
======= ======= ======= =======
Income from discontinued operations before income
taxes........................................... 1,351 2,301 (4,203) (1,902)
Income tax expense................................ -- 943 -- 943
------- ------- ------- -------
Income from discontinued operations, net of tax... $ 1,351 $ 1,358 $(4,203) $(2,845)
======= ======= ======= =======
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------------
1999 1998
------- -----------------------------
HOSPITAL
IMPACT SERVICES IMPACT TOTAL
------ -------- ------ -----
(IN THOUSANDS)
Revenue.......................................... $44,411 $81,081 $62,079 $143,160
======= ======= ======= ========
Income from discontinued operations before income
taxes.......................................... 2,210 6,247 (2,946) 3,301
Income tax expense............................... 198 2,578 -- 2,578
------- ------- ------- --------
Income from discontinued operations, net of
tax............................................ $ 2,012 $ 3,669 $(2,946) $ 723
======= ======= ======= ========
AS OF SEPTEMBER 30, AS OF DECEMBER 31,
1999 1998
------------------- ------------------
IMPACT IMPACT
------------------- ------------------
(IN THOUSANDS)
Current assets..................................... $10,427 $16,399
Total assets....................................... 12,074 21,829
Current liabilities................................ 3,478 9,787
Total liabilities.................................. 3,729 9,957
Net assets of discontinued operations.............. 8,345 11,872
NOTE 3. INTANGIBLE ASSET IMPAIRMENT
At September 30, 1998, the Company recorded an intangible asset impairment
charge of $390.6 million to adjust the intangible assets 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.
NOTE 4. LEGAL MATTERS
SETTLED LEGAL MATTERS
On June 21, 1999, the Company finalized the 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 and $2.2 million, in the aggregate, to the participating
states on October 1, 1999. The balance of $4.8 million will be paid as follows:
$1.2 million to the United States on December 31, 1999 and $0.9 million to the
United States at the end of each calendar quarter of 2000. The deferred portion
of the settlement payment will bear interest at the one-year Treasury Bill rate.
All pending claims against the Company by the United States and the Relator in
underlying qui tam litigation
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PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
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 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 500,000 shares of
Common Stock and warrants to purchase an additional 500,000 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 malpractice claim.
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 976,771
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 4,000,000 shares of Per-Se Common Stock issued to Foundation.
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 have reached an agreement to
refund $5.3 million to SCI. The Company paid $3.2 million to SCI on November 4,
1999 and issued a promissory note for $2.1 million bearing interest at 8.25%
payable on October 31, 2000.
PENDING LEGAL MATTERS
On May 10, 1999, a motion to reopen the putative class action complaint
filed by Ernest Hecht and Stephen D. Strandberger was granted. During 1998, this
case had been dismissed with prejudice and without leave to amend. The
reinstated appeal is pending. The Company is unable to estimate a range of loss,
if any, related to this matter.
NOTE 5. RESTRUCTURING AND OTHER CHARGES
During the nine months ended September 30, 1998, the Company recorded
approximately $0.2 million of restructuring costs for the reorganization of
several corporate and operating division departments.
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PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
In the three and nine months ended September 30, 1998, the Company recorded
charges of $0.1 million and $0.8 million, respectively, for the legal and
administrative fees, costs and expenses associated with various legal matters.
In addition, the Company settled various legal matters for $1.2 million in the
third quarter of 1998.
The Company recorded charges of $0.5 million and $1.2 million in the three
and nine months ended September 30, 1998, respectively, for severance costs
associated with former executive management.
The description of the type and amount of restructuring costs recorded and
applied against each reserve in the nine months ended September 30, 1999 is as
follows:
RESERVE COSTS RESERVE
BALANCE APPLIED BALANCE
DECEMBER 31, AGAINST SEPTEMBER 30,
1998 RESERVE 1999
------------ ------- -------------
(IN THOUSANDS)
Lease termination costs............................. $4,292 $ (601) $3,691
Severance........................................... 1,148 (875) 273
------ ------- ------
$5,440 $(1,476) $3,964
====== ======= ======
NOTE 6. LONG TERM DEBT
Under the indenture governing the 9 1/2% $175 million of Senior Notes due
2005 (the "Notes"), the balance of the excess sale proceeds, as defined, from
the sale of Hospital Services, the commercial division of Impact, the government
division of Impact or from 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. To the extent that such excess
proceeds are not invested and 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. Currently, it is management's intention to invest the
excess proceeds from the November 1998 sale of Hospital Services and the April
1999 sale of the commercial division of Impact in the Company.
NOTE 7. INCOME TAXES
At September 30, 1998, the Company reassessed the recoverability of its
deferred tax asset. Based on its analysis, the Company determined a full
valuation allowance of $67.6 million against the deferred tax asset was
required. If management believes the Company will generate sufficient taxable
income to realize the deferred tax asset, then the Company will adjust this
valuation reserve accordingly.
NOTE 8. STOCKHOLDERS' EQUITY
In April 1999, the Company issued 5,000,000 shares of Common Stock in
accordance with the January 13, 1999 settlement agreement of a previously
resolved legal matter. As a result of the issuance of the shares, non-current
accrued litigation settlements was reduced by $15.9 million with a corresponding
increase in stockholders' equity in the second quarter of 1999.
During the third quarter of 1999, the Company issued 500,000 shares of
Common Stock and warrants to purchase an additional 500,000 shares of Common
Stock in accordance with the June 24, 1999 settlement of the legal matter
related to Per-Se's acquisition of MMS. As a result of the issuance of the
shares and the warrants, non-current accrued litigation settlements was reduced
by $4.0 million with a corresponding increase in stockholders' equity in the
third quarter of 1999.
In July 1999, the Company reached an agreement in principle to settle its
legal dispute with Foundation resulting from the Company's acquisition of HDS in
1996. Based on the agreement in principle, the Company recorded a legal
settlement charge of $21.5 million in the second quarter of 1999.
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PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
In September 1999, the Company issued 6,200,000 shares of Common Stock to
Foundation to be sold by Foundation in order to satisfy the balance due under
the agreement in principle. If fewer than the 6,200,000 shares issued were
necessary to satisfy the remaining balance due, any excess shares would be
returned to the Company and cancelled. As a result of the issuance of the
shares, non-current accrued litigation settlements was reduced by $16.8 million
with a corresponding increase in stockholders' equity at September 30, 1999.
In October 1999, the agreement with Foundation was finalized and Foundation
realized $25.0 million from its investment in HDS as follows: $3.6 million from
the sale of 976,771 shares of Per-Se Common Stock received by Foundation in the
HDS transaction, $4.6 million in cash funded by the Company's insurers, $5.0
million in cash paid by Per-Se and $11.8 million from the sale of 4,000,000
shares of Per-Se Common Stock. The 2,200,000 excess shares were returned to the
Company and cancelled on October 29, 1999. As a result of the final settlement,
stockholders' equity will be decreased by $5.0 million during the fourth quarter
of 1999.
NOTE 9. SEGMENT REPORTING
The Company's reportable segments are strategic business units that offer
different services and products. Per-Se provides its services and products
through its Physician Services segment and its Software and E-Commerce segment
(formerly the Per-Se Technologies segment).
The Physician Services segment provides business management services to
physicians and healthcare organizations, 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 and
healthcare organizations in improving cash flows and reducing administrative
costs and burdens.
The Software and E-Commerce segment provides integrated financial and
clinical software to include patient scheduling, staff management, clinical
information systems and patient financial management software. In addition, the
Software and E-Commerce segment offers Internet-enabled connectivity to both
integrated healthcare delivery networks and physician practices, including
electronic claims processing, referral submissions, eligibility verification and
other electronic transaction processing.
The Software and E-Commerce segment includes the results of the electronic
commerce group for all periods presented. Some parts of this group had
previously been included in the Physician Services and Hospital Services
segments. Also, certain expenses previously included in Corporate overhead have
been reclassified to the Physician Services segment and the Software and
E-Commerce segment for all periods presented.
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.
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11
PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
Information concerning the operations in these reportable segments is as
follows:
THREE THREE
MONTHS MONTHS NINE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
------------- ------------- ------------- -------------
(IN THOUSANDS)
Revenue:
Physician Services................. $60,224 $ 62,534 $183,143 $ 202,236
Software and E-Commerce............ 23,939 22,331 70,500 72,990
Eliminations....................... (2,893) (2,886) (8,642) (8,569)
------- --------- -------- ---------
$81,270 $ 81,979 $245,001 $ 266,657
======= ========= ======== =========
Operating profit (loss) (1):
Physician Services................. $(1,468) $ (11,494) $ (5,974) $ (10,252)
Software and E-Commerce............ 962 (9,766) (1,984) (8,290)
Corporate.......................... (4,521) (6,172) (15,113) (16,758)
------- --------- -------- ---------
$(5,027) $ (27,432) $(23,071) $ (35,300)
======= ========= ======== =========
Interest expense, net................ $ 4,075 $ 6,196 $ 11,858 $ 18,418
======= ========= ======== =========
Restructuring and other charges
(including intangible asset
impairment and legal settlements):
Physician Services................. $ -- $ 410,458 $ 1,750 $ 410,458
Software and E-Commerce............ -- (50) -- 112
Corporate.......................... (4,439) 1,503 23,061 24,823
------- --------- -------- ---------
$(4,439) $ 411,911 $ 24,811 $ 435,393
======= ========= ======== =========
Loss before income taxes............. $(4,663) $(445,539) $(59,740) $(489,111)
======= ========= ======== =========
Depreciation and amortization:
Physician Services................. $ 3,270 $ 7,355 $ 12,384 $ 23,502
Software and E-Commerce............ 2,186 2,325 6,857 6,921
Corporate.......................... 1,090 968 4,260 2,740
------- --------- -------- ---------
$ 6,546 $ 10,648 $ 23,501 $ 33,163
======= ========= ======== =========
Capital expenditures:
Physician Services................. $ 1,111 $ 763 $ 4,252 $ 12,822
Software and E-Commerce............ 371 594 1,299 3,382
Corporate.......................... 187 436 659 2,386
------- --------- -------- ---------
$ 1,669 $ 1,793 $ 6,210 $ 18,590
======= ========= ======== =========
9
12
PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
AS OF AS OF
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
(IN THOUSANDS)
Identifiable Assets:
Physician Services........................................ $118,039 $134,485
Software and E-Commerce................................... 61,557 65,320
Corporate (2)............................................. 60,176 86,916
-------- --------
$239,772 $286,721
======== ========
- ---------------
(1) Excludes restructuring and other charges, intangible asset impairment, legal
settlements and interest expense.
(2) Includes net assets of $8,345 and $11,872, respectively, related to the
discontinued operations.
10
13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
Per-Se Technologies, Inc. ("Per-Se" or the "Company"), formerly Medaphis
Corporation, incorporated in 1985 in Delaware, is a global leader in delivering
comprehensive business management services, integrated financial and clinical
software solutions and Internet-enabled connectivity to healthcare providers.
Per-Se delivers its services and products through its Physician Services segment
and its Software and E-Commerce segment (formerly the Per-Se Technologies
segment).
Physician Services provides business management services to physicians and
healthcare organizations, 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 and
healthcare organizations in improving cash flows and reducing administrative
costs and burdens.
The Software and E-Commerce segment provides integrated financial and
clinical software to include patient scheduling, staff management, clinical
information systems and patient financial management software. In addition, the
Software and E-Commerce segment offers Internet-enabled connectivity to both
integrated healthcare delivery networks and physician practices, including
electronic claims processing, referral submissions, eligibility verification and
other electronic transaction processing.
The Company provides consulting services through its Impact Innovations
Group ("Impact") segment. After reviewing several alternatives for Impact
throughout 1998, management concluded a sale of this segment (comprised of two
divisions: commercial and government) would generate the greatest return to the
stockholders and finalized its plan to sell 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.
On November 4, 1999, the Company entered into a definitive stock purchase
agreement for the sale of the government division of Impact to J3 Technology
Services Corp. The initial purchase price is $45.0 million subject to certain
closing adjustments. The transaction is expected to close by the end of 1999.
Per-Se markets its products and services primarily to integrated healthcare
delivery networks, hospitals, physician practices, long-term care facilities,
home health providers and managed care providers.
RESULTS OF OPERATIONS
Three Months Ended September 30, 1999 Compared to Three Months Ended September
30, 1998
Revenue. Revenue classified by the Company's different operating segments
is as follows:
THREE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ ------------------
1999 1998
------------------ ------------------
(IN THOUSANDS)
Physician Services.............................. $60,224 $62,534
Software and E-Commerce......................... 23,939 22,331
Eliminations.................................... (2,893) (2,886)
------- -------
$81,270 $81,979
======= =======
Physician Services' revenue decreased 3.7% to $60.2 million in the third
quarter of 1999 from $62.5 million in the same period in 1998. The decline in
revenue is attributable to operating issues resulting in client discontinuances
throughout 1998 primarily at the Company's wholly-owned operating subsidiary,
PST Emergency Medicine Services, Inc. (the "Emergency Medicine division"),
formerly Gottlieb's Financial Services, Inc. These discontinuances were
partially offset by the addition of new business during 1999.
11
14
The Physician Services segment continues to be affected by the revenue pressures
on the physician accounts receivable operation resulting from an increase in
managed care.
Software and E-Commerce's revenue increased 7.2% to $23.9 million in the
third quarter of 1999 from $22.3 million in the same period in 1998. This
increase is a result of higher internal and external E-Commerce transaction
volumes. Software and E-Commerce also experienced increases in software
consulting services and software maintenance revenue. These increases were
partially offset by lower software license revenue.
Operating Profit (Loss). Operating profit (loss), which excludes
intangible asset impairment, legal settlements, restructuring and other charges
and interest expense, classified by the Company's reportable segments is as
follows:
THREE THREE
MONTHS MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998
------------- -------------
(IN THOUSANDS)
Physician Services.......................................... $(1,468) $(11,494)
Software and E-Commerce..................................... 962 (9,766)
Corporate................................................... (4,521) (6,172)
------- --------
$(5,027) $(27,432)
======= ========
Physician Services' had an operating loss of $1.5 million for the three
months ended September 30, 1999 as compared to a loss of $11.5 million for the
same period in 1998. The decrease is attributable to a $4.0 million increase in
the allowance for doubtful accounts during the three months ended September 30,
1998, lower salaries and wages attributable to staff reductions and lower
amortization expense resulting from the intangible asset impairment charge of
$390.6 million which was recorded during the quarter ended September 30, 1998.
Software and E-Commerce had an operating profit of $1.0 million for the
three months ended September 30, 1999 as compared to a loss of $9.8 million for
the same period in 1998. The increase is primarily a result of increases in the
allowance for doubtful accounts of $7.3 million during the three months ended
September 30, 1998, lower salaries and wages expense and the previously
mentioned revenue increases during the quarter.
The Company's overhead decreased 26.8% for the three months ended September
30, 1999 as compared to the same period in 1998. The decrease in the Company's
overhead is related to management's continued commitment to reduce costs where
feasible and create efficient processes. For the quarter ended September 30,
1998, certain corporate overhead expenses of $1.6 million and $0.6 million have
been reclassified to the Physician Services segment and the Software and
E-Commerce segment, respectively.
Interest. Net interest expense was $4.1 million for the three months ended
September 30, 1999 as compared with $6.2 million for the three months ended
September 30, 1998. The decrease is attributable to less debt outstanding and
interest income of $0.6 million generated from the short-term investment of
cash.
Intangible Asset Impairment. At September 30, 1998, the Company recorded
an intangible asset impairment charge of $390.6 million to adjust the intangible
assets of the Physician Services segment to their fair value. As previously
disclosed, 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.
Legal Settlements. In September 1999, the Company reduced its legal
settlement expense by $4.4 million related to the Company's legal dispute with
Foundation Health Services, Inc. ("Foundation"), formerly Heath Systems
International, Inc., arising from Per-Se's June 1996 acquisition of Health Data
Sciences Corporation ("HDS"). The Company had recorded an estimated litigation
settlement expense of $21.5 million in the quarter ended June 30, 1999 based on
an agreement in principle with Foundation. When
12
15
the agreement was finalized in October 1999, the cost to the Company was reduced
to $17.0 million. As a result, the legal settlement expense was reduced by $4.4
million.
The Company accrued $19.5 million during the third quarter of 1998 as a
result of its resolution with the government concerning two federal
investigations into billing and collection practices of the Company.
Restructuring and Other Charges. In addition to the $390.6 million
intangible asset impairment charge and the $19.5 million legal settlement charge
previously discussed, the Company recorded charges of $1.8 million during the
three months ended September 30, 1998 related to various severance and legal
matters.
Income Taxes. Based on recent events and the current operating forecast,
the Company does not believe it is more likely than not that net operating
losses (NOLs) will be realized; therefore a tax benefit has not been recognized
related to the NOLs during the three months ended September 30, 1999.
At September 30, 1998, the Company reassessed the recoverability of its
deferred tax asset. Based on its analysis, the Company determined a full
valuation allowance of $67.6 million against the deferred tax asset was
required. If management believes the Company will generate sufficient taxable
income to realize the deferred tax asset, then the Company will adjust this
valuation reserve accordingly.
Discontinued Operations. Summarized financial information for the
discontinued operations for the three-month periods ended September 30, 1999 and
1998 is as follows (the 1999 Impact results exclude the commercial division
which was sold effective April 15, 1999):
FOR THE THREE MONTHS ENDED SEPTEMBER 30,
------------------------------------------
1999 1998
-------- -------------------------------
HOSPITAL
IMPACT SERVICES IMPACT TOTAL
------ -------- ------ -----
(IN THOUSANDS)
Revenue........................................... $11,234 $29,124 $19,375 $48,499
======= ======= ======= =======
Income from discontinued operations before income
taxes........................................... 1,351 2,301 (4,203) (1,902)
Income tax expense................................ -- 943 -- 943
------- ------- ------- -------
Income from discontinued operations, net of tax... $ 1,351 $ 1,358 $(4,203) $(2,845)
======= ======= ======= =======
On November 30, 1998, the Company completed the sale of Medaphis Services
Corporation ("Hospital Services") to NCO Group, Inc. for initial consideration
of $107.5 million. During the first quarter of 1999, the Company received
additional consideration of $0.8 million based on Hospital Services' final
closing balance sheet and payment on certain Hospital Services' accounts
receivable retained by Per-Se. The additional consideration resulted in the
recognition of an additional gain of $0.5 million, net of tax of $0.3 million.
Also, Per-Se could receive a purchase price adjustment of up to $10.0 million
subject to Hospital Services' achievement of various operational targets in
1999.
The Company sold the commercial division of Impact to CBSI effective April
15, 1999 for $14.4 million, net of the final closing balance sheet adjustment of
$0.6 million which was paid July 16, 1999.
On November 4, 1999, the Company entered into a definitive stock purchase
agreement for the sale of the government division of Impact to J3 Technology
Services Corp. The initial purchase price is $45.0 million subject to certain
closing adjustments. The transaction is expected to close by the end of 1999.
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 the commercial division of Impact
under a consulting contract. Although the commercial division of Impact was sold
effective April 15, 1999, the Company retained responsibility for the matter
with SCI. The Company paid $3.2 million to SCI on November 4, 1999 and issued a
promissory note for $2.1 million bearing interest at 8.25% payable on October
31, 2000.
13
16
Nine Months Ended September 30, 1999 Compared to Nine Months Ended September
30, 1998
Revenue. Revenue classified by the Company's different operating segments
is as follows:
NINE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998
------------- -------------
(IN THOUSANDS)
Physician Services.......................................... $183,143 $202,236
Software and E-Commerce..................................... 70,500 72,990
Eliminations................................................ (8,642) (8,569)
-------- --------
$245,001 $266,657
======== ========
Physician Services' revenue decreased 9.4% to $183.1 million for the nine
months ended September 30, 1999 from $202.2 million in the same period in 1998.
The decline in revenue is attributable to operating issues resulting in client
discontinuances throughout 1998 primarily at the Emergency Medicine division.
These discontinuances were partially offset by the addition of new business in
1999. The Physician Services segment continues to be affected by the revenue
pressures on the physician accounts receivable operation resulting from an
increase in managed care.
Software and E-Commerce's revenue decreased 3.4% to $70.5 million for the
nine months ended September 30, 1999 from $73.0 million in the same period in
1998. This decrease is primarily a result of lower software license revenue and
more contracts requiring percentage of completion accounting. The decrease in
software license revenue was partially offset by higher software maintenance
revenue, consulting revenue and E-Commerce revenue.
Operating Profit (Loss). Operating profit (loss), which excludes
intangible asset impairment, legal settlements, restructuring and other charges
and interest expense, classified by the Company's reportable segments is as
follows:
NINE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998
------------- -------------
(IN THOUSANDS)
Physician Services.......................................... $ (5,974) $(10,252)
Software and E-Commerce..................................... (1,984) (8,290)
Corporate................................................... (15,113) (16,758)
-------- --------
$(23,071) $(35,300)
======== ========
Physician Services' had an operating loss of $6.0 million for the nine
months ended September 30, 1999 as compared to a loss of $10.3 million for the
same period in 1998. The decrease is attributable to a $4.0 million increase in
the allowance for doubtful accounts during the nine months ended September 30,
1998, lower salaries and wages attributable to staff reductions and lower
amortization expense resulting from the intangible asset impairment charge of
$390.6 million which was recorded during the nine months ended September 30,
1998.
Software and E-Commerce had an operating loss of $2.0 million for the nine
months ended September 30, 1999 as compared to a loss of $8.3 million for the
same period in 1998. The decrease is primarily the result of increases in
allowance for doubtful accounts recognized in 1998 and lower salaries and wages
expense in 1999 due to staff reductions.
The Company's corporate overhead decreased 9.8% for the nine months ended
September 30, 1999 as compared to the same period in 1998. The decrease in the
Company's overhead is related to management's continued commitment to reduce
costs where feasible and create efficient processes. For the nine months ended
September 30, 1998, certain corporate overhead expenses of $4.9 million and $2.1
million have been reclassified to the Physician Services segment and the
Software and E-Commerce segment, respectively.
14
17
Interest. Net interest expense was $11.9 million for the nine-month period
ended September 30, 1999 as compared to $18.4 million in the same period of
1998. The decrease is primarily related to less debt outstanding and interest
income of $1.9 million generated from the short-term investment of cash.
Intangible Asset Impairment. At September 30, 1998, the Company recorded
an intangible asset impairment charge of $390.6 million to adjust the intangible
assets of the Physician Services segment to their fair value. As previously
disclosed, 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.
Legal Settlements. During the nine months ended September 30, 1999, the
Company recorded legal settlement charges of $17.0 million and $6.0 million
related to legal disputes arising from Per-Se's June 1996 acquisition of HDS and
December 1995 acquisition of Medical Management Sciences, Inc. ("MMS"),
respectively. In addition, the Company paid $1.8 million to settle contract
claims against the Emergency Medicine division which arose in January 1998 in
the ordinary course of business.
During the nine months ended September 30, 1998, the Company recorded 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. This settlement was
subsequently finalized during the fourth quarter of 1998 for $15.9 million. A
reduction to litigation settlements totaling approximately $5.4 million was
recorded in the fourth quarter to reflect the final settlement value.
In addition, the Company accrued $19.5 million during the third quarter of
1998 related to two federal investigations into billing and collection practices
of the Company. The Company also recorded $0.6 million in the nine months ended
September 30, 1998 in connection with the settlement of two other legal matters.
Restructuring and Other Charges. In addition to the $390.6 million
intangible asset impairment charge and the $41.4 million legal settlement charge
previously discussed, the Company recorded charges of $3.4 million during the
nine months ended September 30, 1998 related to various restructuring, severance
and legal matters.
Income Taxes. Based on recent events and the current operating forecast,
the Company does not believe it is more likely than not that net operating
losses (NOLs) will be realized; therefore a tax benefit has not been recognized
related to the NOLs during the nine months ended September 30, 1999.
At September 30, 1998, the Company reassessed the recoverability of its
deferred tax asset. Based on its analysis, the Company determined a full
valuation allowance of $67.6 million against the deferred tax asset was
required. If management believes the Company will generate sufficient taxable
income to realize the deferred tax asset, then the Company will adjust this
valuation reserve accordingly.
Discontinued Operations. Summarized financial information for the
discontinued operations for the nine-month periods ended September 30, 1999 and
1998 is as follows (the 1999 Impact results include the commercial division
through April 15, 1999 -- the effective date of the sale):
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------------
1999 1998
------- -----------------------------
HOSPITAL
IMPACT SERVICES IMPACT TOTAL
------ -------- ------ -----
(IN THOUSANDS)
Revenue.......................................... $44,411 $81,081 $62,079 $143,160
======= ======= ======= ========
Income from discontinued operations before income
taxes.......................................... 2,210 6,247 (2,946) 3,301
Income tax expense............................... 198 2,578 -- 2,578
------- ------- ------- --------
Income from discontinued operations, net of
tax............................................ $ 2,012 $ 3,669 $(2,946) $ 723
======= ======= ======= ========
15
18
Extraordinary Item. During the nine months ended September 30, 1998, the
Company recorded a charge of $5.6 million, net of tax of $3.6 million, to
write-off the unamortized costs associated with the Company's then-current debt
facility.
LIQUIDITY AND CAPITAL RESOURCES
The Company had working capital of $65.1 million at September 30, 1999,
including $38.1 million of unrestricted cash and cash equivalents. The $16.3
million decrease in cash and cash equivalents from December 31, 1998 is
primarily a result of the payment of semi-annual interest payments required
under the 9 1/2% $175 million of Senior Notes due February 15, 2005 (the
"Notes") and payments made in accordance with the provisions of the settlement
reached with the government concerning the Emergency Medicine division.
The Company sold the commercial division of Impact to 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. On November 4, 1999, the Company
entered into a definitive stock purchase agreement for the sale of the
government division of Impact to J3 Technology Services Corp. The initial
purchase price is $45.0 million subject to certain closing adjustments. The
transaction is expected to close by the end of 1999.
Under the Indenture governing the Notes, the balance of the excess sale
proceeds, as defined, from the sale of Hospital Services, the commercial
division of Impact, the government division 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.
To the extent that such excess proceeds are not invested and 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. Currently, it is
management's intention to invest the estimated excess proceeds in the Company.
As of September 30, 1999, excess proceeds related to the sale of Hospital
Services were approximately $14.0 million of which $13.5 million must be
invested by November 25, 1999 and the balance of $0.5 million must be reinvested
by February 6, 2000. The excess proceeds from the sale of the commercial
division of Impact were approximately $6.7 million at September 30, 1999 and
must be invested by April 15, 2000.
The Company believes that its current cash position 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.
To enhance the Company's financial flexibility, management is currently
seeking a replacement credit facility. This flexibility would give management
the ability to make prudent strategic investments in the business. Additionally,
management anticipates receiving proceeds from the sale of the government
division of Impact by the end of 1999 which will be available to invest in the
business subject to the limitations discussed above.
YEAR 2000
It is possible that the Company's currently installed computer systems,
software products or other business systems, or those of the Company's
customers, vendors or resellers, working either alone or in conjunction with
other software or systems, will not accept input of, store, manipulate and
output dates for the years 1999, 2000 or thereafter without error or
interruption (commonly known as the "Year 2000" problem). The Company has
conducted a Company-wide review of its business systems, including its computer
systems, and is querying its customers, vendors and resellers as to their
progress in identifying and addressing problems that their computer systems may
face in correctly interrelating and processing date information as the year 2000
approaches and is reached. Through its Company-wide review, the Company had
identified a number of older legacy systems, all within the Physician Services
business, that will be abandoned in favor of a limited number of more efficient
processing systems ("Systems Assimilation"), rather than make all the systems
Year 2000 compatible. The Company believes that it has completed substantially
all of the required transitions and is on track to continue with normal business
operations before the end of 1999. The detailed planning and inventory for all
of the Company's legacy systems that are being modified for Year 2000
compatibility have
16
19
been completed. These legacy systems have completed their remediation and
testing activities and final documentation has been signed. Customers, vendors
and resellers have been identified and requests for information distributed
regarding the Year 2000 readiness of such parties. Responses have been received
throughout 1999 and follow up is planned for the remainder of the year. The
Company began to develop contingency plans during the fourth quarter of 1998 and
will continue refining these plans through the fourth quarter of 1999 in
response to assessments of the Year 2000 readiness of customers, vendors and
resellers.
In the second quarter of 1999, Software and E-Commerce completed testing
and documentation of Year 2000 compatible versions of the clinical information
system and the radiology information system. Those releases, along with Year
2000 compatible versions of the patient scheduling and staff management
products, are currently available to customers. Year 2000 testing for products
that will be generally available late in 1999 or early in 2000 will be done as a
routine part of quality assurance and documentation.
Through September 30, 1999, the Company has spent approximately $10.2
million on its Year 2000 and Systems Assimilation efforts, and it expects to
spend an additional $3.0 million to $5.0 million during the fourth quarter on
such efforts, the majority of which represents redirection of internal
resources. However, there can be no assurance that the Company will identify all
Year 2000 problems in its computer systems or those of its customers, vendors or
resellers in advance of their occurrence or that the Company will be able to
successfully remedy any problems that are discovered. The expenses of the
Company's efforts to identify and address such problems, or the expenses or
liabilities to which the Company may become subject as a result of such
problems, could have a material adverse effect on the Company's business,
financial condition and results of operations. The revenue stream and financial
stability of existing customers may be adversely impacted by Year 2000 problems,
which could cause fluctuations in the Company's revenue. In addition, failure of
the Company to identify and remedy Year 2000 problems could put the Company at a
competitive disadvantage relative to companies that have corrected such
problems.
17
20
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The information required by this Item is included in Note 4 of Notes to
Consolidated Financial Statements in Item 1 on pages 5 to 6.
ITEM 5. OTHER MATTERS
On November 4, 1999, the Company entered into a definitive stock purchase
agreement for the sale of the government division of Impact to J3 Technology
Services Corp. The initial purchase price is $45.0 million subject to certain
closing adjustments. The transaction is expected to close by the end of 1999.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(A) Exhibits
EXHIBIT
NO. 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.
3.1 -- Amended and Restated Certificate of Incorporation of
Registrant (incorporated by reference to Exhibit 3.1 to
Registration Statement on Form S-1, File No. 33-42216).
3.2 -- Certificate of Amendment of Certificate of Incorporation of
Registrant (incorporated by reference to Exhibit 3 to
Quarterly Report on Form 10-Q for the quarter ended March
31, 1993).
3.3 -- Certificate of Amendment of Certificate of Incorporation of
Registrant (incorporated by reference to Exhibit 3.3 to
Registration Statement on Form 8-A/A, filed on March 28,
1995).
3.4 -- Certificate of Amendment of Amended and Restated Certificate
of Incorporation of Registrant (incorporated by reference to
Exhibit 4.4 to Registration Statement on Form S-8,
Registration No. 333-03213).
3.5 -- Certificate of Amendment of Amended and Restated Certificate
of Incorporation of Registrant (incorporated by reference to
Exhibit 3.5 to Quarterly Report on Form 10-Q for the quarter
ended June 30, 1997).
3.6 -- Certificate of Ownership and Merger merging Per-Se
Technologies, Inc. with and into Registrant (incorporated by
reference to Exhibit 99.2 to Current Report on Form 8-K
filed on August 16, 1999).
3.7 -- Amended and Restated By-laws of Registrant (incorporated by
reference to Exhibit 3.5 to Quarterly Report on Form 10-Q
for the quarter ended September 30, 1998).
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).
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21
EXHIBIT
NO. DOCUMENT
- ------- --------
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 -- Registration Rights Letter Agreement, dated as of May 3,
1999, by and among NFT Ventures Inc., Raymond J. Noorda,
Mark Rogers, NP Ventures, Ltd., Steven G. Papermaster and
the Registrant (incorporated by reference to Exhibit 4.8 to
Registration Statement on Form S-3, File No. 333-78775).
10.1 -- Employment Agreement dated as of June 1, 1999, between
Registrant and Philip M. Pead.
27 -- Financial Data Schedule (for SEC use only)
99.1 -- Safe Harbor Compliance Statement for Forward-Looking
Statements.
(B) Reports on Form 8-K
The Company filed the following reports on Form 8-K during the quarter
ended September 30, 1999:
FINANCIAL
STATEMENTS
ITEM REPORTED FILED DATE OF REPORT FILING DATE
- ------------- ---------- -------------- -----------
Name Change from Medaphis Corporation to
Per-Se Technologies, Inc.................. No August 16, 1999 August 16, 1999
Definitive Agreement for settlement with
Foundation Health Systems, Inc............ No September 20, 1999 September 21, 1999
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SIGNATURES
Pursuant to the requirements of the Securities and 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/ WAYNE A. TANNER
------------------------------------
Wayne A. Tanner
Executive Vice President and
Chief Financial Officer
Date: November 12, 1999
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INDEX TO EXHIBITS
EXHIBIT
NO. DESCRIPTION OF EXHIBITS
- ------- -----------------------
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.
3.1 -- Amended and Restated Certificate of Incorporation of
Registrant (incorporated by reference to Exhibit 3.1 to
Registration Statement on Form S-1, File No. 33-42216).
3.2 -- Certificate of Amendment of Certificate of Incorporation of
Registrant (incorporated by reference to Exhibit 3 to
Quarterly Report on Form 10-Q for the quarter ended March
31, 1993).
3.3 -- Certificate of Amendment of Certificate of Incorporation of
Registrant (incorporated by reference to Exhibit 3.3 to
Registration Statement on Form 8-A/A, filed on March 28,
1995).
3.4 -- Certificate of Amendment of Amended and Restated Certificate
of Incorporation of Registrant (incorporated by reference to
Exhibit 4.4 to Registration Statement on Form S-8,
Registration No. 333-03213).
3.5 -- Certificate of Amendment of Amended and Restated Certificate
of Incorporation of Registrant (incorporated by reference to
Exhibit 3.5 to Quarterly Report on Form 10-Q for the quarter
ended June 30, 1997).
3.6 -- Certificate of Ownership and Merger merging Per-Se
Technologies, Inc. with and into Registrant (incorporated by
reference to Exhibit 99.2 to Current Report on Form 8-K
filed on August 16, 1999).
3.7 -- Amended and Restated By-laws of Registrant (incorporated by
reference to Exhibit 3.5 to Quarterly Report on Form 10-Q
for the quarter ended September 30, 1998).
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 -- Registration Rights Letter Agreement, dated as of May 3,
1999, by and among NFT Ventures Inc., Raymond J. Noorda,
Mark Rogers, NP Ventures, Ltd., Steven G. Papermaster and
the Registrant (incorporated by reference to Exhibit 4.8 to
Registration Statement on Form S-3, File No. 333-78775).
10.1 -- Employment Agreement dated as of June 1, 1999, between
Registrant and Philip M. Pead.
27 -- Financial Data Schedule (for SEC use only)
99.1 -- Safe Harbor Compliance Statement for Forward-Looking
Statements.
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