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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,
Washington, D.C. 20549
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FORM
Form 10-Q
(Mark | | |
(Mark One)
[X] | | |
| þ | | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH |
|
| | For the quarterly period ended March 31, 2005
2006 |
|
OR
[ ] |
|
| o | | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
|
|
| | For the transition period from to |
COMMISSION FILE NUMBER:Commission file number: 000-19480
PER-SE TECHNOLOGIES, INC.
(Exact
Per-Se Technologies, Inc.
(Exact name of Registrant as specified in its charter)
DELAWARE | | |
| Delaware | | 58-1651222
(State |
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) | | (I.R.S. Employer
Identification No.) |
|
1145 SANCTUARY PARKWAY, SUITESanctuary Parkway, Suite 200 30004
ALPHARETTA, GEORGIA (Zip code)
(Address
Alpharetta, Georgia
(Address of principal executive offices) | | 30004
(Zip code) |
(770) 237-4300
(Registrant's
(Registrant’s telephone number, including area code)
NOT APPLICABLE
(Former
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]þ No [ ]o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.
Large accelerated filer o Accelerated filer þ Non-accelerated filer o
Indicate by check mark whether the Registrant is an accelerated filera shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [X]o No [ ]þ
Indicate the number of shares of stock outstanding of each of the issuer'sissuer’s classes of common stock, as of the latest practicable date.
TITLE OF CLASS SHARES OUTSTANDING AT APRIL 28, 2005
-------------- ------------------------------------
| | |
| Title of Class | | Shares Outstanding at May 4, 2006 |
| | |
Common Stock $0.01 Par Value 29,630,588 | | 39,016,626 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
For the Fiscal Quarter Ended March 31, 2005
2006
1
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
| |
| Item 1. | Financial Statements |
PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
MARCH 31, DECEMBER 31,
2005 2004
--------- ------------
(IN THOUSANDS, EXCEPT
PAR VALUE DATA)
CURRENT ASSETS:
Cash and cash equivalents................................. $ 42,463 $ 42,422
Restricted cash........................................... 63 51
--------- ---------
Total cash and cash equivalents........................ 42,526 42,473
Accounts receivable, billed (less allowances of $3,205 and
$3,229 as of March 31, 2005, and December 31, 2004,
respectively).......................................... 53,912 49,105
Accounts receivable, unbilled (less allowances of $314 and
$371 as of March 31, 2005, and December 31, 2004,
respectively).......................................... 397 302
Deferred income taxes -- current, net..................... 12,799 12,799
Prepaid expenses.......................................... 4,147 2,823
Other..................................................... 3,853 4,906
--------- ---------
Total current assets................................... 117,634 112,408
Property and equipment, net of accumulated depreciation..... 16,105 15,512
Goodwill.................................................... 32,549 32,549
Other intangible assets, net of accumulated amortization.... 20,866 20,784
Deferred income taxes, net.................................. 15,316 15,316
Other....................................................... 7,595 6,122
--------- ---------
Total assets........................................... $ 210,065 $ 202,691
========= =========
CURRENT LIABILITIES:
Accounts payable.......................................... $ 5,888 $ 5,290
Accrued compensation...................................... 17,360 14,562
Accrued expenses.......................................... 17,845 14,628
Current portion of long-term debt and capital lease
obligations............................................ 107 98
Deferred revenue.......................................... 26,397 24,127
--------- ---------
Total current liabilities.............................. 67,597 58,705
Long-term debt and capital lease obligations................ 125,517 125,527
Other obligations........................................... 5,742 5,484
--------- ---------
Total liabilities...................................... 198,856 189,716
--------- ---------
STOCKHOLDERS' EQUITY:
Preferred stock, no par value, 20,000 shares authorized;
none issued............................................ -- --
Common stock, voting, $0.01 par value, 200,000 shares
authorized, 32,499 and 32,324 issued and 29,701 and
30,336 outstanding as of March 31, 2005, and December
31, 2004, respectively................................. 325 323
Common stock, non-voting, $0.01 par value, 600 shares
authorized; none issued................................ -- --
Paid-in capital........................................... 796,663 795,263
Accumulated deficit....................................... (747,697) (757,128)
Treasury stock at cost, 2,913 and 2,125 as of March 31,
2005, and December 31, 2004, respectively.............. (38,713) (26,510)
Deferred stock unit plan obligation....................... 1,121 1,511
Accumulated other comprehensive loss...................... (490) (484)
--------- ---------
Total stockholders' equity............................. 11,209 12,975
--------- ---------
Total liabilities and stockholders' equity............. $ 210,065 $ 202,691
========= =========
| | | | | | | | | | | |
| | | March 31, | | | December 31, | |
| | | 2006 | | | 2005 | |
| | | | | | | |
| | | (In thousands, except | |
| | | par value data) | |
Current Assets: | | | | | | | | |
| | Cash and cash equivalents | | $ | 35,908 | | | $ | 61,161 | |
| | Restricted cash | | | 43 | | | | 20 | |
| | Accounts receivable, billed (less allowances of $3,804 and $3,035 as of March 31, 2006, and December 31, 2005, respectively) | | | 92,316 | | | | 54,135 | |
| | Accounts receivable, unbilled (less allowances of $313 as of March 31, 2006, and December 31, 2005) | | | 436 | | | | 262 | |
| | Deferred income taxes — current, net | | | 4,507 | | | | 4,056 | |
| | Prepaid expenses | | | 12,363 | | | | 3,004 | |
| | Other | | | 5,944 | | | | 3,535 | |
| | | | | | | |
| | | Total current assets | | | 151,517 | | | | 126,173 | |
| Property and equipment, net of accumulated depreciation | | | 42,168 | | | | 16,843 | |
| Goodwill | | | 382,486 | | | | 38,199 | |
| Other intangible assets, net of accumulated amortization | | | 306,888 | | | | 21,946 | |
| Deferred income taxes, net | | | 29,151 | | | | 26,238 | |
| Other | | | 18,362 | | | | 10,124 | |
| | | | | | | |
| | | Total assets | | $ | 930,572 | | | $ | 239,523 | |
| | | | | | | |
Current Liabilities: | | | | | | | | |
| | Accounts payable | | $ | 15,099 | | | $ | 5,982 | |
| | Accrued compensation | | | 24,681 | | | | 15,265 | |
| | Accrued expenses | | | 57,030 | | | | 17,002 | |
| | Current portion of long-term debt and capital lease obligations | | | 269 | | | | 135 | |
| | Deferred revenue | | | 37,608 | | | | 25,821 | |
| | | | | | | |
| | | Total current liabilities | | | 134,687 | | | | 64,205 | |
| Long-term debt and capital lease obligations | | | 520,495 | | | | 125,490 | |
| Deferred revenue | | | 11,137 | | | | — | |
| Other obligations | | | 22,347 | | | | 5,312 | |
| | | | | | | |
| | | Total liabilities | | | 688,666 | | | | 195,007 | |
| | | | | | | |
Stockholders’ Equity: | | | | | | | | |
| | Preferred stock, no par value, 20,000 shares authorized; none issued | | | — | | | | — | |
| | Common stock, voting, $0.01 par value, 200,000 shares authorized, 41,945 and 33,511 issued and 38,957 and 30,523 outstanding as of March 31, 2006, and December 31, 2005, respectively | | | 419 | | | | 335 | |
| | Common stock, non-voting, $0.01 par value, 600 shares authorized; none issued | | | — | | | | — | |
| | Paid-in capital | | | 1,009,109 | | | | 804,875 | |
| | Accumulated deficit | | | (728,350 | ) | | | (719,759 | ) |
| | Treasury stock at cost, 2,988 as of March 31, 2006, and December 31, 2005 | | | (41,857 | ) | | | (41,817 | ) |
| | Deferred stock unit plan obligation | | | 1,471 | | | | 1,429 | |
| | Accumulated other comprehensive income (loss) | | | 1,114 | | | | (547 | ) |
| | | | | | | |
| | | Total stockholders’ equity | | | 241,906 | | | | 44,516 | |
| | | | | | | |
| | | Total liabilities and stockholders’ equity | | $ | 930,572 | | | $ | 239,523 | |
| | | | | | | |
See notes to consolidated financial statements.
2
PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOMEOPERATIONS (UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
---------------------
2005 2004
--------- ---------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
Revenue..................................................... $92,030 $84,601
Operating expenses:
Cost of services.......................................... 60,037 55,397
Selling, general and administrative....................... 21,140 21,382
Other expenses............................................ -- 3,961
------- -------
Operating income............................................ 10,853 3,861
Interest expense............................................ 1,481 2,074
Interest income............................................. (312) (52)
------- -------
Income before income taxes................................ 9,684 1,839
Income tax expense.......................................... 253 232
------- -------
Income from continuing operations......................... 9,431 1,607
------- -------
Discontinued operations (see Note 8)
Loss from discontinued operations, net of
tax -- Patient1........................................ -- (18)
Loss on sale of Patient1, net of tax...................... -- (66)
Loss from discontinued operations, net of
tax -- Business1....................................... -- (303)
Loss on sale of Business1, net of tax..................... -- (130)
Loss from discontinued operations, net of tax -- Other.... -- (63)
------- -------
-- (580)
------- -------
Net income............................................. $ 9,431 $ 1,027
======= =======
Net income per common share-basic:
Income from continuing operations......................... $ 0.31 $ 0.05
Loss from discontinued operations, net of
tax -- Business1....................................... -- (0.01)
Loss on sale of Business1, net of tax..................... -- (0.01)
------- -------
Net income per common share-basic...................... $ 0.31 $ 0.03
======= =======
Weighted average shares used in computing basic income per
common share.............................................. 30,294 31,531
======= =======
Net income per common share-diluted:
Income from continuing operations......................... $ 0.29 $ 0.05
Loss from discontinued operations, net of
tax -- Business1....................................... -- (0.01)
Loss on sale of Business1, net of tax..................... -- (0.01)
------- -------
Net income per common share-diluted.................... $ 0.29 $ 0.03
======= =======
Weighted average shares used in computing diluted income per
common share.............................................. 32,552 34,200
======= =======
| | | | | | | | | | | |
| | | Three Months Ended | |
| | | March 31, | |
| | | | |
| | | 2006 | | | 2005 | |
| | | | | | | |
| | | (In thousands, except | |
| | | per share data) | |
| Revenue | | $ | 146,241 | | | $ | 92,030 | |
| Operating expenses: | | | | | | | | |
| | Cost of services | | | 101,605 | | | | 60,037 | |
| | Selling, general and administrative | | | 44,460 | | | | 21,140 | |
| | | | | | | |
| Operating income | | | 176 | | | | 10,853 | |
| Interest expense | | | 8,513 | | | | 1,481 | |
| Interest income | | | (632 | ) | | | (312 | ) |
| | | | | | | |
| | (Loss) income before income taxes | | | (7,705 | ) | | | 9,684 | |
| Income tax expense | | | 861 | | | | 253 | |
| | | | | | | |
| | (Loss) income from continuing operations | | | (8,566 | ) | | | 9,431 | |
| | Loss from discontinued operations, net of tax | | | (25 | ) | | | — | |
| | | | | | | |
| | | Net (loss) income | | $ | (8,591 | ) | | $ | 9,431 | |
| | | | | | | |
| Net (loss) income per common share-basic: | | | | | | | | |
| | (Loss) income from continuing operations | | $ | (0.22 | ) | | $ | 0.31 | |
| | Loss from discontinued operations, net of tax | | | — | | | | — | |
| | | | | | | |
| | | Net (loss) income per common share-basic | | $ | (0.22 | ) | | $ | 0.31 | |
| | | | | | | |
| Weighted average shares used in computing basic (loss) income per common share | | | 38,414 | | | | 30,294 | |
| | | | | | | |
| Net (loss) income per common share-diluted: | | | | | | | | |
| | (Loss) income from continuing operations | | $ | (0.22 | ) | | $ | 0.29 | |
| | Loss from discontinued operations, net of tax | | | — | | | | — | |
| | | | | | | |
| | | Net (loss) income per common share-diluted | | $ | (0.22 | ) | | $ | 0.29 | |
| | | | | | | |
| Weighted average shares used in computing diluted (loss) income per common share | | | 38,414 | | | | 32,552 | |
| | | | | | | |
See notes to consolidated financial statements.
3
PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
-------------------
2005 2004
-------- --------
(IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................. $ 9,431 $ 1,027
Adjustments to reconcile net income to net cash provided by
(used for) operating activities:
Depreciation and amortization............................. 3,752 3,894
Loss from discontinued operations......................... -- 384
Loss on sale of discontinued operations and other......... -- 196
Amortization of deferred financing costs.................. 343 340
Changes in assets and liabilities, excluding effects of
acquisitions and divestitures:
Accounts receivable, billed............................ (4,807) (1,437)
Accounts receivable, unbilled.......................... (95) (147)
Accounts payable....................................... 598 (447)
Accrued compensation................................... 2,798 (1,728)
Accrued expenses....................................... (1,085) (88)
Deferred revenue....................................... 2,270 (96)
Other, net............................................. (43) (2,594)
------- -------
Net cash provided by (used for) continuing
operations.......................................... 13,162 (696)
Net cash used for discontinued operations............ -- (483)
------- -------
Net cash provided by (used for) operating
activities.......................................... 13,162 (1,179)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment......................... (2,552) (1,629)
Software development costs.................................. (2,073) (1,135)
Transaction costs on sale of discontinued operations........ -- (196)
Proceeds from sale of property and equipment................ 19 3
Other....................................................... (69) (20)
------- -------
Net cash used for investing activities............... (4,675) (2,977)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Treasury stock purchases.................................... (9,890) --
Proceeds from the exercise of stock options................. 1,402 2,529
Payments of debt............................................ -- (3,125)
Other....................................................... 42 (17)
------- -------
Net cash used for financing activities............... (8,446) (613)
------- -------
CASH AND CASH EQUIVALENTS:
Net change.................................................. 41 (4,769)
Balance at beginning of period.............................. 42,422 25,271
------- -------
Balance at end of period.................................... $42,463 $20,502
======= =======
SUPPLEMENTAL DISCLOSURES:
Cash paid for:
Interest.................................................. $ 94 $ 1,765
Income taxes.............................................. 118 61
| | | | | | | | | | | | |
| | | Three Months Ended | |
| | | March 31, | |
| | | | |
| | | 2006 | | | 2005 | |
| | | | | | | |
| | | (In thousands) | |
Cash Flows from Operating Activities: | | | | | | | | |
| Net (loss) income | | $ | (8,591 | ) | | $ | 9,431 | |
| Adjustments to reconcile net (loss) income to net cash provided by operating activities: | | | | | | | | |
| | Depreciation and amortization | | | 25,446 | | | | 3,752 | |
| | Stock-based compensation expense | | | 931 | | | | — | |
| | Amortization of deferred financing costs | | | 553 | | | | 343 | |
| | Deferred income taxes | | | 513 | | | | — | |
| | Changes in assets and liabilities, excluding effects of acquisitions and divestitures: | | | | | | | | |
| | | Accounts receivable, billed | | | (8,395 | ) | | | (4,807 | ) |
| | | Accounts receivable, unbilled | | | 6,210 | | | | (95 | ) |
| | | Accounts payable | | | 1,245 | | | | 598 | |
| | | Accrued compensation | | | 3,005 | | | | 2,798 | |
| | | Accrued expenses | | | (23,332 | ) | | | (1,085 | ) |
| | | Deferred revenue | | | 18,898 | | | | 2,270 | |
| | | Other, net | | | 6,656 | | | | (43 | ) |
| | | | | | | |
| | | | Net cash provided by operating activities | | | 23,139 | | | | 13,162 | |
| | | | | | | |
Cash Flows from Investing Activities: | | | | | | | | |
| Acquisitions, net of cash acquired | | | (429,866 | ) | | | — | |
| Purchases of property and equipment | | | (3,422 | ) | | | (2,552 | ) |
| Software development costs | | | (3,901 | ) | | | (2,073 | ) |
| Proceeds from sale of property and equipment | | | — | | | | 19 | |
| Other | | | — | | | | (69 | ) |
| | | | | | | |
| | | | Net cash used for investing activities | | | (437,189 | ) | | | (4,675 | ) |
| | | | | | | |
Cash Flows from Financing Activities: | | | | | | | | |
| Treasury stock purchases | | | — | | | | (9,890 | ) |
| Proceeds from the exercise of stock options | | | 1,501 | | | | 1,402 | |
| Proceeds from borrowings | | | 435,000 | | | | — | |
| Payments of debt | | | (40,067 | ) | | | — | |
| Deferred financing costs | | | (7,662 | ) | | | — | |
| Other | | | 25 | | | | 42 | |
| | | | | | | |
| | | | Net cash provided by (used for) financing activities | | | 388,797 | | | | (8,446 | ) |
| | | | | | | |
Cash and Cash Equivalents: | | | | | | | | |
| Net change | | | (25,253 | ) | | | 41 | |
| Balance at beginning of period | | | 61,161 | | | | 42,422 | |
| | | | | | | |
| Balance at end of period | | $ | 35,908 | | | $ | 42,463 | |
| | | | | | | |
Supplemental Disclosures: | | | | | | | | |
| Cash paid for: | | | | | | | | |
| | Interest | | $ | 6,959 | | | $ | 94 | |
| | Income taxes | | | 9,797 | | | | 118 | |
| Non-cash investing activity: | | | | | | | | |
| | Common Stock issued in connection with the acquisition of NDCHealth | | $ | 197,915 | | | $ | — | |
See notes to consolidated financial statements.
4
PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE
Note 1 -- BASIS OF PRESENTATION— Basis of Presentation
The accompanying condensed consolidated financial statements (interim financial statements) include the accounts of Per-Se Technologies, Inc. and its subsidiaries ("Per-Se"(“Per-Se” or the "Company"“Company”). Intercompany accounts and transactions have been eliminated.
These interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"(“GAAP”) for interim financial information, the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial statements, and accounting policies consistent, in all material respects, with those applied in preparing the Company'sCompany’s audited consolidated financial statements included in the Company'sCompany’s Annual Report on Form 10-K for the fiscal year ended December 31, 2004,2005, filed with the Securities and Exchange Commission ("SEC")SEC on March 16,
15, 2006 (“2005 ("2004 Form 10-K"10-K”). These interim financial statements are unaudited but reflect all adjustments (consisting of normal recurring adjustments) management considers necessary for a fair presentation of the Company'sCompany’s financial position, operating results and cash flows for the interim periods presented. The information included in this report should be read in conjunction with the 20042005 Form 10-K.
The
As discussed in Note 3, the Company completed the acquisition of NDCHealth Corporation (“NDCHealth”) on January 6, 2006, and has included the financial results of NDCHealth in its consolidated financial statements of the Company have been presented to
reflect the former operations of the Hospital Services division's Patient1
clinical product line ("Patient1") and Business1-PFM patient accounting product
line ("Business1") as discontinued operations. Patient1 was sold effective July
28, 2003, and Business1 was sold effectivebeginning January 31, 2004. Additionally, the
activity related to the Company's former Medaphis Services Corporation ("MSC")
and Impact Innovations Group ("Impact") businesses, which were sold in 1998 and
1999, respectively, are also reflected as discontinued operations for all
periods presented (refer to 6, 2006.
Note 8 for additional information).
NOTE 2 -- STOCK-BASED COMPENSATION PLANS— Stock-Based Compensation Plans
On December 16, 2004, the Financial Accounting Standards Board ("FASB"(“FASB”) issued Statement of Financial Accounting Standard ("SFAS"Standards (“SFAS”) No. 123 (revised 2004),Share-Based Payment ("(“SFAS No. 123(R)"”), which is a revision of SFAS No. 123,Accounting for Stock-Based Compensation ("(“SFAS No. 123"123”). SFAS No. 123(R) supersedes Accounting Principles Board ("APB"(“APB”) Opinion No. 25,Accounting for Stock Issued to Employees ("(“APB No. 25"25”), and amends SFAS No. 95,Statement of Cash Flows. SFAS No. 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. The original effective date of SFAS No. 123(R) was for interim periods beginning after June 15, 2005.
On April 14, 2005, the SEC announced the adoption of a rule that amendsamended the compliance date for SFAS No. 123(R). The Company was required to adopt SFAS No. 123(R) must be adopted by the Company no later than January 1, 2006. The Company expects
SFAS No. 123(R) permits public companies to adopt SFAS 123(R)its requirements using one of two methods:
| | |
| • | A “modified prospective” method in which compensation cost is recognized beginning with the effective date (a) based on the requirements of SFAS No. 123(R) for all share-based payments granted after the effective date, and (b) based on the requirements of SFAS No. 123 for all awards granted to employees prior to the effective date of SFAS No. 123(R) that remain unvested on the effective date. |
|
| • | A “modified retrospective” method which includes the requirements of the modified prospective method described above, but also permits entities to restate based on the amounts previously recognized under SFAS No. 123 for purposes of pro forma disclosures either (a) all periods presented or (b) prior interim periods of the year of adoption. |
On January 1, 2006. When2006, the Company adoptsadopted SFAS No. 123(R), it may elect using the modified prospective method ordescribed above. The Company’s consolidated financial statements as of and for the three months ended March 31, 2006, reflect the impact of SFAS No. 123(R). In accordance with the modified retrospective method. The Company hasprospective method, the Company’s consolidated financial statements for the prior period have not yet
determined which method it will elect upon adoption.
At March 31, 2005,been restated to reflect, and do not include, the Company has four stock-based compensation plans. The
Company accounts for its stock-based compensation plans under APBimpact of SFAS No. 25. The
following table illustrates the effect on net income and
123(R).
5
PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)— (Continued)
SFAS No. 123(R) requires companies to estimate the fair value of share-based payment awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as stock-based compensation expense over the requisite service period in the Company’s consolidated financial statements. Prior to the adoption of SFAS No. 123(R), the Company accounted for stock-based awards to employees and directors using the intrinsic value method in accordance with APB No. 25 as allowed under SFAS No. 123. Under the intrinsic value method, no stock-based compensation expense was recognized in the Company’s consolidated statements of income for stock options because the exercise price of the Company’s stock options granted to employees and directors equaled or exceeded the fair market value of the underlying stock at the date of grant. However, the Company previously disclosed the effect on net income and net income per share if the Company had applied the fair value recognition provisions of SFAS No. 123 to its stock-based compensation
plan.
THREE MONTHS
ENDED MARCH 31,
----------------
2005 2004
------- ------
(IN THOUSANDS,
EXCEPT PER SHARE
DATA)
Net income as reported...................................... $ 9,431 $1,027
Deduct: total stock-based employee compensation expense
determined under fair value based method for all awards,
net of related tax effects................................ (1,263) (934)
------- ------
Pro forma net income........................................ $ 8,168 $ 93
======= ======
Net income per common share:
Basic -- as reported...................................... $ 0.31 $ 0.03
======= ======
Basic -- pro forma........................................ $ 0.27 $ --
======= ======
Diluted -- as reported.................................... $ 0.29 $ 0.03
======= ======
Diluted -- pro forma...................................... $ 0.25 $ --
======= ======
NOTE 3 -- SHARE REPURCHASE
Onplan in its prior period financial statement footnotes. As stock-based compensation expense recognized in the accompanying unaudited consolidated statement of operations for the three months ended March 9, 2005,31, 2006, is based on awards ultimately expected to vest, it has been reduced for estimated forfeitures. SFAS No. 123(R) requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Forfeitures were estimated based on historical experience and management’s estimates. In the Company’s pro forma information required under SFAS No. 123 for the periods prior to fiscal year 2006, the Company announced that its Boardaccounted for stock option forfeitures as they occurred.
The following table shows a comparison of Directors
authorized the repurchase of up to one million sharesselected line items of the Company's
outstanding Common Stock. Underaccompanying financial statements for the share repurchase program,three months ended March 31, 2006, as reported, including the effect of adoption SFAS No. 123(R) on January 1, 2006, and on a pro forma basis if the Company was
ablehad continued to repurchase shares from time to time at management's discretion inaccount for stock-based compensation as previously required by SFAS No. 123 and APB No. 25:
| | | | | | | | | | |
| | | As Reported | | | Pro Forma | |
| | | | | | | |
| | | (In thousands, except | |
| | | per share data) | |
| Loss before income taxes | | $ | (7,705 | ) | | $ | (6,774 | ) |
| Loss from continuing operations | | $ | (8,566 | ) | | $ | (8,007 | ) |
| Net loss | | $ | (8,591 | ) | | $ | (8,032 | ) |
| Net loss per common share: | | | | | | | | |
| | Basic | | $ | (0.22 | ) | | $ | (0.21 | ) |
| | Diluted | | $ | (0.22 | ) | | $ | (0.21 | ) |
The following table illustrates the open market, by block purchase, in privately negotiated transactions or as
otherwise allowed by securities lawseffect on net income and regulations. All shares repurchased
were placed into treasury stock to be usednet income per share if the Company had applied the fair value recognition provisions of SFAS No. 123 for general corporate purposes.
During the three months ended March 31, 2005 the Company repurchased
approximately 810,000 shares of its outstanding Common Stock at a cost of
approximately $12.4 million. The Company completed the(in thousands, except per share repurchase program
in April 2005 by repurchasing an additional approximately 190,000 shares of its
outstanding Common Stock at a cost of approximately $3.0 million.
NOTE 4 -- ADDITIONAL PROCEDURES
As a result of allegations of improprieties made during 2003 and 2004, the
Company's external auditors advised the Company and the Audit Committee of the
Board of Directors that additional procedures should be performed related to the
allegations. These additional procedures were required due to Statement of
Auditing Standards No. 99, Consideration of Fraud in a Financial Statement
Audit, that became effective for periods beginning on or after December 15,
2002. Due to the volume and, in some cases, vague nature of many of the
allegations, the scope of the additional procedures was broad and extensive. The
additional procedures included the review of certain of the Company's revenues,
expenses, assets and liabilities accounts for the years 2001 through 2003.
Certain financial items were identified during the additional procedures that
warranted the Company's further review. The Company reviewed these items and
determined that it was appropriate to restate certain prior period financial
statements. The restatements affected the financial statements for the years
ended December 31, 2002, and 2001 and for the nine months ended September 30,
2003. The net result of these restatements was an increase in net income of
approximately $2.1 million for the years 2001 and 2002, and for the nine months
ended September 30, 2003.
data):
| | | | | | |
| Net income as reported | | $ | 9,431 | |
| Deduct: total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects | | | (1,263 | ) |
| | | | |
| Pro forma net income | | $ | 8,168 | |
| | | | |
| Net income per common share: | | | | |
| | Basic — as reported | | $ | 0.31 | |
| | | | |
| | Basic — pro forma | | $ | 0.27 | |
| | | | |
| | Diluted — as reported | | $ | 0.29 | |
| | | | |
| | Diluted — pro forma | | $ | 0.25 | |
| | | | |
6
PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)— (Continued)
The Company recorded costshas three stock option plans for employees: (i) the Second Amended and Restated Per-Se Technologies, Inc. Stock Option Plan, as amended; (ii) the Per-Se Technologies, Inc. Non-Qualified Stock Option Plan for Non-Executive Employees, as amended; and (iii) and the Per-Se Technologies, Inc. Non-Qualified Stock Option Plan for Employees of Acquired Companies, as amended. Options under all of these plans are granted at an exercise price equal to or in excess of the fair market value of the Company’s Common Stock on the date of grant. Such options generally vest over athree-to-five year period and expire eleven years after the date of grant. The total number of options available for future grants under these stock option plans was approximately 27,500 at March 31, 2006 (excluding 293,208 shares under the Per-Se Technologies, Inc. Non-Qualified Stock Option Plan for Non-Executive Employees, as amended, from which the Compensation Committee of the Company’s Board of Directors has resolved no further grants shall be made).
The Company also has one stock option plan for non-employees who serve on the Company’s Board of Directors. This plan, the Amended and Restated Per-Se Technologies, Inc. Non-Employee Director Stock Option Plan, provides for an initial grant of 10,000 stock options upon first election or appointment to the Board and an annual grant of 10,000 stock options for each year of service thereafter. Options under this plan are granted at an exercise price equal to the average of the fair market values of the Company’s Common Stock for the five trading days prior to the date of the grant. Such options are generally fully vested as of the date of grant but not exercisable until one year after the date of grant and expire ten years after the date of grant. As of March 31, 2006, the Company had approximately 108,500 options available for future grants under this plan.
Activity related to all stock option plans as of March 31, 2006, and for the additional procedures totaling
approximately $3.9three months then ended is summarized as follows (shares in thousands):
| | | | | | | | | | | | | | | | | |
| | | | | | | Weighted-Average | | |
| | | | | Weighted-Average | | Remaining | | Aggregate Intrinsic |
| | | Shares | | Exercise Price | | Contractual Term | | Value |
| | | | | | | | | |
| Options outstanding as of January 1 | | | 5,386 | | | $ | 10.86 | | | | | | | | | |
| Granted | | | 505 | | | $ | 26.32 | | | | | | | | | |
| Exercised | | | (170 | ) | | $ | 8.84 | | | | | | | | | |
| Canceled | | | (42 | ) | | $ | 14.98 | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Options outstanding as of March 31 | | | 5,679 | | | $ | 12.26 | | | | 7.06 | | | $ | 81,778 | |
| | | | | | | | | | | | | | | | | |
| Options exercisable as of March 31 | | | 3,849 | | | $ | 9.64 | | | | 5.85 | | | $ | 65,510 | |
| | | | | | | | | | | | | | | | | |
| Options vested and expected to vest as of March 31 | | | 5,313 | | | $ | 11.88 | | | | 6.88 | | | $ | 78,524 | |
| | | | | | | | | | | | | | | | | |
The total intrinsic value of options exercised during the quarters ended March 31, 2006, and 2005, was $2.7 million and $1.3 million, respectively. The Company’s policy for issuing shares upon share option exercise is to issue new shares of Common Stock.
The weighted-average grant-date fair value of each option granted during the three months ended March 31, 2004,2006, and included these costs in other expenses in2005, was $8.72 and $6.26, respectively.
7
PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)
The weighted-average grant-date fair value of each option grant is estimated on the Company's Consolidated Statementsdate of Income. In the grant using the Black-Scholes-Merton option pricing model based on the following weighted average assumptions for grants during the three months ended March 31, 2006, and 2005:
| | | | | | | | | |
| | | Three Months | |
| | | Ended | |
| | | March 31, | |
| | | | |
| | | 2006 | | | 2005 | |
| | | | | | | |
| Expected life (years) | | | 3.27 | | | | 3.26 | |
| Risk-free interest rate | | | 4.3 | % | | | 4.0 | % |
| Dividend rate | | | 0 | % | | | 0 | % |
| Expected volatility | | | 46.7 | % | | | 50.0 | % |
Expected volatility is based on the historical volatility of the price of the Company’s stock. The Company uses historical information to estimate expected life and forfeitures within the valuation model. The expected term of awards represents the period of time that options granted are expected to be outstanding. The risk-free interest rate is based on the U.S. Treasury yield curve for issues with a remaining term approximating the expected term. Compensation cost is recognized using a straight-line method over the vesting or service period and is net of estimated forfeitures.
As of March 31, 2006, there was approximately $7.6 million of total unrecognized compensation cost related to nonvested stock options. This cost is expected to be recognized over a weighted-average period of 2.1 years.
Note 13, these expenses are classified in3 — Acquisitions
The Company completed the Corporate segment.
NOTE 5 -- ACQUISITIONS
On May 28, 2004,acquisition of NDCHealth Corporation on January 6, 2006.
Pursuant to the Company’s Agreement and Plan of Merger with NDCHealth, a Delaware corporation, dated August 26, 2005, the Company enteredacquired 100% of the outstanding common stock of NDCHealth for $19.50 per share ($14.05 in cash and $5.45 in stock) as of January 6, 2006 (“Acquisition Date”). The Company has included the financial results of NDCHealth in its consolidated financial statements beginning January 6, 2006.
The purchase of NDCHealth provided the Company with complementary technology solutions and services, an expanded customer base and entry into a five-year contract to provide
print and mail services forthe Pharmacy market, which is a new customer. As part of the transaction, the
Company purchased substantially all of the production assets and personnel of
that customer's hospital and physician patient statement and paper claims print
and mailmarket for Per-Se.
The acquisition has been accounted for as a purchase business for cash consideration of approximately $1.1 million. In
addition, the Company recorded acquisition liabilities of approximately $1.0
million associated with the transaction.
The Company recorded the acquisition using the purchase method of
accounting and, accordingly, has allocated the purchase price to the assetscombination. Assets acquired and liabilities assumed were recorded at their fair values as of January 6, 2006. The total purchase price was $727.8 million, and was comprised of:
| | | | | |
| | | (In thousands) |
| Cash paid to NDCHealth Stockholders | | $ | 515,996 | |
| Fair value of Per-Se Common Stock issued | | | 197,915 | |
| Transaction costs | | | 13,891 | |
| | | | | |
| | | $ | 727,802 | |
| | | | | |
In connection with the acquisition, the Company issued approximately 8.3 million shares of its common stock to NDCHealth stockholders. The fair value of Per-Se Common Stock was determined for accounting purposes using an average price of $23.95 per share, which represented the average closing price of the Company’s Common Stock, over a four day period inclusive of the measurement date of the acquisition. The measurement date of the acquisition for accounting purposes was three days prior to the Acquisition Date.
8
PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)
Acquisition-related transaction costs include investment banking, legal and accounting fees, and other external costs directly related to the acquisition.
| |
| Preliminary Purchase Price Allocation |
Under purchase accounting, the total purchase price was allocated to NDCHealth’s net tangible and identifiable intangible assets based on their estimated fair market value atvalues as of January 6, 2006, as set forth below. The excess of the date of acquisition. Approximately $1.9 millionpurchase price over the net tangible and identifiable intangible assets was recorded as goodwill. The preliminary allocation of the purchase price was allocatedbased upon a valuation. The Company’s estimates and assumptions underlying the valuation are subject to a finite-lived intangible asset with a five-year life.change. The remaining $0.2 millionprimary areas of the purchase price was allocatedallocation that are not yet finalized relate to tangible assets
acquired. Therestructuring costs, certain legal matters, income and non-income based taxes, deferred income taxes and residual goodwill.
| | | | | | |
| | | (In thousands) |
| Cash | | $ | 99,985 | |
| Accounts receivable, billed | | | 29,786 | |
| Accounts receivable, unbilled | | | 6,383 | |
| Deferred income tax asset | | | 96,793 | |
| Other current assets | | | 9,892 | |
| Property and equipment | | | 25,082 | |
| Identifiable intangible assets | | | 289,400 | |
| Goodwill — Physician Solutions | | | 81,825 | |
| Goodwill — Hospital Solutions | | | 175,512 | |
| Goodwill — Pharmacy Solutions | | | 86,925 | |
| Other long-term assets | | | 8,249 | |
| In-process research and development | | | 13,300 | |
| Accounts payable | | | (7,998 | ) |
| Accrued expenses | | | (52,278 | ) |
| Accrued compensation | | | (6,412 | ) |
| Deferred revenue | | | (3,650 | ) |
| Accrued restructuring and merger costs | | | (11,047 | ) |
| Deferred income taxes | | | (96,793 | ) |
| Other long-term obligations | | | (17,152 | ) |
| | | | | |
| | Total purchase price | | $ | 727,802 | |
| | | | | |
As of December 31, 2005, the Company had a valuation allowance against its deferred tax asset of $125.3 million due to the uncertainty regarding its ability to generate sufficient future taxable income prior to the expiration of its net operating resultsloss carryforwards. As a result of the acquisition of NDCHealth, the Company released approximately $84 million of its deferred tax asset valuation allowance against the goodwill resulting from the transaction to offset a deferred tax liability recorded as part of the acquisition. The majority of this liability relates to the increase in the valuation of NDCHealth’s fixed assets and identifiable intangible assets resulting from the transaction that were recorded for GAAP. Since the NDCHealth acquisition was an acquisition of stock, NDCHealth’s tax basis of the assets carries over to the Company as its tax basis. Therefore, the Company will not receive a tax benefit from the additional intangible amortization recorded for GAAP purposes. As a result of this accounting treatment for the acquisition, the Company’s taxable income relating to this acquisition will be greater than its corresponding GAAP income, which will result in the utilization of previously reserved net operating loss carryforwards corresponding to the amount of the disallowed amortization for income tax purposes. Since management believes it is more likely than not that the Company’s deferred tax asset will be realized due to the recognition of a deferred tax liability, the Company released a portion of its valuation allowance against the asset.
9
PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)
The Company estimates that approximately 36% of goodwill acquired will be deductible for tax purposes.
| |
| Identifiable Intangible Assets |
In performing the purchase price allocation, the Company considered, among other factors, the intention for future use of acquired assets, analyses of historical financial performance and estimates of future performance of NDCHealth’s products. The fair value of intangible assets was based, in part, on a valuation completed using an income approach. The rates utilized to discount net cash flows to their present values were based on the Company’s weighted average cost of capital and ranged from 15% to 20%. These discount rates were determined after consideration of the Company’s rate of return on debt and equity and the weighted average return on invested capital. The following table sets forth the components of intangible assets associated with the acquisition at March 31, 2006 (in thousands, except years):
| | | | | | | | | | | | | | | | | |
| | | | | Accumulated | | Net Book | | |
| Intangible Asset | | Fair Value | | Amortization | | Value | | Useful Life |
| | | | | | | | | |
| Customer lists | | $ | 180,900 | | | $ | 2,880 | | | $ | 178,020 | | | | 11 - 22 years | |
| Developed technology | | | 105,900 | | | | 3,941 | | | | 101,959 | | | | 5 - 8 years | |
| Trademarks | | | 1,500 | | | | 19 | | | | 1,481 | | | | 20 years | |
| Noncompete agreements | | | 1,100 | | | | 138 | | | | 962 | | | | 2 years | |
| | | | | | | | | | | | | | | | | |
| | | $ | 289,400 | | | $ | 6,978 | | | $ | 282,422 | | | | | |
| | | | | | | | | | | | | | | | | |
Customer lists and software support agreements and related relationships represent the underlying relationships and agreements with NDCHealth’s existing customers. Developed technology represents the value assigned to the pharmacy clearinghouse infrastructure as well as to the ePremis, Lytec and Medisoft products. Trademarks represent the estimated fair value of the Lytec and Medisoft trade names and trademarks. Noncompete agreements represent the estimated fair value of agreements with NDCHealth’s former management team members. Intangible assets are being amortized using the straight-line method.
| |
| In-Process Research and Development |
In-process research and development (“IPR&D”) represents NDCHealth’s research and development projects that had not reached a point where the product was available for general release and had no alternative future use as of the Acquisition Date. The value assigned to IPR&D was determined by considering the importance of each project to the Company’s overall development plan, estimating costs to develop the purchased IPR&D into commercially viable products and estimating and discounting the net cash flows resulting from the projects when completed. Purchased IPR&D relates primarily to projects associated with NDCHealth’s EnterpriseRx product ($8.6 million) and enhanced versions of ePremis ($2.8 million) and Medisoft ($1.9 million) products which had not yet reached general availability as of the Acquisition Date and had no alternative future use. IPR&D purchased in the acquisition of NDCHealth, which totaled $13.3 million, was expensed in the first quarter of 2006 in accordance with SFAS No. 141,Accounting for Business Combinations.
In connection with the purchase price allocation, the Company has estimated the fair value of the support obligation assumed from NDCHealth in connection with the acquisition. The estimated fair value of the support obligation and other future services was determined utilizing a costbuild-up approach. The costbuild-up approach determines fair value by estimating the costs related to fulfilling the obligation plus a normal profit margin. The sum of the costs and operating profit approximates, in theory, the amount that the Company would be required to pay a third party to assume the support obligation. The estimated costs to
10
PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)
fulfill the support obligation were based on the historical direct costs related to providing the support services. The Company did not include any costs associated with selling efforts or research and development or the related fulfillment margins on these costs. As a result, in allocating the acquisition purchase price, the Company recorded an adjustment to reduce the carrying value of NDCHealth’s January 6, 2006, deferred revenue by approximately $9.8 million to an amount representing Per-Se’s estimate of the fair value of the support obligation assumed.
| |
| Accrued Restructuring and Merger Costs |
As a part of the acquisition of NDCHealth, the Company formed a plan to restructure the NDCHealth duplicative functions with the Company’s existing business functions. Consequently, the Company included severance benefits of approximately $10.4 million in the purchase price.
In addition, NDCHealth sold its Canadian pharmacy transaction business in 2005. As part of this transaction, NDCHealth abandoned its facility lease, which expires in 2009. Therefore, the Company assumed a liability of $0.6 million in connection with the sale of the Canadian pharmacy transaction business, which represented the expected net cash outflows associated with this lease.
These two amounts and the related payments in the first fiscal quarter are documented in the following table (in thousands):
| | | | | |
| | | Total |
| | | |
| Reserve balance, January 6, 2006 | | $ | 11,047 | |
| Cost applied against the reserve | | | (7,315 | ) |
| | | | | |
| Reserve balance, March 31, 2006 | | $ | 3,732 | |
| | | | | |
| |
| Pre-Acquisition Contingencies |
The Company has identified certain pre-acquisition contingencies, but has yet to conclude whether the fair values for such contingencies are determinable. If, during the purchase price allocation period, the Company is able to determine the fair value of a pre-acquisition contingency, the Company will include that amount in the purchase price allocation. If, as of the end of the purchase price allocation period, the Company is unable to determine the fair value of a pre-acquisition contingency, the Company will evaluate whether to include an amount in the purchase price allocation based on whether it is probable that a liability had been incurred and whether an amount can be reasonably estimated. After the end of the purchase price allocation period, any adjustment that results from a pre-acquisition contingency will be included in the Company's
Consolidated StatementsCompany’s operating results in the period in which the adjustment is determined. The purchase price allocation period ends when the Company has all of Incomethe information that it has arranged to obtain and that is known to be obtainable, but usually does not exceed one year from the date of acquisitionacquisition.
| |
| Pro Forma Financial Information |
The financial information in the Hospital
Services division.table below summarizes the combined results of operations of Per-Se and NDCHealth, on a pro forma basis, as though the companies had been combined as of the beginning of the period presented. The pro-forma impactpro forma financial information is presented for informational purposes only and is not indicative of thisthe results of operations that would have been achieved if the acquisition was immaterialhad taken place at the beginning of the period presented and assumes the disposition of NDCHealth’s information management business prior to such combination. Such pro forma financial information is based on the historical financial statements of Per-Se and NDCHealth. In determining such financial information, the Companycombined historical results of Per-Se and therefore hasNDCHealth were adjusted to eliminate sales and related costs of sales for NDCHealth’s information management business and for normal business transactions between Per-Se and NDCHealth.
11
PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)
This pro forma financial information is based on estimates and assumptions, which have been made solely for purposes of developing such pro forma information, including, without limitation, purchase accounting adjustments. The pro forma financial information presented below also includes depreciation and amortization based on the valuation of NDCHealth’s tangible assets and identifiable intangible assets resulting from the transaction and interest expense related to the debt issued to complete the acquisition. The pro forma financial information does not been presented.
NOTE 6 -- EARNINGS PER SHAREreflect any synergies or operating cost reductions that may be achieved from the combined operations.
The pro forma financial information in 2005 combines the historical results for Per-Se’s three months ended March 31, 2005, and the historical results for NDCHealth for the period from November 27, 2004, to February 25, 2005.
| | | | | |
| | | Three Months Ended |
| | | March 31, 2005(1) |
| | | |
| | | (In thousands, except |
| | | per share data) |
| Revenue | | $ | 148,842 | |
| Net loss | | $ | (4,230 | ) |
| Net loss per common share — basic | | $ | (0.11 | ) |
| Net loss per common share — diluted | | $ | (0.11 | ) |
| |
| (1) | Includes approximately $13.3 million of in-process research and development expense. |
Note 4 — (Loss) Earnings Per Share
Basic
(loss) earnings per share
("EPS"(“EPS”) is calculated by dividing net
(loss) income by the weighted average number of shares of Common Stock outstanding during the period. Diluted EPS reflects the potential dilution that could occur from common shares issuable through stock
options and warrants.options. The following sets forth the computation of basic and diluted net
(loss) income per share for the
three-monthsthree months ended March 31,
2005,2006, and
2004:
THREE MONTHS ENDED
MARCH 31,
---------------------
2005 2004
--------- ---------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
Net income.................................................. $ 9,431 $ 1,027
Common shares outstanding:
Shares used in computing net income per common
share -- basic......................................... 30,294 31,531
Effect of potentially dilutive stock options and
warrants............................................... 2,258 2,669
------- -------
Shares used in computing net income per common
share -- diluted....................................... 32,552 34,200
======= =======
Net income per common share:
Basic..................................................... $ 0.31 $ 0.03
======= =======
Diluted................................................... $ 0.29 $ 0.03
======= =======
2005:| | | | | | | | | | |
| | | Three Months |
| | | Ended March 31, |
| | | |
| | | 2006 | | 2005 |
| | | | | |
| | | (In thousands, except |
| | | per share data) |
| Net (loss) income | | $ | (8,591 | ) | | $ | 9,431 | |
| Common shares outstanding: | | | | | | | | |
| | Shares used in computing net (loss) income per common share — basic | | | 38,414 | | | | 30,294 | |
| | Effect of potentially dilutive stock options | | | — | | | | 2,258 | |
| | | | | | | | | |
| | Shares used in computing net (loss) income per common share — diluted | | | 38,414 | | | | 32,552 | |
| | | | | | | | | |
| Net (loss) income per common share: | | | | | | | | |
| | Basic | | $ | (0.22 | ) | | $ | 0.31 | |
| | | | | | | | | |
| | Diluted | | $ | (0.22 | ) | | $ | 0.29 | |
| | | | | | | | | |
Options and warrants to purchase 1.1 million and 0.95.7 million shares of Common Stock during the three months ended March 31, 2006, were excluded from the computation of diluted earnings per share due to their antidilutive effect as a result of the Company’s net loss for the period.
Options to purchase 1.1 million shares of Common Stock during the three months ended March 31, 2005, and 2004,
respectively, were excluded from the computation of diluted earnings per share because the exercise prices of the options and warrants
12
PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)
were greater than the average market price of the common shares, and therefore, the effect would have been antidilutive.
7
PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
NOTE 7 -- FOREIGN CURRENCY TRANSLATION AND COMPREHENSIVE INCOMENote 5 — Comprehensive Income (Loss)
The functional currency of the Company'sCompany’s operations outside of the United States is the local country'scountry’s currency. Consequently, assets and liabilities of operations outside the United States are translated into dollars using exchange rates at the end of each reporting period. Revenue and expenses are translated at the average exchange rates prevailing during the period. Cumulative translation gains and losses are reported in accumulated other comprehensive loss. In
The components of comprehensive (loss) income for the three-month periodsthree months ended March 31, 2006 and 2005 and 2004, the only
component ofare as follows (in thousands):
| | | | | | | | | |
| | | Three Months Ended |
| | | March 31, |
| | | |
| | | 2006 | | 2005 |
| | | | | |
| Net (loss) income | | $ | (8,591 | ) | | $ | 9,431 | |
| Change in cumulative foreign currency translation adjustment | | | (171 | ) | | | 6 | |
| Change in cash flow hedging activities | | | 1,490 | | | | — | |
| | | | | | | | | |
| Comprehensive (loss) income | | $ | (7,272 | ) | | $ | 9,437 | |
| | | | | | | | | |
Accumulated other comprehensive lossincome (loss) at March 31, 2006, and December 31, 2005, consists of the following components (in thousands):
| | | | | | | | | |
| | | March 31, | | December 31, |
| | | 2006 | | 2005 |
| | | | | |
| Cumulative foreign currency translation adjustment | | $ | (376 | ) | | $ | (547 | ) |
| Cumulative cash flow hedging activities | | | 1,490 | | | | — | |
| | | | | | | | | |
| Accumulated other comprehensive income (loss) | | $ | 1,114 | | | $ | (547 | ) |
| | | | | | | | | |
See Note 7 — Long-Term Debt for further information on the Company’s cash flow hedging activities.
Note 6 — Legal Matters
On April 7, 2004, a putative securities class-action, captioned Garfield v. NDCHealth Corporation, et al., was
filed in the
net foreign currency translation.
THREE
MONTHS
ENDED
MARCH 31,
-----------
2005 2004
---- ----
(IN
THOUSANDS)
Net foreign currency translation............................ $6 $28
== ===
NOTE 8 -- DISCONTINUED OPERATIONS AND DIVESTITURESUnited States District Court for the Northern District of Georgia against NDCHealth and two of its former executives, as defendants. The
Company completedlawsuit alleges that the
saledefendants violated Sections 10(b) and 20(a) of
Patient1the Securities Exchange Act of 1934 by making material misrepresentations and omissions to
Misys Healthcare Systems,the investing public regarding NDCHealth’s revenue recognition practices during the period from October 1, 2003, through March 31, 2004. The complaint seeks unspecified damages and the recovery of reasonable attorneys’ fees and costs. On September 1, 2004, a
divisionsecond amended complaint was filed. The second amended complaint added other former NDCHealth executives, as well as Ernst & Young LLP, as defendants. The second amended complaint generally alleges, among other things, that members of
Misys plc ("Misys") on July 28, 2003. The Company completeda purported class of stockholders who purchased NDCHealth common stock between October 1, 2003, and August 9, 2004, were damaged as a result of (i) improper revenue recognition practices in NDCHealth’s physician business unit; (ii) the
salefailure to timely writedown NDCHealth’s investment in MedUnite, Inc.; and (iii) the improper capitalization and amortization of
Business1 effective January 31, 2004, tocosts associated with software development. It alleges that, as a
privately held company for $0.6
million, which will be received in periodic payments through June 2006. No cash
consideration was received at closing.
Pursuant to SFAS No. 144, the consolidatedresult of such conduct, NDCHealth’s previously issued financial statements
were materially false and misleading, thereby causing the prices of NDCHealth’s common stock to be inflated artificially. It asserts violations of Section 10(b) and 20(a) of the
Company have been presentedSecurities Exchange of 1934, and Rule10b-5 thereunder and seeks 13
PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)
unspecified monetary damages and other relief. On October 13, 2004, NDCHealth and the individual defendants filed a motion to reflect Patient1dismiss the second amended complaint. On July 27, 2005, the District Court granted the motion to dismiss without prejudice. Plaintiffs were granted leave to file a third amended complaint by August 26, 2005. On August 26, 2005, plaintiffs filed a notice appealing the dismissal to the United States Court of Appeals for the Eleventh Circuit. That appeal remains pending.
On May 10, 2005, a complaint captioned MMI Investments, L.P. v. NDCHealth Corporation, et al., was filed in the United States District Court for the Southern District of New York against NDCHealth and
Business1certain of its former executives. The complaint generally alleges that plaintiff MMI Investments, L.P. (“MMI”) was damaged as
discontinued
operations for all periods presented. Patient1a result of its purchases of NDCHealth common stock at artificially inflated prices from July 2003 through August 9, 2004. More specifically, the complaint alleges that defendants violated Sections 10(b), 18 and
Business1 were formerly
reported as part20(a) of the
Hospital Services division.
Summarized operating results forSecurities Exchange Act of 1934 and Rule 10b-5 thereunder and committed common law fraud by materially overstating the
discontinued operations are as
follows:
THREE MONTHS ENDED MARCH 31,
-----------------------------------------------------------
2005 2004
---------------------------- ----------------------------
PATIENT1 BUSINESS1 TOTAL PATIENT1 BUSINESS1 TOTAL
-------- --------- ----- -------- --------- -----
(IN THOUSANDS)
Revenue........................................... $ -- $ -- $ -- $ -- $ 106 $ 106
===== ===== ===== ==== ===== =====
Loss from discontinued operations before income
taxes........................................... $ -- $ -- $ -- $(18) $(303) $(321)
Income tax expense................................ -- -- -- -- -- --
----- ----- ----- ---- ----- -----
Loss from discontinued operations, net of tax..... $ -- $ -- $ -- $(18) $(303) $(321)
===== ===== ===== ==== ===== =====
NOTE 9 -- LEGAL MATTERSreported financial condition of NDCHealth and issuing overly optimistic forecasts concerning NDCHealth’s financial prospects. It seeks unspecified monetary and other relief. On
April 4,July 22, 2005,
defendants filed a motion to dismiss MMI’s Section 10(b), Section 20(a) and common law fraud claims and/or transfer the
Company announced that it was notified by the SEC of
the issuance of an order of investigation, which it believes relates to
allegations of wrongdoing made by a former employee in 2003 and 2004. These
allegations were the subject of a prior investigation by the audit committee and
an outside accounting firm that resulted in the performance of extensive
additional procedures. See Note 4 above and "Note 2 -- "Other Expenses" in the
Company's Notesaction to the
Consolidated Financial StatementsNorthern District of Georgia. The parties are currently engaged in
the Company's 2004
Form 10-K for more information.discovery. The Company is subject to claims, litigation and official billing inquiries arising in the ordinary course of its business. These matters include, but are not limited to, lawsuits brought by former customers with respect to the operation of the
Company'sCompany’s business. The Company has also received written demands from customers and former customers that have not resulted in legal action. Within the
Company'sCompany’s industry, federal and state civil and criminal laws govern medical billing and collection activities. These laws provide for various fines, penalties,
8
PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
multiple damages, assessments and sanctions for violations, including possible exclusion from federal and state healthcare payer programs. The Company believes that it has meritorious defenses to the claims and other issues asserted in pending legal matters; however, there can be no assurance that such matters or any future legal matters will not have an adverse effect on the Company. Amounts of awards or losses, if any, in pending legal matters have not been reflected in the financial statements unless probable and reasonably estimable.
NOTE 10 -- LONG-TERM DEBT
On September 11, 2003, the Company entered into a $175 million Credit
Agreement (the "Credit Agreement"). The Credit Agreement consisted of a $125
million Term Loan B (the "Term Loan B") and a $50 million revolving credit
facility (the "Revolving Credit Facility"). The Company had approximately $118.8
million outstanding under the Term Loan B as of March 31, 2004, under a
LIBOR-based interest contract, bearing interest at 5.36%. The Company has had no
borrowings outstanding under the Revolving Credit Facility since its inception.
Note 7 — Long-Term Debt
On June 30, 2004, the Company issued $125 million aggregate principal amount of 3.25% Convertible Subordinated Debentures due 2024 (the "Debentures"“Debentures”) to qualified institutional buyers pursuant to Rule 144A of the Securities Act of 1933, as amended. As originally issued, the Debentures were convertible into shares of the Company'sCompany’s Common Stock at an initial conversion rate of 56.0243 shares per $1,000 principal amount (a conversion price of approximately $17.85) once the Company'sCompany’s Common Stock share price reaches 130% of the conversion price, or a share price of approximately $23.20. In November 2004, the Company exercised its irrevocable option to pay, when due, the principal of Debentures submitted for conversion in cash.cash rather than shares of the Company’s Common Stock. The Company will satisfy any amount above the conversion trigger price of $17.85 through the issuance of Common Stock. The Debentures mature on June 30, 2024, and are unsecured. Interest on the Debentures is payable semiannually at the rate of 3.25% per annum on June 30 and December 30 of each year, beginning on December 30, 2004. The Company may redeem the Debentures either in whole or in part beginning July 6, 2009. The holders may require the Company to repurchase the Debentures on June 30, 2009, 2014, and 2019, or upon a fundamental change, as defined in the Indenture governing the Debentures. The Company used the proceeds from issuance of the Debentures, together with cash on hand, to retire the $118.8 million outstanding under the
Term Loan B,a term loan, as well as to repurchase, for approximately $25 million, an aggregate of approximately 2.0 million shares of the Company'sCompany’s outstanding common stock,Common Stock, at the market price of $12.57 per share, in negotiated transactions concurrently with the Debentures offering.
14
PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)
On January 6, 2006, Per-Se acquired NDCHealth. In connection with the sale of the Debentures,acquisition, the Company agreedsecured financing in the form of a new senior credit facility consisting of a $435 million term loan and a $50 million revolving credit facility (“Senior Credit Facility”), which replaced the Company’s prior $75 million revolving credit facility. The term loan bears interest at a rate of either LIBOR plus 2.25% or Base Rate, as defined by the Senior Credit Facility, plus 1.25% at the Company’s discretion and matures in seven years. During the first quarter of 2006, the Company elected to fileuse LIBOR plus 2.25%. The revolving credit facility has an interest rate that varies between LIBOR plus 1.50% and LIBOR plus 2.50% or between Base Rate plus 0.5% and Base Rate plus 1.50%, based on performance, and matures in five years. The Company has the option of electing LIBOR or Base Rate. The Company has incurred no borrowings under the revolving credit facility. In conjunction with the SEC, within 90 days after the original issuance of the Debentures, a
shelf registration statement with respect to the resale of the Debentures and
the common stock issuable upon conversion of the Debentures. The Company agreed
to use commercially reasonable efforts to cause the shelf registration statement
to become effective within 210 days after the original issuance of the
Debentures. On September 15, 2004,financing transaction, the Company filedcapitalized approximately $7.7 million in expenses, including legal and other professional fees, which are included in other long-term assets in the shelf registration
statement with the SEC. On March 14, 2005, the shelf registration became
effective. Since the Company was unable to cause the shelf registration
statement to become effective within 210 days after original issuance of the
Debentures, theconsolidated balance sheets.
The Company is required to pay an
additionalannual commitment fee ranging from 0.25%
to 0.50%, based on performance, of
interestthe unused capacity related to the revolving credit facility. The commitment fee range is based on the
Debentures from January 26, 2005, throughCompany’s consolidated leverage ratio, as defined in the
effective date of the shelf
registration statement, March 14, 2005. The Company expects to pay approximately
$41,000 of additional interest to holders of the Debentures for the period from
January 26, 2005, through March 14, 2005.
On June 30, 2004, the Company also amended the Revolving Credit Facility to
increase its capacity from $50 million to $75 million, to extend its maturity to
three years, and to lower the interest rate from LIBOR plus amounts ranging from
3.0% to 3.5% to LIBOR plus amounts ranging from 2.5% to 3.0%. The Company did
not incur any borrowings under the Revolving Credit Facility in connection with
the retirement of the Term Loan B or the concurrent share repurchase.facility agreement. The Company intends to use the
Revolving Credit Facility,revolving credit facility, as needed, for
9
PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED) future investments in operations, including capital expenditures, strategic acquisitions, to secure its letters of credit, as needed, and other general corporate purposes. The Company has not incurred any borrowings under the
Revolving Credit Facility as of March 31, 2005. All obligations under the RevolvingSenior Credit Facility are fully and unconditionally guaranteed, on a senior secured basis, jointly and severally by all of the Company'sCompany’s present and future domestic and material foreign subsidiaries (the "Subsidiary Guarantors"“Subsidiary Guarantors”). The financial statements of the Subsidiary Guarantors have not been presented, as all subsidiaries, except for certain minor foreign subsidiaries, have provided guarantees, and the parent company does not have any significant operations or assets separate from its investment in those subsidiaries. Any non-guarantor subsidiaries are minor individually and in the aggregate to the Company'sCompany’s consolidated financial statements. There are no restrictions on the Subsidiary Guarantors that would prohibit the transfer of funds or assets to the parent company by dividend or loan.
The RevolvingSenior Credit Facility contains financial and other restrictive covenants, including, without limitation, those restricting additional indebtedness, lien creation, dividend payments, asset sales and stock offerings, and those requiring a minimum net worth, maximum leverage, maximum senior leverage, and minimum fixed charge coverage, each as defined in the RevolvingSenior Credit Facility. The Company was in compliance with all applicable covenants as of March 31, 2005.
NOTE 11 -- INCOME TAXES2006.
Also on January 6, 2006, the Company entered into a four-year interest rate swap agreement, in order to hedge against potential interest rate fluctuations resulting from the variable interest rate under the terms of the new Senior Credit Facility. Pursuant to the terms of the interest rate swap, the Company is obligated to periodically pay an amount based on a fixed interest rate, and the Company will receive an amount based on a variable rate. The variable rate is based on the three-month LIBOR rate available at the time. By entering into the interest rate swap, the Company has effectively fixed the maximum interest rate that the Company will pay on a portion of the outstanding balance under the Senior Credit Facility at 4.76% per annum plus the applicable spread, which is 225 basis points. The amount of the Senior Credit Facility that is covered by the swap is $125 million in years one and two, decreasing to $100 million in year three and $75 million in year four. The interest rate swap will terminate on December 31, 2009, unless sooner terminated pursuant to its terms. SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS No. 133”) requires that a company recognize derivatives as assets or liabilities on its balance sheet, and also requires that the gain or loss related to the effective portion of derivatives designated as cash flow hedges be recorded as a component of other comprehensive income. This interest rate swap was designated as a cash flow hedge, was documented as fully effective, and was valued as an asset totaling approximately $1.5 million at March 31, 2006. The fair value of this swap arrangement is included in other long-term assets in the consolidated balance
15
PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)
sheets, and the related gains or losses are recorded, net of income tax effects, as a component of other comprehensive income.
During the three months ended March 31, 2006, the Company retired approximately $40 million of its then-outstanding debt. The Company retired an additional $10 million in April 2006.
Note 8 — Income Taxes
Income tax expense, which was primarily related to federal, state and local income taxes, was approximately $0.3$0.9 million and $0.2$0.3 million for the three months ended March 31, 2006, and 2005, and 2004, respectively. The
As of December 31, 2005, the Company has historically had a
full valuation allowance against its deferred tax asset of $125.3 million due to the uncertainty regarding its ability to generate sufficient future taxable income prior to the expiration of its net operating loss carryforwards. As a result of the acquisition of NDCHealth, the Company released approximately $84 million of its deferred tax asset valuation allowance against the goodwill resulting from the transaction to offset a deferred tax liability recorded as part of the acquisition. The majority of this liability relates to the increase in the valuation of NDCHealth’s fixed assets and identifiable intangible assets resulting from the transaction that were recorded for GAAP. Since the NDCHealth acquisition was an acquisition of stock, NDCHealth’s tax basis of the assets carries over to the Company as its tax basis. Therefore, the Company will not receive a tax benefit from the additional intangible amortization recorded for GAAP purposes. As a result of this accounting treatment for the acquisition, the Company’s taxable income relating to this acquisition will be greater than its corresponding GAAP income, which will result in the utilization of previously reserved net operating loss carryforwards corresponding to the amount of the disallowed amortization for income tax purposes. Since management believes it is more likely than not that the Company’s deferred tax asset will be realized due to the reversal of the deferred tax liability recorded in connection with the acquisition, the Company released a portion of its valuation allowance against the asset.
In the fourthfirst quarter of 2004,2006, the Company reassessed the remaining valuation allowance previously established and determined that it was more likely than not that a portion of the deferred tax asset would be realized in the foreseeable future. This determination was based upon the Company'sCompany’s projection of taxable income for 20052006 and 2006.2007. Accordingly, a portion$3.4 million of the valuation allowance was released during the fourthfirst quarter of 2004. The Company will continue2006, of which $1.9 million was recorded to assessequity as additionalpaid-in-capital and $1.5 million was recorded as a reduction in the potential realizationincome tax provision for the three months ended March 31, 2006. This $3.4 million release of the remainingvaluation allowance results in a $33.7 million net deferred tax asset and will adjustat March 31, 2006.
On November 10, 2005, the FASB issued FASB Staff Position No. FAS 123R-3,“Transition Election Related to Accounting for Tax Effects of Share-Based Payment Awards.” The Company elected to adopt the alternative transition method, which is the simplified method provided in the FASB Staff Position for calculating the tax effects of stock-based compensation pursuant to SFAS No. 123(R). The alternative transition method was used to determine the beginning balance of the additional paid-in capital pool (“APIC pool”) related to the tax effects of employee stock-based compensation. Due to the Company’s history of tax net operating losses, the Company had no beginning balance in the APIC pool at the date of adoption of SFAS No. 123(R) on January 1, 2006.
The Company uses the “with-and-without” or “incremental” approach for determining the order in which tax benefits derived from the share-based payment awards are utilized. Using the with-and-without approach, actual income taxes payable for the period are compared to the amount of income taxes that would have been payable if there had been no share-based compensation expense for tax purposes in excess of the compensation expense recognized for financial reporting purposes. As a result of this approach, tax net operating loss carryforwards not related to share-based compensation are utilized before the current period’s share-based compensation deduction. As a result of this accounting treatment, the Company has a fully
16
PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)
reserved deferred tax asset of approximately $36.0 million related to tax net operating loss carryforwards for non-qualified stock option deductions. The benefit of the valuation allowance in future
periods,release related to these deductions will be recorded directly to equity as appropriate.
NOTE 12 -- RESTRUCTURING EXPENSESadditionalpaid-in-capital when such benefits are realized.
Note 9 — Restructuring Expenses
The amount of lease termination costs associated with a 1995 restructuring applied against the reserve in the three months ended March 31,
2005,2006, is as follows:
RESERVE BALANCE COSTS APPLIED RESERVE BALANCE
DECEMBER 31, 2004 AGAINST RESERVE MARCH 31, 2005
----------------- --------------- ---------------
(IN THOUSANDS)
Lease termination costs................. $1,104 $(84) $1,020
NOTE 13 -- SEGMENT REPORTING| | | | | | | | | | | | | |
| | | Reserve Balance | | Costs Applied | | Reserve Balance |
| | | December 31, 2005 | | Against Reserve | | March 31, 2006 |
| | | | | | | |
| | | (In thousands) |
| Lease termination costs | | $ | 807 | | | $ | (54 | ) | | $ | 753 | |
Note 10 — Segment Reporting
The Company'sCompany’s reportable segments are operating units that offer different services and products. Per-Se provides its services and products through its twothree operating divisions: Physician ServicesSolutions, Hospital Solutions, and Hospital Services.Pharmacy Solutions.
The Physician
ServicesSolutions division provides Connective Healthcare solutions that manage the revenue cycle for physician groups.
The division provides a complete outsourcing service, therefore, allowing physician groups to avoid the infrastructure investment and administrative costs in their own in-house billing office. The division is the largest provider of business management outsourced services that supplant all or most of the administrative functions of a physician
group related to their revenue
cycle. Thegroup. Its target market is primarily hospital-affiliated physician groups in the specialties of radiology, anesthesiology, emergency medicine and pathology as well as physician groups practicing in the academic setting and other large physician groups.
Services include clinical data collection, data input, medical coding, billing, contract management, cash collections, accounts receivable management and extensive reporting of metrics related to the physician practice. These services help physician groups to be financially successful by improving cash flows and reducing administrative costs and burdens. Fees for these services are primarily based on a percentage of net collections on the clients’ accounts receivable. The division recognizes revenue
primarilyand bills customers when the customers receive payment on
a contingency fee
basis,those accounts receivable, which aligns the
division'sdivision’s interests with the interests of the physician groups it services. The
outsourced services business recognizes revenue as a
10
PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
percentage of the physician group's cash collections for the services performed.
Since this is an outsourced service delivered on the Company's proprietary
technology, license fees or maintenance fees are not required to be paid by the
division's hospital-affiliated physician groups. The division also sells agenerates revenue from one-time sales of physician practice management ("PPM"(“PPM”) solution that is deliveredsoftware or monthly usage fees for software used via an ASPApplication Service Provider (“ASP”) model. The PPM solution collects a monthly usage fee from the office-based
physician practices using the system. The division'sdivision’s revenue model is 100%approximately 95% recurring in nature due to the transaction-based nature of its fee revenue in the outsourced services business and the monthly usage fee in the PPM business. The business of the Physician ServicesSolutions division is conducted by PST Services, Inc., a Georgia corporation, d/b/and NDCHealth Corporation, a "Per-Se Technologies,"Delaware corporation, both of which is aare wholly owned subsidiarysubsidiaries of the Company. Both of these subsidiaries do business under the name “Per-Se Technologies.”The Hospital ServicesSolutions division provides Connective Healthcare solutions that increase revenue and decrease expenses for hospitals, with a focus on revenue cycle management and resource management. The division's revenue cycle
management solutions enable a hospital's central billing office to improve its
revenue cycle.the financial health of hospitals and healthcare organizations. The division has one of the largest electronic clearinghouses in the medical industry, which provides an important infrastructure to support its revenue cycle offering.management offerings. The clearinghouse delivers dedicated electronic and Internet-basedbusiness-to-business solutions that focus on electronic processing of medical transactions as well as complementary transactions, such as electronic remittance advices, real-time eligibility verification and high-speed print and mail services. Other revenue cycle management solutions provide insight into a hospital’s revenue cycle inefficiencies, such as denial management. Denial management allows hospitals to identify charges denied reimbursement by a payer and to facilitate corrective actions such that claims may be resubmitted for reimbursement. Hospitals may opt to outsource portions of their revenue cycle management process to the Company, such as secondary insurance billing, or outsource their entire central billing office. The
17
PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)
division also provides resource management solutions that enable hospitals to efficiently to manage resources such as personnel and the
operating room, to reduce costs and improve their bottom line. The division’s staff scheduling software efficiently plans nurse schedules, accommodating individual preferences as well as environmental factors, such as acuity levels, and can schedule all the personnel across the hospital enterprise. The division’s patient scheduling software helps effectively manage a hospital’s most expensive and profitable area, the operating room, as well as schedules patients across the enterprise. The division primarily recognizes revenue on a per-transaction basis for its revenue cycle management solutions and primarily recognizes revenue on a
percentage-of-completionpercentage-of-completion basis or upon software shipment for sales of its resource management software solutions. Approximately 88%Greater than 90% of the division'sdivision’s revenue is recurring due to its transaction-based business and the maintenance revenue from its substantial installed base for the revenue cycle management solutions and resource management software
solutions.software. The business of the Hospital ServicesSolutions division is conducted by the following wholly owned subsidiaries of the Company: Per-Se Transaction Services, Inc., an Ohio corporation; Patient Account Management Services, Inc., an Ohio corporation; PST Products, LLC, a California limited liability company; and
Knowledgeable Healthcare Solutions, Inc., an Alabama corporation, and NDCHealth Corporation, a Delaware corporation. All of these subsidiaries do business under the name "Per-Se“Per-Se Technologies."”
The Pharmacy Solutions division provides Connective Healthcare solutions that focus on transaction clearinghouse services andpoint-of-service systems to improve administrative efficiencies and optimize the revenue and cash flow of retail and mail order pharmacies in the U.S. This division has a leading market position in pharmacy services and systems with connectivity to approximately 90% of the retail pharmacy stores, processing more than six billion total pharmacy transactions annually, and has systems installed in more than 20% of pharmacies in the U.S. The division’s electronic clearinghouse for pharmacy transactions provides real-time processing related to claims submission, eligibility verification, remittance advice, referral authorization, and drug formulary, as well as claim status and tracking. The division also provides value-added transaction services and claims edits that perform financial and administrative reviews on transactions to help pharmacies enhance the accuracy of submitted claims, decrease receivable days outstanding and improve labor efficiency. The division’spoint-of-service systems offerings help retail and mail order pharmacies streamline workflow, improve cash flow and reduce costs while also serving as an additional source of transaction volume for the division’s electronic clearinghouse. The division’s revenue model is more than 90% recurring in nature due to the transaction-based or fixed-fee nature of its revenue in the services business and the maintenance-based nature of revenue in its systems business. The business of the Pharmacy Solutions division is conducted by NDCHealth Corporation, a Delaware Corporation d/b/a“Per-Se Technologies.”
The Company evaluates each segment'ssegment’s performance based on its segment operating income. Segment operating income is revenue less cost of services, selling, general and administrative expenses and other expenses.
The Hospital
ServicesSolutions segment revenue includes intersegment revenue for services provided to the Physician
ServicesSolutions segment, which are shown as eliminations to reconcile to total consolidated revenue.
11
18
PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)— (Continued)
The
Company'sCompany’s segment information from continuing operations is as follows:
THREE MONTHS ENDED
MARCH 31,
-------------------
2005 2004
-------- --------
(IN THOUSANDS)
Revenue:
Physician Services........................................ $67,190 $63,183
Hospital Services......................................... 28,364 24,771
Eliminations.............................................. (3,524) (3,353)
------- -------
$92,030 $84,601
======= =======
Segment operating expenses:
Physician Services........................................ $58,622 $57,230
Hospital Services......................................... 21,935 18,969
Corporate................................................. 4,144 7,894
Eliminations.............................................. (3,524) (3,353)
------- -------
$81,177 $80,740
======= =======
Segment operating income:
Physician Services........................................ $ 8,568 $ 5,953
Hospital Services......................................... 6,429 5,802
Corporate................................................. (4,144) (7,894)
------- -------
$10,853 $ 3,861
======= =======
Interest expense............................................ $ 1,481 $ 2,074
======= =======
Interest income............................................. $ (312) $ (52)
======= =======
Income before income taxes.................................. $ 9,684 $ 1,839
======= =======
Depreciation and amortization:
Physician Services........................................ $ 2,060 $ 2,424
Hospital Services......................................... 1,596 1,320
Corporate................................................. 96 150
------- -------
$ 3,752 $ 3,894
======= =======
Capital expenditures and capitalized software development
costs:
Physician Services........................................ $ 1,978 $ 1,610
Hospital Services......................................... 2,593 1,150
Corporate................................................. 54 4
------- -------
$ 4,625 $ 2,764
======= =======
AS OF
------------------------
MARCH 31, DECEMBER 31,
2005 2004
--------- ------------
(IN THOUSANDS)
Identifiable assets:
Physician Services........................................ $ 68,493 $ 63,611
Hospital Services......................................... 63,275 59,964
Corporate................................................. 78,297 79,116
-------- --------
$210,065 $202,691
======== ========
12
| | | | | | | | | | |
| | | Three Months Ended | |
| | | March 31, | |
| | | | |
| | | 2006 | | | 2005 | |
| | | | | | | |
| | | (In thousands) | |
| Revenue: | | | | | | | | |
| | Physician Solutions | | $ | 77,326 | | | $ | 67,190 | |
| | Hospital Solutions | | | 43,527 | | | | 28,364 | |
| | Pharmacy Solutions | | | 29,401 | | | | — | |
| | Eliminations | | | (4,013 | ) | | | (3,524 | ) |
| | | | | | | |
| | | $ | 146,241 | | | $ | 92,030 | |
| | | | | | | |
| Segment operating expenses: | | | | | | | | |
| | Physician Solutions | | $ | 69,179 | | | $ | 58,622 | |
| | Hospital Solutions | | | 35,996 | | | | 21,935 | |
| | Pharmacy Solutions | | | 33,906 | | | | — | |
| | Corporate | | | 10,997 | | | | 4,144 | |
| | Eliminations | | | (4,013 | ) | | | (3,524 | ) |
| | | | | | | |
| | | $ | 146,065 | | | $ | 81,177 | |
| | | | | | | |
| Segment operating income: | | | | | | | | |
| | Physician Solutions | | $ | 8,147 | | | $ | 8,568 | |
| | Hospital Solutions | | | 7,531 | | | | 6,429 | |
| | Pharmacy Solutions | | | (4,505 | ) | | | — | |
| | Corporate | | | (10,997 | ) | | | (4,144 | ) |
| | | | | | | |
| | | $ | 176 | | | $ | 10,853 | |
| | | | | | | |
| Interest expense | | $ | 8,513 | | | $ | 1,481 | |
| | | | | | | |
| Interest income | | $ | (632 | ) | | $ | (312 | ) |
| | | | | | | |
| (Loss) income before income taxes | | $ | (7,705 | ) | | $ | 9,684 | |
| | | | | | | |
| Depreciation and amortization(1): | | | | | | | | |
| | Physician Solutions | | $ | 4,310 | | | $ | 2,060 | |
| | Hospital Solutions | | | 6,811 | | | | 1,596 | |
| | Pharmacy Solutions | | | 13,858 | | | | — | |
| | Corporate | | | 467 | | | | 96 | |
| | | | | | | |
| | | $ | 25,446 | | | $ | 3,752 | |
| | | | | | | |
| Capital expenditures and capitalized software development costs: | | | | | | | | |
| | Physician Solutions | | $ | 1,419 | | | $ | 1,978 | |
| | Hospital Solutions | | | 3,924 | | | | 2,593 | |
| | Pharmacy Solutions | | | 1,464 | | | | — | |
| | Corporate | | | 516 | | | | 54 | |
| | | | | | | |
| | | $ | 7,323 | | | $ | 4,625 | |
| | | | | | | |
19
PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
NOTE 14 -- ENHANCEMENT TO PHYSICIAN CLAIMS CLEARINGHOUSE
During— (Continued)
| | | | | | | | | | |
| | | As of |
| | | |
| | | March 31, | | December 31, |
| | | 2006 | | 2005 |
| | | | | |
| | | (In thousands) |
| Identifiable assets: | | | | | | | | |
| | Physician Solutions | | $ | 187,973 | | | $ | 66,380 | |
| | Hospital Solutions | | | 348,974 | | | | 71,482 | |
| | Pharmacy Solutions | | | 284,412 | | | | — | |
| | Corporate | | | 109,213 | | | | 101,661 | |
| | | | | | | | | |
| | | $ | 930,572 | | | $ | 239,523 | |
| | | | | | | | | |
| |
| (1) | For the three months ended March 31, 2006, depreciation and amortization expense includes in-process research and development that was purchased as part of the NDCHealth acquisition and expensed during the first quarter. By segment, Physician Solutions includes approximately $1.9 million, Hospital Solutions includes approximately $2.8 million and Pharmacy Solutions includes approximately $8.6 million of in-process research and development expense. |
Note 11 — Retirement Benefits
In connection with the latter partacquisition of 2004,NDCHealth, the Company initiatedassumed the NDCHealth noncontributory defined benefit pension plan (the “Pension Plan”). The Pension Plan covered substantially all of the former NDCHealth employees who had met the eligibility provisions of the Plan as of May 31, 1998. The Pension Plan was closed to new participants beginning June 1, 1998, and benefit accruals for years of service ceased on July 31, 1998. Additionally, benefit accruals for compensation level increases ceased on June 30, 2003. Provisions of the Pension Plan meet the requirements of the Employee Retirement Income Security Act of 1974, as amended. The Pension Plan is approximately 68% funded.
The liability relating to Pension Plan benefits totaled approximately $12.2 million, and is included in other obligations on the consolidated balance sheet at March 31, 2006. Net periodic pension cost for the Pension Plan during the period from January 6, 2006, (the date of the acquisition of NDCHealth) through March 31, 2006, includes the following components:
| | | | | |
| | | (In thousands) |
| Interest cost on projected benefit obligation | | $ | 536 | |
| Expected return on plan assets | | | (500 | ) |
| | | | | |
| Net periodic pension cost | | $ | 36 | |
| | | | | |
In the first fiscal quarter of 2006, the Company made a project, which is
scheduled to be completed near the endcontribution of 2005, to enhance substantially its
physician claims clearinghouse functionality.$0.1 million. The Company expects that the
improved platform will provide efficiencies and competitive advantages for its
Physician Services division. The Company expects to incur approximately $5anticipates making $2.0 million in capital expenditures and capitalized software development costs and
between $2.0 million and $2.5 million in expenses, including amortization
expenseadditional contributions to fund the Pension Plan during the remainder of approximately $1 million, related to the physician claims
clearinghouse enhancement in 2005. During the first quarter2006 fiscal year.
20
| |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
Description of 2005, the Company
incurred approximately $0.3 million of expenses which are reflected in the
Hospital Services division, and incurred approximately $0.9 million of capital
expenditures and capitalized software development costs related to this project.
13
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
DESCRIPTION OF BUSINESSBusiness Per-Se Technologies, Inc. ("Per-Se"(“Per-Se” or the "Company"“Company”), a corporation organized in 1985 under the laws of the State of Delaware, provides integrated
business management outsourcing services, Internet-enabled connectivity andis focused on providing solutions that improve the administrative software forfunctions of the healthcare industry. Specifically, Per-Se delivers its
servicesprovides Connective Healthcare solutions that help physicians, hospitals and products through its two operating divisions: Physician Servicespharmacies achieve their income potential. Connective Healthcare solutions support and Hospital Services.
The Physician Services division provides business management outsourcing
services to the hospital-affiliated physician practice market, physicians in
academic settings and other large physician practices. The division provides a
complete outsourcing service, therefore, allowing physician groups to avoid the
infrastructure investment in their own in-house billing office. Services include
clinical data collection, data input, medical coding, billing, contract
management, cash collections and accounts receivable management. These services
are designed to assistunite healthcare providers, payers and patients with innovative technology processes that improve and accelerate reimbursement and reduce the business management
functions associated with the deliveryadministrative cost of healthcare services, allowing
physicians to focus on providing quality patient care. These services also
assist physicians in improving cash flows and reducing administrative costs and
burdens.
The division's offerings have historically focused on the back-end
processes required to ensure physicians are properly reimbursed for care
delivery. The division also has an ASP-based physician practice management
solution, named MedAxxis, that targets office-based physician groups.
The Hospital Services division products focus on optimizing the revenue
cycle and improving administrative efficiencies for hospitals. Solutions include
electronic claims processing, referral submissions, eligibility verification and
other electronic and paper transaction processing as well as patient and staff
scheduling systems.
Per-SeCompany markets its products and services to constituents of the healthcare industry, primarily to hospital-affiliated physician practices, physician groups in academic and office-based settings, hospitals, andhealthcare organizations, integrated delivery networks ("IDNs"(“IDN’s”).
GENERAL OVERVIEW and retail and mail order pharmacies.
The Physician Solutions division provides Connective Healthcare solutions that manage the revenue cycle for physician groups. The division provides a complete outsourcing service, therefore, allowing physician groups to avoid the infrastructure investment and administrative costs in their own in-house billing office. The division is the largest provider of business management outsourced services that supplant all or most of the administrative functions of a physician group. The division’s target market is primarily hospital-affiliated physician groups in the specialties of radiology, anesthesiology, emergency medicine and pathology as well as physician groups practicing in the academic setting and other large physician groups. Services include clinical data collection, data input, medical coding, billing, contract management, cash collections, accounts receivable management and extensive reporting of metrics related to the physician practice. These services help physician groups to be financially successful by improving cash flows and reducing administrative costs and burdens. Fees for these services are primarily based on a percentage of net collections on the clients’ accounts receivable. The division recognizes revenue and bills customers when the customers receive payment on those accounts receivable, which aligns the division’s interests with the interests of the physician groups it services. The Company also generates revenue from one-time sales of physician practice management (“PPM”) software or monthly usage fees for software used via an Application Service Provider (“ASP”) model. The division’s revenue model is approximately 95% recurring in nature due to the transaction-based nature of its fee revenue in the outsourced services business and the monthly usage fee in the PPM business.
The Hospital Solutions division provides Connective Healthcare solutions that focus on revenue cycle and resource management to improve the financial health of hospitals and healthcare organizations. The division has one of the largest electronic clearinghouses in the medical industry, which provides an important infrastructure to support its revenue cycle management offerings. The clearinghouse delivers dedicated electronic and Internet-basedbusiness-to-business solutions that focus on electronic processing of medical transactions as well as complementary transactions, such as electronic remittance advices, real-time eligibility verification and high-speed print and mail services. Other revenue cycle management solutions provide insight into a hospital’s revenue cycle inefficiencies, such as denial management. Denial management allows hospitals to identify charges denied reimbursement by a payer and to facilitate corrective actions such as resubmitting for reimbursement. Hospitals may opt to outsource portions of their revenue cycle management process to the Company, such as secondary insurance billing, or outsource their entire central billing office. The division also provides resource management solutions that enable hospitals to efficiently manage resources to reduce costs and improve their bottom line. The division’s staff scheduling software efficiently plans nurse schedules, accommodating individual preferences as well as environmental factors, such as acuity levels, and can schedule all the personnel across the hospital enterprise. The division’s patient scheduling software helps effectively manage a hospital’s most expensive and profitable area, the operating room, as well as schedules patients across the enterprise. The division primarily recognizes revenue on a per-transaction basis for its revenue cycle management solutions and primarily recognizes revenue on apercentage-of-completion basis or upon software shipment for sales of its resource management software solutions. Greater than 90% of the division’s revenue is recurring due to its transaction-based business and the maintenance revenue from its substantial installed base for the revenue cycle management solutions and resource management software.
21
The Pharmacy Solutions division provides Connective Healthcare solutions that focus on transaction clearinghouse services andpoint-of-service systems to improve administrative efficiencies and optimize the revenue and cash flow of retail and mail order pharmacies in the U.S. This division has a leading market position in pharmacy services and systems with connectivity to approximately 90% of retail pharmacy stores, processing more than six billion total pharmacy transactions annually, and has systems installed in more than 20% of pharmacies in the U.S. The division’s electronic clearinghouse for pharmacy transactions provides real-time processing related to claims submission, eligibility verification, remittance advice, referral authorization, and drug formulary as well as claim status and tracking. The division also provides value-added transaction services and claims edits that perform financial and administrative reviews on transactions to help pharmacies enhance the accuracy of submitted claims, decrease receivable days outstanding and improve labor efficiency. The division’spoint-of-service systems offerings help retail and mail order pharmacies streamline workflow, improve cash flow and reduce costs while also serving as an additional source of transaction volume for the division’s electronic clearinghouse. Historically, the division has generated pharmacy systems revenue through the sale of software licenses, upgrades and recurring maintenance and support fees. The Company’s new line of systems products is being sold to customers with varying pricing and revenue models that may include per-transaction fees, a license fee plus annual maintenance or a monthly per store fee, depending on the customer. The division’s revenue model is more than 90% recurring in nature due to the transaction-based or fixed-fee nature of its revenue in the services business and the maintenance-based nature of revenue in its systems business.
General Overview
Key Performance Indicators. Management believes the key elements for assessing the Company'sCompany’s performance are the ability to generate stable and improving operating profit margins on existing business, and to generate similar or better operating profit margins on new business. An additional element is the ability to generate positive cash flow from continuing operations. In assessing the Company'sCompany’s performance, adjustments are made for items the Company considers to be atypical, such as those noted below, to help ensure the analysis is performed on a consistent, comparable basis from period to period.
NDC Health Acquisition. On August 29, 2005, Per-Se and NDCHealth Corporation (“NDCHealth”) announced that they had signed definitive agreements for the acquisition of NDCHealth, a leading provider of healthcare technology and information solutions by Per-Se. The transaction was completed on January 6, 2006. The Company now serves the healthcare industry through three divisions: Physician Solutions, Hospital Solutions and Pharmacy Solutions.
Overview of Operating Results. Consolidated revenue for the three months ended March 31, 2005,2006, increased approximately 9%59% as compared to the same period of 20042005 due to the implementationacquisition of the record level of new business sold during 2004.
Consolidated operating margins increased from 4.6%NDCHealth and organic growth in the first quarter of 2004
tophysician segment. Consolidated margins declined from 11.8% in the first quarter of 2005. During2005 to 0.1% in the first quarter of 2004,2006. While the Company had improvements in profitability from organic growth and the acquisition of NDCHealth, margins were negatively impacted by several atypical items related to the acquisition and its integration, as discussed below.
Atypical Items. The first quarter of 2006 included several atypical items, primarily related to the Company’s acquisition and integration of NDCHealth, which totaled $17.4 million. The Company recorded a non-cash expense of $13.3 million related to the write off of in-process research and development that was acquired in the purchase of NDCHealth. The Company also incurred expenses of approximately $3.9$4.1 million in costs associated with the
additional procedures as part of the year-end 2003 audit. Similar costs were not
incurred during the first quarter of 2005. Operating margins also increased duefor transition and integration costs related to the increased revenueNDCHealth acquisition. Offsetting these expenses was a non-cash tax benefit that the Company recorded during the quarter of approximately $1.5 million related to the partial release of its deferred tax asset valuation allowance, based on the Company’s reassessment of its future taxable income including the operations of NDCHealth.
Adoption of SFAS No. 123(R). Effective January 1, 2006, the Company adopted the fair value recognition provisions of Statement of Financial Accounting Standards (“SFAS”) No. 123 (revised 2004), “Share-Based Payment” (“SFAS No. 123(R)”) using the modified prospective method. Under that transition method, compensation cost recognized is: (a) based on the requirements of SFAS No. 123(R) for
22
all share-based payments granted after the effective date and (b) based on the requirements of SFAS No. 123 for all awards granted to employees prior to the effective date of SFAS No. 123(R) that remain unvested on the effective date. The Company’s consolidated financial statements as of and for the three months ended March 31, 2006, reflect the impact of SFAS No. 123(R). In accordance with the modified prospective method, the Company’s consolidated financial statements for the prior periods have not been restated to reflect, and do not include, the impact of SFAS No. 123(R).
The Company recorded a non-cash expense of approximately $0.9 million related to the adoption of SFAS No. 123(R) for stock-based compensation in the Physician Services division.quarter ended March 31, 2006.
Cash Flow from Operations. The Company generated
$13.2$23.1 million in cash from continuing operations during the current year quarter compared to
a use of cash during the first quarter of
20042005 of
$0.7$13.2 million.
The increase in cash flow from continuing
operations was driven by the Company's increase in profitability.
During the latter part of 2004, the Company initiated a project to enhance
substantially its physician claims clearinghouse functionality. The Company
expects that the improved platform will provide efficiencies and competitive
advantages for its Physician Services division. The Company expects to incur
approximately $5 million in capital expenditures and capitalized software
development costs and between $2.0 and $2.5 million in expenses, including
amortization expense of approximately $1 million, related to the physician
claims clearinghouse enhancement. During the first quarter of
2005,2006, the Company
used cash of approximately $21.6 million related to the NDCHealth acquisition and integration. The Company incurred
approximately $0.3 million ofseveral expenses
which are reflected in the
Hospital Services division,quarter that negatively impacted profitability but had no impact on cash flow, including the $13.3 million write off of in-process research and
incurreddevelopment that was acquired in the purchase of NDCHealth as well as approximately $0.9 million of
capital
expenditures and capitalized software development costsexpenses related to
this project.
14
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2005, AS COMPARED TO THREE MONTHS ENDED MARCH 31,
2004
the adoption of SFAS No. 123(R). Improvements in working capital year-over-year also contributed to the improvement in operating cash flow. Due to the increase in debt related to the NDCHealth acquisition, cash paid for interest in the quarter increased by approximately $6.9 million compared to the first quarter of 2005. Capitalization. The Company used a combination of both Common Stock and debt to fund its acquisition of NDCHealth. During January 2006, the Company issued approximately 8.3 million shares to the shareholders of NDCHealth. Additionally, the Company secured financing in the form of a new senior credit facility consisting of a $435 million term loan and a $50 million revolving credit facility. The Company has incurred no borrowings under the revolving credit facility.
During the first quarter of 2006, the Company retired approximately $40 million in term loan debt, and in April 2006, the Company retired an additional $10 million in term loan debt.
Results of Operations
| |
| Three months ended March 31, 2006, as compared to three months ended March 31, 2005 |
Revenue. Revenue classified by the
Company'sCompany’s reportable segments
("divisions"(“divisions”) is as follows:
THREE MONTHS ENDED
MARCH 31,
-------------------
2005 2004
-------- --------
(IN THOUSANDS)
Physician Services.......................................... $67,190 $63,183
Hospital Services........................................... 28,364 24,771
Eliminations................................................ (3,524) (3,353)
------- -------
$92,030 $84,601
======= =======
| | | | | | | | | |
| | | Three Months Ended |
| | | March 31, |
| | | |
| | | 2006 | | 2005 |
| | | | | |
| | | (In thousands) |
| Physician Solutions | | $ | 77,326 | | | $ | 67,190 | |
| Hospital Solutions | | | 43,527 | | | | 28,364 | |
| Pharmacy Solutions | | | 29,401 | | | | — | |
| Eliminations | | | (4,013 | ) | | | (3,524 | ) |
| | | | | | | | | |
| | | $ | 146,241 | | | $ | 92,030 | |
| | | | | | | | | |
Revenue for the Physician ServicesSolutions division increased approximately 6%15% in the three months ended March 31, 2005,2006, as compared to the same period in 2004.2005. During the first quarter of 2006, the Company acquired and included within the Physician Solutions division the results of the physician business of NDCHealth. Pricing for the division'sdivision’s services and products was stable compared to the prior year period. TheRevenue in the division’s outsourced receivables management business, which represents approximately 88% of the division’s first quarter revenue increase isand was not part of the NDCHealth acquisition, increased approximately 5% due to the implementation of the record net new business sold during 2004 and2005. The remainder of the recognitiongrowth in the quarter was attributable to the NDCHealth acquisition. Results for the first quarter of 2005 included approximately $1.5 million of revenue that was delayed infrom the quarter ended December 31, 2004, caused
bydue to a technical problem in the claims clearinghouse. Net new business sold in the outsourced receivables management business during the first quarter of 20052006 was $5$3 million compared to $12$5 million during the first
23
quarter of 2004. Net new business sold in the prior year quarter
represented a record performance for the division. Current year net new business
sold represents the Company's second strongest first quarter performance.2005. Net new business sold is defined as the annualized revenue value of new contracts signed in a period, less the annualized revenue value of terminated business in that same period. Net backlog at March 31, 2005,2006, was approximately $5$11 million, compared to the net backlog of approximately $5$12 million at December 31, 2004.2005, and approximately $5 million at March 31, 2005. Net backlog represents the annualized revenue related to new contracts signed with the business still to be implemented, less the annualized revenue related to existing contracts where discontinuance notification has been received and the customer has yet to be phased out. The Company focuses on maintaining a positive net backlog and believes it is a useful indicator of future revenue growth.
Revenue for the Hospital ServicesSolutions division increased approximately 15%53% for the three months ended March 31, 2005,2006, as compared to the same period in 2004.2005. Results for the first quarter of 2006 for the Hospital Solutions division includes the results of the hospital business of NDCHealth, which was acquired on January 6, 2006, and the results of Integra Solutions, which was acquired on December 1, 2005. Revenue growth in the quarter was a result of these acquisitions. Pricing for the division'sdivision’s services and products was stable compared to the prior year period. The division is continuing to penetrate both its existing customer base and reach new customers with its revenue cycle management products, particularly the conversion of the Premis customer base.
Revenue growthfor the Pharmacy Solutions division was approximately $29.4 million for the three months ended March 31, 2006. During the first quarter of 2006, the Company acquired the pharmacy business from NDCHealth. Volume in the division is due tonetwork business was benefited in the quarter from the implementation of transaction processingMedicare Part D on January 1, 2006, and from the increased market acceptance of new, value-added network products. The pharmacy systems business sold during 2004. Medical transaction
volume increased approximately 26% forhas a recurring software maintenance revenue stream and generates revenue from implementations of new customers in the period over the same period of 2004.
Revenue growth does not necessarily correlate directly to transaction volume due
to the mix of services and products sold by the division. The Company believes
transaction volume is a useful indicator of future revenue growth as business is
implemented into the division's recurring revenue model.quarter.
The Hospital ServicesSolutions division revenue includes intersegment revenue for services provided to the Physician ServicesSolutions division, which is shown in Eliminations to reconcile to total consolidated revenue.
Segment Operating Income. Segment operating income is revenue less cost of services, selling, general and administrative expenses and other expenses. Segment operating income, classified by the
Company'sCompany’s divisions, is as follows:
THREE MONTHS ENDED
MARCH 31,
-------------------
2005 2004
-------- --------
(IN THOUSANDS)
Physician Services.......................................... $ 8,568 $ 5,953
Hospital Services........................................... 6,429 5,802
Corporate................................................... (4,144) (7,894)
------- -------
$10,853 $ 3,861
======= =======
15
| | | | | | | | | |
| | | Three Months Ended | |
| | | March 31, | |
| | | | |
| | | 2006 | | | 2005 | |
| | | | | | | |
| | | (In thousands) | |
| Physician Solutions | | $ | 8,147 | | | $ | 8,568 | |
| Hospital Solutions | | | 7,531 | | | | 6,429 | |
| Pharmacy Solutions | | | (4,505 | ) | | | — | |
| Corporate | | | (10,997 | ) | | | (4,144 | ) |
| | | | | | | |
| | | $ | 176 | | | $ | 10,853 | |
| | | | | | | |
Physician Services'Solutions’ segment operating income increaseddecreased approximately 44%5% in the three months ended March 31, 2005,2006, compared to the same period in 2004,2005, resulting in operating margins of approximately 12.8%10.5% in the three months ended March 31, 2005,2006, versus approximately 9.4%12.8% in the same period in 2004. Margin
expansion2005. As compared to the first quarter of 2005, operating income increased $1.8 million in the current year period is thequarter as a result of revenue growth includingand the acquisition of NDCHealth physician business, which historically operated at higher margins than the Company’s physician business. This increase was offset by expenses related to the acquisition of NDCHealth of approximately $0.1 million for severance and $1.9 million for the write off of in-process research and development. The first quarter of 2006 also included expenses of approximately $0.2 million related to the adoption of SFAS No. 123(R). Operating income in 2005 benefited from the recognition of approximately $1.5 million of revenue, which was delayed infrom the quarter ended December 31, 2004, caused bydue to a technical problem in the claims clearinghouse.
Hospital Services'Solutions’ segment operating income increased approximately 11%17% in the three months ended March 31, 2005,2006, compared to the same period in 2004,
resulting2005. Operating income increased $4.1 million in operatingthe quarter as a result of improvement in the business and the acquisition of the NDCHealth hospital business, which
24
historically operated at higher margins than the Company’s revenue cycle management business for hospitals. This increase was offset by expenses related to the NDCHealth acquisition of approximately 22.7% versus$0.1 million for severance and $2.8 million for the write off of in-process research and development as part of the NDCHealth acquisition. The first quarter of 2006 also included expenses of approximately 23.4%$0.1 million related to the adoption of SFAS No. 123(R). These atypical items had a negative impact on the operating margin in the current quarter, which was 17.3%, as compared to the operating margin in the prior year period. Includedperiod of 22.7%.
Pharmacy Solutions’ segment operating loss was $4.5 million in the current yearthree months ended March 31, 2006. During the first quarter isof 2006, the Company acquired NDCHealth’s pharmacy business. The division’s loss for the first quarter of 2006 was generated by expenses of approximately $0.3$8.6 million related to the write off of costs associated within-process research and development purchased as part of the Company's physician claims
clearinghouse enhancement.NDCHealth acquisition. The first quarter of 2006 also included expenses of approximately $0.1 million related to the adoption of SFAS No. 123(R).
Corporate overhead expenses, which include certain executive and administrative functions, decreasedincreased approximately $3.8$6.9 million or approximately
48% in the three months ended March 31, 2005,2006, compared to the same period in 2004.2005. The decreaseincrease is attributable primarily to the NDCHealth integration costs of approximately $3.9 million. Corporate also included approximately $0.5 million of expenses incurred in the three months ended March 31, 2004, to perform the
additional procedures discussed below.
Other Expenses. As a result of allegations of improprieties made during
2003 and 2004, the Company's external auditors advised the Company and the Audit
Committee of the Board of Directors that additional procedures should be
performed related to the allegations. These additional procedures were required
due to Statementadoption of Auditing StandardsSFAS No. 99, Consideration of Fraud in a
Financial Statement Audit, that became effective for periods beginning on or
after December 15, 2002. Due to the volume and, in some cases, vague nature of
many of the allegations, the scope of the additional procedures was broad and
extensive. The additional procedures included the review of certain of the
Company's revenues, expenses, assets and liabilities accounts for the years 2001
through 2003.
The Company recorded costs related to the additional procedures totaling
approximately $3.9 million during the three months ended March 31, 2004, and
included these costs in other expenses in the Company's Consolidated Statements
of Income. In Note 13 of Notes to Financial Statements, these expenses are
classified in the Corporate segment.
123(R).
Interest. Interest expense was approximately $1.5$8.5 million for the three months ended March 31, 2005,2006, as compared to $2.1$1.5 million for the same period in 2004.2005. The decreaseincrease is attributable to the Company refinancing itsissuance of approximately $435 million in term loan debt in June
2004, by issuing $125 million aggregate principal amount of 3.25% Convertible
Subordinated Debentures due 2024. Priorrelated to this refinancing, the interest rate
on the Term Loan B was LIBOR plus 4.25%, or approximately 5.36%, in the first
quarter of 2004.NDCHealth acquisition. Interest income was approximately $0.3$0.6 million for the three-
month periodthree months ended March 31, 2005,2006, as compared to approximately $0.1$0.3 million for the same period in 2004.
2005.
Income Taxes. Income tax expense, which was primarily related to federal, state and local income taxes, was approximately $0.3$0.9 million and $0.2$0.3 million for the three months ended March 31, 2006, and 2005, and 2004, respectively. The
As of December 31, 2005, the Company has
historically had a full valuation allowance against its deferred tax asset of $125.3 million due to the uncertainty regarding its ability to generate sufficient future taxable income prior to the expiration of its net operating loss carryforwards. As a result of the acquisition of NDCHealth, the Company released approximately $84 million of its deferred tax asset valuation allowance against the goodwill resulting from the transaction to offset a deferred tax liability recorded as part of the acquisition. The majority of this liability relates to the increase in the valuation of NDCHealth’s fixed assets and identifiable intangible assets resulting from the transaction that were recorded for GAAP. Since the NDCHealth acquisition was an acquisition of stock, NDCHealth’s tax basis of the assets carries over to the Company as its tax basis. Therefore, the Company will not receive a tax benefit from the additional intangible amortization recorded for GAAP purposes. As a result of this accounting treatment for the acquisition, the Company’s taxable income relating to this acquisition will be greater than its corresponding GAAP income, which will result in the utilization of previously reserved net operating loss carryforwards corresponding to the amount of the disallowed amortization for income tax purposes. Since management believes it is more likely than not that the Company’s deferred tax asset will be realized due to the reversal of the deferred tax liability recorded in connection with the acquisition, the Company released a portion of its valuation allowance against the asset.
In the fourthfirst quarter of 2004,2006, the Company reassessed the remaining valuation allowance
previously established and determined that it was more likely than not that a portion of the deferred tax asset would be realized in the foreseeable future. This determination was based upon the Company'sCompany’s projection of taxable income for 20052006 and 2006.2007. Accordingly, a portion$3.4 million of the valuation allowance was released during the fourthfirst quarter of 2004. The Company will continue2006, of which $1.9 million was recorded to assessequity as additionalpaid-in-capital and $1.5 million was recorded as a reduction in the potential realizationincome tax provision for the three months ended March 31, 2006. This $3.4 million release of the remainingvaluation allowance results in a $33.7 million net deferred tax asset and will adjustat March 31, 2006.
On November 10, 2005, the FASB issued FASB Staff Position No. FAS 123R-3,“Transition Election Related to Accounting for Tax Effects of Share-Based Payment Awards.” The Company elected to adopt the alternative transition method, which is the simplified method provided in the FASB Staff Position for calculating the tax effects of stock-based compensation pursuant to SFAS No. 123(R). The alternative
25
transition method was used to determine the beginning balance of the additional paid-in capital pool (“APIC pool”) related to the tax effects of employee stock-based compensation. Due to the Company’s history of tax net operating losses, the Company had no beginning balance in the APIC pool at the date of adoption of SFAS No. 123(R) on January 1, 2006.
The Company uses the “with-and-without” or “incremental” approach for determining the order in which tax benefits derived from the share-based payment awards are utilized. Using the with-and-without approach, actual income taxes payable for the period are compared to the amount of income taxes that would have been payable if there had been no share-based compensation expense for tax purposes in excess of the compensation expense recognized for financial reporting purposes. As a result of this approach, tax net operating loss carryforwards not related to share-based compensation are utilized before the current period’s share-based compensation deduction. As a result of this accounting treatment, the Company has a fully reserved deferred tax asset of approximately $36.0 million related to tax net operating loss carryforwards for non-qualified stock option deductions. The benefit of the valuation allowance in future periods,release related to these deductions will be recorded directly to equity as appropriate.
Discontinued Operations.additionalpaid-in-capital when such benefits are realized.
The Company
completedexpects to continue to have a cash tax-paying rate of between 5% and 6%. At December 31, 2005, the
saleCompany had federal net operating loss carryforwards (“NOLs”) for income tax purposes of
Patient1 to
Misys Healthcare Systems, a division of Misys plc ("Misys") on July 28, 2003.
The Company completed the sale of Business1 effective January 31, 2004, to a
privately held company for $0.6approximately $375.4 million, which
consists of $346.8 million of consolidated NOLs and $28.6 million of separate return limitation NOLs. The NOLs will
be receivedexpire at various dates from 2006 through 2024. The change in
periodic
payments through June 2006. Nothe Company’s GAAP tax rate has no impact on the Company’s ability to recognize NOLs and will have no impact on cash
consideration was received at closing.
Pursuant to SFAS No. 144, the consolidated financial statements of the
Company have been presented to reflect Patient1 and Business1 as discontinued
operations for all periods presented. Patient1 and Business1 were formerly
reported as part of the Hospital Services division.
16
Summarized operating results for the discontinued operations are as
follows:
flow.
THREE MONTHS ENDED MARCH 31,
-----------------------------------------------------------
2005 2004
---------------------------- ----------------------------
PATIENT1 BUSINESS1 TOTAL PATIENT1 BUSINESS1 TOTAL
-------- --------- ----- -------- --------- -----
(IN THOUSANDS)
Revenue................................ $ -- $ -- $ -- $ -- $ 106 $ 106
===== ===== ===== ==== ===== =====
Loss from discontinued operations
before income taxes.................. $ -- $ -- $ -- $(18) $(303) $(321)
Income tax expense..................... -- -- -- -- -- --
----- ----- ----- ---- ----- -----
Loss from discontinued operations, net
of tax............................... $ -- $ -- $ -- $(18) $(303) $(321)
===== ===== ===== ==== ===== =====
| |
| Liquidity and Capital Resources |
LIQUIDITY AND CAPITAL RESOURCES The following table is a summary of the
Company'sCompany’s cash balances as of March 31,
2005,2006, and December 31,
2004,2005, and cash flows from continuing operations for the three months ended March 31,
2005,2006, and
2004,2005, (in thousands):
MARCH 31, 2005 DECEMBER 31, 2004
-------------- -----------------
Unrestricted cash and cash equivalents................. $42,463 $42,422
THREE MONTHS ENDED
MARCH 31,
-------------------
2005 2004
-------- --------
Cash provided by (used for) continuing operations........... $13,162 $ (696)
Cash used for investing activities from continuing
operations................................................ $(4,675) $(2,977)
Cash used for financing activities from continuing
operations................................................ $(8,446) $ (613)
| | | | | | | | | |
| | | March 31, | | December 31, |
| | | 2006 | | 2005 |
| | | | | |
| Unrestricted cash and cash equivalents | | $ | 35,908 | | | $ | 61,161 | |
| | | | | | | | | |
| | | Three Months Ended | |
| | | March 31, | |
| | | | |
| | | 2006 | | | 2005 | |
| | | | | | | |
| Cash provided by continuing operations | | $ | 23,139 | | | $ | 13,162 | |
| Cash used for investing activities from continuing operations | | $ | (437,189 | ) | | $ | (4,675 | ) |
| Cash provided by (used for) financing activities from continuing operations | | $ | 388,797 | | | $ | (8,446 | ) |
Unrestricted cash and cash equivalents include all highly liquid investments with an initial maturity of no more than three months at the date of purchase.
Restricted cash of approximately $0.1 million$43,000 and $20,000 at March 31, 2005,2006, and December 31, 2004,2005, respectively, represent amounts collected on behalf of certain Physician ServicesSolutions and Hospital ServicesSolutions clients, a portion of which is held in trust until it is remitted to such clients.
During the three months ended March 31, 2006, the Company generated approximately $23.1 million in cash from continuing operations as a result of increased profitability from the business segments as well as from the acquisition of NDCHealth offset by approximately $21.6 million from continuing operations was used for integration and other costs related to the NDCHealth acquisition.
During the three months ended March 31, 2005, the Company generated approximately $13.2 million in cash from continuing operations as a result of increased profitability and the timing of payments onpayment of certain accruals.
26
During the three months ended March 31, 2004,2006, the Company used approximately $0.7$437.2 million in cash from investing activities from continuing operations, including $429.9 million used for the acquisition of NDCHealth, which includes
cash generated from normal operations offset by cash payments related to
additional procedures necessary under SAS No. 99 totaling approximately $2.4
million (refer to "Note 4 -- Additional Procedures" in the Company's Notes to
Consolidated Financial Statements for more information), the paymentis net of approximately $3.4$100.0 million of cash acquired. Approximately $7.3 million was used for capital expenditures and investment in expenses and legal settlements related to the
matter with Lloyd's of London (refer to "Note 12 -- Legal Matters" in the
Company's Notes to Consolidated Financial Statements in the Company's 2004 Form
10-K for more information) and quarterly interest payments of approximately $1.7
million.software development costs.
During the three months ended March 31, 2005, the Company used approximately $4.7 million in cash from investing activities from continuing operations primarily for capital expenditures and investment in software development costs.
During the three months ended March 31,
2004,2006, the Company
usedgenerated approximately
$3.0$388.8 million in cash from
investing activitiesfinancing activities. The Company raised $435 million from
continuing
operations primarily for capital expendituresa new senior credit facility in connection with the acquisition of NDCHealth and
investmentsubsequently repaid approximately $40 million on this facility during the quarter. In conjunction with obtaining the new senior credit facility, the Company capitalized approximately $7.7 million in
software
development costs.
17
expenses, including legal and other professional fees, which are included in other long-term assets in the consolidated balance sheets. The Company also had proceeds from the exercise of stock options of approximately $1.5 million in the first quarter of 2006. On January 6, 2006, Per-Se acquired NDCHealth. In connection with the acquisition, the Company issued approximately 8.3 million shares of Common Stock to NDCHealth stockholders and secured financing in the form of a new senior credit facility consisting of a $435 million term loan and a $50 million revolving credit facility (“Senior Credit Facility”), which replaced the Company’s prior $75 million revolving credit facility. The term loan bears interest at a rate of either LIBOR plus 2.25% or Base Rate, as defined by the Senior Credit Facility, plus 1.25% at the Company’s discretion and matures in seven years. During the first quarter of 2006, the Company elected to use LIBOR plus 2.25%. The revolving credit facility has an interest rate that varies between LIBOR plus 1.50% and LIBOR plus 2.50% or between Base Rate plus 0.5% and Base Rate plus 1.50%, based on performance, and matures in five years. The Company has the option of electing LIBOR or Base Rate. The Company has incurred no borrowings under the revolving credit facility. During the three months ended March 31, 2006, the Company retired approximately $40 million of its then outstanding debt. The Company retired an additional $10 million in April 2006.
For more information about the Company’s long-term debt, refer to “Note 7 — Long-Term Debt” in the Company’s Notes to Consolidated Financial Statements.
During the three months ended March 31, 2005, the Company used approximately $8.4 million in cash from financing activities which included approximately $9.9 million used for the repurchase of the Company'sCompany’s Common Stock which was partially offset by proceeds from the exercise of stock options of approximately $1.4 million.
On March 9, 2005, the Company announced that the Board authorized the repurchase of up to 1 million shares of the Company'sCompany’s outstanding Common Stock. Under the share repurchase program, the Company was able to repurchase shares from time to time at management'smanagement’s discretion in the open market, by block purchase, in privately negotiated transactions or as otherwise allowed by securities laws and regulations. All shares repurchased were placed into treasury to be used for general corporate purposes. The actual number and timing
of shares to be repurchased will depend on market conditions and certain SEC
rules. Repurchases may be discontinued at any time. During the three months ended March 31, 2005, the Company repurchased approximately 810,000 shares of its outstanding Common Stock at a cost of approximately $12.4 million, of which approximately $9.9 million was paid by March 31, 2005. The Company completed the share repurchase program in April 2005 by repurchasing an additional approximately 190,000 shares of its outstanding Common Stock at a cost of approximately $3.0 million. During the three months ended March 31, 2004, the Company used
approximately $0.6 million in cash from financing activities. The Company used
$3.1 million for repaymentmay establish new or additional share repurchase programs. The actual number and timing of the Company's long-term debt in accordance with
the mandatory amortization schedule, which was offset by proceeds from the
exercise of stock options of $2.5 million.
For more information about the Company's long-term debt, refershares to "Note
10 -- Long-Term Debt" in the Company's Notes to Consolidated Financial
Statements.be repurchased will depend on market conditions and certain SEC rules. Repurchase programs may be discontinued at anytime.
The level of the Company'sCompany’s indebtedness could adversely impact the Company'sCompany’s ability to obtain additional financing. A substantial portion of the Company'sCompany’s cash flow from operations could be dedicated to the payment of principal and interest on its indebtedness.
27
The Company is subject to claims, litigation and official billing inquiries arising in the ordinary course of its business. These matters include pending lawsuits involving claims that are not required to be separately described in this report, including a claim for breach of contract arising from a prior
acquisition. That claim is currently scheduled to go to binding arbitration in
the second quarter of 2005.report. The Company believes that it has meritorious defenses to the claims and other issues asserted in such matters; however, there can be no assurance that such matters or any future legal matters will not have an adverse effect on the Company. Amounts of awards or losses, if any, in pending legal matters have not been reflected in the financial statements unless probable and reasonably estimable.
FORWARD-LOOKING STATEMENTS
Certain statements included
Other than the acquisition of NDCHealth, the Company has not experienced any material changes in the
Notes to Consolidated Financial
Statements, Management's Discussion and Analysisunderlying components of
Financial Condition and
Results of Operations, and elsewhere in this report including but not limited to
certain statements set forth under the captions "Note 2 -- Stock-Based
Compensation Plans," "Note 9 -- Legal Matters," "Note 10 -- Long-Term Debt,"
"Note 11 -- Income Taxes," "Results of Operations" and "Liquidity and Capital
Resources," are "forward-looking statements" within the meaning of the
Securities Act of 1933 and the Securities Exchange Act of 1934, as amendedcash generated by
the Private Securities Litigation Reform Act of 1995 (the "Reform Act").
Forward-looking statements include, but are not limited to, the Company's
expectations with respect to meritorious defenses to the claims and other issues
asserted in pending legal matters, the effect of industry and regulatory changes
on the Company's customer base, the impact of revenue backlog on future revenue,
adoption of accounting standard regarding expensing of stock options, payment of
additional interest to convertible debenture holders, future appropriateness of
deferred tax asset valuation allowance, overall profitability and the
availability of capital. Although theoperating activities from continuing operations. 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
18
caption "Factors That May Affect Future Results of Operations, Financial
Condition or Business" and "Quantitative and Qualitative Disclosures about
Market Risk." The Company disclaims any responsibility to update any
forward-looking statements.
FACTORS THAT MAY AFFECT FUTURE RESULTS OF OPERATIONS, FINANCIAL CONDITION OR
BUSINESS
Per-Se provides the following risk factor disclosures in connection with
its continuing efforts to qualify its written and oral forward-looking
statements for the safe harbor protection of the Reform Act and any other
similar safe harbor provisions. Important factors currently known to management
that could cause actual results to differ materially from those in
forward-looking statements include, but are not limited to, the following:
IF THE COMPANY FAILS TO MAINTAIN AN EFFECTIVE SYSTEM OF INTERNAL CONTROLS, THE
COMPANY MAY NOT BE ABLE TO ACCURATELY REPORT THE COMPANY'S FINANCIAL RESULTS
ON A TIMELY BASIS. AS A RESULT, CURRENT AND POTENTIAL STOCKHOLDERS COULD LOSE
CONFIDENCE IN THE COMPANY'S FINANCIAL REPORTING WHICH WOULD HARM THE COMPANY'S
BUSINESS AND THE TRADING PRICE OF THE COMPANY'S STOCK.
As a result of errors that led to the restatements of the Company's
financial statements for the years ended December 31, 2001, and 2002,existing cash and the nine months ended September 30, 2003, the Company's independent auditors
determined that a material weakness relatedcash provided by operations will provide sufficient capital to the Company's internal controls
existed. The Company's auditors reported to the Company that the errors that
resulted in the restatements were the result of not having appropriate controls
over the estimation process associated with the establishment of accrualsfund its working capital requirements, contractual requirements, investing and reserves and the lack of adequate supervision of accounting personnel. While the
Company has taken steps to improve controls in these areas, the Company cannot
be certain that these steps will ensure that it implements and maintains
adequate controls over financial processes and reporting in the future. Failure
to maintain adequate controls of this type could adversely impact the accuracy
and future timeliness of the Company's financial reports filed pursuant to the
Securities Exchange Act of 1934. If the Company cannot provide reliable and
timely financial reports, its business and operating results could be harmed,
investors could lose confidence in its reported financial information, its
common stock could be delisted from the Nasdaq Stock Market, and the trading
price of its common stock could fall.
THE COMPANY HAS A SIGNIFICANT AMOUNT OF LONG-TERM DEBT AND OBLIGATIONS TO MAKE
PAYMENTS, WHICH COULD LIMIT THE COMPANY'S FUNDS AVAILABLE FOR OTHER
ACTIVITIES.
The Company has approximately $125 million of long-term indebtedness and
$0.6 million in capital lease obligations and, as a result, is required to make
interest and principal payments. 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 the Company's indebtedness, or seek
additional equity capital. The Company's ability to make payments on the
Company's debt obligations will depend on future operating performance, which
may be affected by conditions beyond the Company's control.
THE COMPANY IS REGULARLY INVOLVED IN LITIGATION, WHICH MAY EXPOSE THE COMPANY
TO SIGNIFICANT LIABILITIES.
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 the Company's business. The Company has also received written
demands from customers and former customers that have not yet resulted in legal
action.
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, the Company's insurance coverage 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, such coverage may prove to be inadequate or may become unavailable on
acceptable terms, if at all. A successful claim brought against the Company,
which is uninsured or under-insured, could materially harm the Company's
business, results of operations or financial condition.
19
THE PHYSICIAN MANAGEMENT OUTSOURCING BUSINESS IS HIGHLY COMPETITIVE AND THE
COMPANY'S INABILITY TO SUCCESSFULLY COMPETE FOR BUSINESS COULD ADVERSELY
AFFECT THE COMPANY.
The physician business management outsourcing business, especially for
revenue cycle management, is highly competitive. The Company competes with
regional and local physician reimbursement organizations as well as physician
groups that provide their own business management services in house. 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 local, regional or national competitors
providing comparable services and new alliances between healthcare providers and
third-party payers in which healthcare providers are employed by such
third-party payers.
THE BUSINESS OF PROVIDING SERVICES AND SOLUTIONS TO HOSPITALS FOR BOTH REVENUE
CYCLE AND RESOURCE MANAGEMENT IS ALSO HIGHLY COMPETITIVE AND THE COMPANY'S
INABILITY TO SUCCESSFULLY COMPETE FOR BUSINESS COULD ADVERSELY AFFECT THE
COMPANY.
The business of providing services and solutions to hospitals for both
revenue cycle and resource management is also highly competitive. The Company
competes with traditional electronic data interface companies, outsourcing
companies and specialized software vendors with national, regional and local
bases. Some competitors have longer operating histories and greater financial,
technical and marketing resources than the Company. The Company's successful
competition within this industry is dependent on numerous industry and market
conditions.
THE MARKETS FOR THE COMPANY'S SERVICES AND SOLUTIONS ARE CHARACTERIZED BY
RAPIDLY CHANGING TECHNOLOGY, EVOLVING INDUSTRY STANDARDS AND FREQUENT NEW
PRODUCT INTRODUCTIONS AND THE COMPANY'S INABILITY TO KEEP PACE COULD ADVERSELY
AFFECT THE COMPANY.
The markets for the Company's services and solutions 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 the
Company's 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 the Company's technology
going forward. The costs associated with refining, enhancing and developing
these systems may increase significantly in the future. Existing software and
technology may become obsolete as a result of ongoing technological developments
in the marketplace.
THE HEALTHCARE MARKETPLACE IS CHARACTERIZED BY CONSOLIDATION, WHICH MAY RESULT
IN FEWER POTENTIAL CUSTOMERS FOR THE COMPANY'S SERVICES.
In general, consolidation initiatives in the healthcare marketplace may
result in fewer potential customers for the Company's services. Some of these
types of initiatives include employer initiatives such as creating purchasing
cooperatives (GPOs); 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.
Consolidation of management and billing services through integrated delivery
systems may result in a decrease in demand for the Company's business management
outsourcing services for particular physician practices.
THE HEALTHCARE INDUSTRY IS HIGHLY REGULATED, WHICH MAY INCREASE THE COMPANY'S
COSTS OF OPERATION.
The healthcare industry is highly regulated and is subject to changing
political, economic and regulatory influences. 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
20
systems, such as the Balanced Budget Act of 1997 and the Medicare Modernization
Act of 2003. 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 the Company's
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 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 or other government-funded healthcare programs.
In the past, the Company has been the subject of federal investigations,
and the Company 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.
Under the Health Insurance Portability and Accountability Act of 1996
("HIPAA"), final rules have been published regarding standards for electronic
transactions as well as standards for privacy and security of individually
identifiable health information. The HIPAA rules set new or higher standards for
the healthcare industry in handling healthcare transactions and information,
with penalties for noncompliance. The Company has incurred and will continue to
incur costs to comply with these rules. Although management believes that future
compliance costs will not have a material impact on the Company's results of
operations, compliance with these rules may prove to be more costly than
anticipated. Failure to comply with such rules may have a material adverse
effect on the Company's business and may subject the Company to civil and
criminal penalties as well as loss of customers.
The Company relies upon third parties to provide data elements to process
electronic medical claims in a HIPAA-compliant format. While the Company
believes it will be fully and properly prepared to process electronic medical
claims in a HIPAA-compliant format, there can be no assurance that third
parties, including healthcare providers and payers, will likewise be prepared to
supply all the data elements required to process electronic medical claims and
make electronic remittance under HIPAA's standards. If payers reject electronic
medical claims and such claims are processed manually rather than
electronically, there could be a material adverse affect on the Company's
business. The Company has made and expects to continue to make investments in
product enhancements to support customer operations that are regulated by HIPAA.
Responding to HIPAA's impact may require the Company to make investments in new
products or charge higher prices.
Numerous federal and state civil and criminal laws govern the collection,
use, storage and disclosure of health information for the purpose of
safeguarding the privacy and security of such information. Federal or state
governments may impose penalties for noncompliance, both criminal and civil.
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 the debate on healthcare reform will continue. 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 the government will
enact new legislation and regulations, and, if enacted, whether such new
developments will affect the Company's business.
THE TRADING PRICE OF THE COMPANY'S COMMON STOCK MAY BE VOLATILE AND NEGATIVELY
AFFECT YOUR INVESTMENT.
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
21
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 business
services and high technology companies in particular, has experienced volatility
that often has been unrelated to the operating performance of particular
companies. These broad market and industry fluctuations may adversely affect the
trading price of the Company's Common Stock, regardless of actual operating
performance.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE SENSITIVITYneeds. | |
| Item 3. | Quantitative and Qualitative Disclosures about Market Risk |
| |
| Interest Rate Sensitivity |
The Company invests excess cash in commercial paper, money market funds and other highly liquid short-term investments. Due to the limited amounts of these investments and their short-term nature, the Company does not expect any fluctuation in the prevailing interest rates is not expected to have a material effect on the Company'sits financial statements.
The Company has the option of entering into loans based on LIBOR or base
rateson Base Rates under the RevolvingSenior Credit Facility. As such, if the Company were to
borrow amounts under the Revolving Credit Facility, the Company could experience fluctuations in interest rates under the RevolvingSenior Credit Facility.
In connection with the acquisition of NDCHealth on January 6, 2006, the Company secured financing in the form of a new Senior Credit Facility consisting of a $435 million term loan and a $50 million revolving credit facility. Also on January 6, 2006, the Company entered into a four-year interest rate swap agreement, in order to hedge against potential interest rate fluctuations resulting from the variable interest rate under the terms of the new senior credit facility. Pursuant to the terms of the interest rate swap, the Company is obligated to periodically pay an amount based on a fixed interest rate, and the Company will receive an amount based on a variable rate. The variable rate is based on the three-month LIBOR rate available at the time. By entering into the interest rate swap, the Company has not incurred any borrowingseffectively fixed the maximum interest rate that the Company will pay on a portion of the outstanding balance under the RevolvingSenior Credit Facility since
inception.at 4.76% per annum plus the applicable spread, which is 225 basis points. The amount of the Senior Credit Facility that is covered by the swap is $125 million in years one and two, decreasing to $100 million in year three and $75 million in year four. The interest rate swap will terminate on December 31, 2009, unless sooner terminated pursuant to its terms.
The floating rate debt outstanding under the term loan, which is not subject to the above referenced interest rate swap agreement, subjects the Company hasto risk resulting from changes in short-term interest rates. The potential change in annual interest expense resulting from a processhypothetical 100 basis point change in place to monitor fluctuations inshort-term interest rates and could hedge against significant forecast changes in interest rates, if
necessary.
EXCHANGE RATE SENSITIVITYapplied to the Company’s floating rate debt at March 31, 2006 would be approximately $2.8 million.
| |
| Exchange Rate Sensitivity |
The majority of the Company's revenueCompany’s sales and expenses are denominated in U.S. dollars. As a result, the Company has not experienced any significant foreign exchange gains or losses to date. The Company conducts only limited business
denominatedtransactions in foreign currencies and does not expect material foreign exchange gains or losses in the future. The Company does not engage in any foreign exchange hedging activities.
ITEM 4. CONTROLS AND PROCEDURES
The Company's
28
| |
| Item 4. | Controls and Procedures |
| |
| Conclusions Regarding Disclosure Controls and Procedures |
In connection with the evaluation of the Company’s disclosure controls and procedures required by Rule 13a-15(b) under the Securities Exchange Act of 1934 (the “Exchange Act”), the Company’s Chief Executive Officer and Chief Financial Officer have
evaluated the Company's disclosure controls and proceduresconcluded that, as of March 31, 2005,
and have concluded that2006, the Company'sCompany’s disclosure controls and procedures were effective as of March 31, 2005, to provide reasonable assurance that information required to be disclosed by the Company is required to disclose in the reports that the Companyit files or submits under the Securities Exchange Act of 1934 is (a) recorded, processed, summarized and reported accurately.within the time periods specified in the Commission’s rules and forms, and (b) accumulated and communicated to the Company’s management, including its chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.
| |
| Control System Limitations; NDCHealth Material Weaknesses |
It should be noted, however, that a control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues within the Company have been detected. Furthermore, the design of any control system is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how unlikely. Because of these inherent limitations in a cost-effective control system, misstatements or omissions due to error or fraud may occur and not be detected.
It should be noted, further, that prior to the acquisition of NDCHealth by the Company, NDCHealth’s former management and its independent registered public accounting firm identified three “material weaknesses” in NDCHealth’s internal controls over financial reporting. A material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. As of May 27, 2005, NDCHealth’s former management identified the following material weaknesses in NDCHealth’s internal control over financial reporting:
| |
| Revenue Recognition and Billing Processes |
NDCHealth’s former management concluded that material weaknesses existed in documentation and procedures relating to its revenue recognition and billing processes that resulted in more than a remote likelihood that a material misstatement of its financial statements would not be prevented or detected.
Specific control deficiencies identified relating to revenue recognition and billing processes included:
| | |
| • | The lack of policy, procedures and personnel with the skills and experience to properly evaluate and record revenue for multi-element arrangements, specifically relating to the contract review process, evidence of delivery, and establishing fair value where applicable; |
|
| • | Lack of controls over recording of certain credit card transactions relating to credit card chargebacks and rejects; |
|
| • | Lack of controls over the authorization of credit memos and their classification between sales allowance and bad debt; |
|
| • | Inconsistent management review and approval of journal entries and account reconciliations relating to recording of unbilled accounts receivable; and |
|
| • | Lack of documented controls and review procedures over timely and accurate billing of customers. |
29
| |
| Financial Statement Close Process |
NDCHealth’s former management also concluded that material weaknesses existed in documentation and procedures relating to its financial statement close process that resulted in more than a remote likelihood that a material misstatement of its financial statements would not be prevented or detected.
Specific control deficiencies identified relating to the financial statement close process included:
| | |
| • | Lack of adequate policies and procedures with respect to journal entries and account reconciliations, including insufficient supporting detail and inconsistent evidence of management review; |
|
| • | Lack of sufficient personnel with appropriate skills and experience to properly prepare journal entries and account reconciliations and to do so in a timely manner; |
|
| • | Lack of documented controls over the preparation of financial statement footnotes and the calculation of earnings per share, including consistent first level management review for accuracy, completeness, and compliance with generally accepted accounting principles; and |
|
| • | Lack of policy, procedures, and controls including review and approval procedures to ensure that financial statements for external purposes were prepared in accordance with generally accepted accounting principles including periodic in-depth review of the proper application of generally accepted accounting principles to the specific facts and circumstances of each of NDCHealth’s businesses. |
NDCHealth’s former management also concluded that a material weakness existed in accounting for income taxes that resulted in more than a remote likelihood that material misstatement of its financial statements would not be prevented or detected.
Specifically, there was a lack of procedures and controls related to the preparation and review of the tax provision designed to ensure that the deferred tax provision and deferred tax asset and liability balances were accurate and determined in accordance with generally accepted accounting principles.
| |
| Remediation Measures for Identified NDCHealth Material Weaknesses |
Prior to the acquisition, NDCHealth’s former management undertook steps designed to remediate the weaknesses described above, including the following:
| | |
| • | The NDCHealth account reconciliation process was redesigned to provide better support for account balances and to ensure all significant accounts were reconciled as a part of the quarter end close process; |
|
| • | Addition of accounting staff with the technical accounting skill and experience to review and properly record revenue for complex, multi-element agreements in accordance with generally accepted accounting principles; |
|
| • | Performing daily reconciliations of credit card transactions; |
|
| • | Enforcing company policy on authorization of credit memos and the completeness of information needed for proper classification; |
|
| • | Expanding analytic and review procedures at each quarter end in support of footnote disclosures; |
|
| • | Providing more focus on income taxes; and |
|
| • | Implementing acash-on-delivery recognition process with regard to revenue recognition in the physician practice management services and the pharmaceutical information businesses. |
Further, a portion of the material weakness regarding revenue recognition and billing processes was attributable to the pharmaceutical information business which was sold to Wolters Kluwer Health prior to the Company’s acquisition of NDCHealth. In addition, the Company has implemented additionalchanges to the internal
30
control structure of the acquired business operations as set forth below under the caption “Changes in Internal Control Over Financial Reporting.”
While the Company’s management believes that the material weaknesses previously identified with respect to the internal controls policiesof the acquired business operations have been remediated sufficiently to make the conclusion set forth above regarding the effectiveness of the Company’s disclosure controls and procedures, it should be noted that the Company has not fully tested the effectiveness of internal controls within the acquired business operations, and, therefore, there can be no assurance that the identified internal control weaknesses have been remediated or that additional weaknesses in such controls will not be found upon further testing.
| |
| Changes in Internal Control Over Financial Reporting |
In connection with the evaluation of changes in the Company’s internal control over financial reporting required by Rule 13a-15(d) under the Exchange Act, management identified the following changes that occurred during the quarter ended March 31,
2005 to enhance its internal control
structure and to maintain its compliance with Section 404(a) of the
Sarbanes-Oxley Act of 2002. None of the additional controls, policies and
procedures implemented during the quarter ended March 31, 2005, constitute
changes in the Company's internal control over financial reporting2006, that have materially affected, or are reasonably likely to materially affect, the
Company'sCompany’s internal control over financial
reporting.
22
reporting: | | |
| • | On January 6, 2006, following NDCHealth’s sale of its pharmaceutical information management business to Wolters Kluwer Health, the Company completed the acquisition of NDCHealth and its physician, hospital and pharmacy businesses and immediately implemented a new operating and management structure for the Company. That acquisition and the Company’s new operating and management structure have materially affected and are reasonably likely to materially affect the Company’s internal control over financial reporting. For example, as a result of the acquisition, NDCHealth’s legacy financial reporting systems and billing platforms and operation systems became a material part of the Company’s internal controls over financial reporting. |
|
| • | Management has devoted significant attention and resources during the quarter to integrating NDCHealth’s business practices and operations with those of the Company. The integration of the acquired business operations into the Company has also materially affected and is reasonably likely to materially affect the Company’s internal control over financial reporting. For example, during the pendency of such integration certain NDCHealth legacy financial reporting processes and functions have continued to be performed in a similar manner as prior to the acquisition, including purchasing, accounts payable, payroll, benefits, billing, revenue recognition, calculation of accruals, reserves and allowances, posting of journal entries in the former NDCHealth financial reporting system, and performing month-end reconciliation and close procedures for that financial reporting system. |
|
| • | The Company has implemented and installed internal controls and procedures regarding tax accounting into the acquired business operations. |
31
PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The information required by this Item is included in "Note 9 --“Note 6 — Legal Matters"Matters” of Notes to Consolidated Financial Statements in Item 1 of Part I.
ITEM 2C. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
(C)
TOTAL NUMBER (D)
OF SHARES MAXIMUM
(A) PURCHASED AS NUMBER OF
TOTAL (B) PART OF SHARES THAT
NUMBER OF AVERAGE PUBLICLY MAY YET BE
SHARES PRICE PAID ANNOUNCED PURCHASED
PERIOD PURCHASED PER SHARE PLANS UNDER THE PLAN
- ------ --------- ---------- ------------ --------------
March 11, 2005 through March 31,
2005............................... 809,931 $15.33 809,931 190,069
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| Item 1A. | Risk Factors |
The plan to repurchaseCautionary Statement Regarding Forward-Looking Statements
This report and the Common Stockdocuments incorporated by reference herein contain forward-looking statements within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934, as amended by the Private Securities Litigation Reform Act of 1995 (the “Reform Act”). Forward-looking statements reflect management’s current expectations, estimates, projections and assumptions with respect to the future and include, in particular, any statement relating to future revenues, income, earnings per share, capital expenditures, obligations, capital structure, prospects, plans and objectives. Statements in this report and the documents incorporated by reference herein that are not historical facts are hereby identified as “forward-looking statements” for the purpose of the safe harbor provided by the Reform Act. Words such as “estimate,” “project,” “plan,” “intend,” “expect,” “anticipate,” “believe,” “would,” “should,” “could” and similar expressions are intended to identify such forward-looking statements. These forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Actual future results and trends may differ materially from what is suggested by forward-looking statements due to a variety of factors, including without limitation the risks described below under the caption “Factors That May Affect Future Results of Operations, Financial Condition or Business,” and the following:
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| • | demand for and market acceptance of new and existing products and services; |
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| • | successful development of new products and services; |
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| • | the timing of new product and service introductions; |
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| • | pricing pressures and other competitive factors; |
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| • | product and service obsolescence; |
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| • | the ability to develop and implement new technologies and to obtain protection for the related intellectual property; |
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| • | the prospect of changes in laws and regulations governing the Company’s business; |
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| • | the uncertainties of litigation; and |
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| • | costs related to integrating NDCHealth’s business practices and operations with those of the Company. |
You are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date of this report, or in the case of documents incorporated by reference, as of the date of those documents. The Company was announceddoes not undertake any obligation to update or publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date of this report or to reflect the occurrence of unanticipated events, except as required by law.
Factors That May Affect Future Results of Operations, Financial Condition or Business
Per-Se provides the following risk factor disclosures in connection with its continuing efforts to qualify its written and oral forward-looking statements for the safe harbor protection of the Reform Act and any other similar safe harbor provisions. In addition to the matters addressed above in the section entitled “Cautionary Statement Regarding Forward-Looking Statements,” the following important factors currently known to management could cause actual results to differ materially from those in forward-looking statements.
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As discussed above in Item 1, on MarchJanuary 6, 2006, Per-Se completed its acquisition of NDCHealth. These risk factor disclosures include a number of risk factors relating to that acquisition.
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| The Company’s businesses are highly competitive, and an inability to successfully compete for business could adversely affect the company. |
The physician receivables management outsourcing business is highly competitive. The Company competes with regional and local physician reimbursement organizations as well as physician groups that provide their own business management services in-house. Potential industry and market changes that could adversely affect the Company’s ability to compete for receivables management outsourcing services include an increase in the number of local, regional or national competitors providing comparable services and new alliances between healthcare providers and third-party payers in which healthcare providers are employed by such third-party payers.
The business of providing services and solutions to hospitals for both revenue cycle and resource management is also highly competitive. The Company competes with traditional electronic data interface companies, outsourcing companies and specialized software vendors with national, regional and local bases. Some competitors have longer operating histories and greater financial, technical and marketing resources than us. The Company’s successful competition within this industry is dependent on industry and market changes.
The business of providing value-added claims processing and pre- and post-editing services to retail pharmacies is highly competitive. The Company competes not only with independent providers of similar systems and services, but also with customers’ and potential customers’ internal resources that provide similar services. Successful competition within this industry is dependent on a number of industry and market conditions including functionality of products and services, price, quality and innovation. In addition, some of the Company’s competitors may have greater access to capital and marketing and technological resources, and the Company cannot guarantee that it will be able to compete successfully with them.
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| The markets for the Company’s services and solutions are characterized by rapidly changing technology, evolving industry standards and frequent new product introductions and an inability to keep pace could adversely affect the Company. |
The markets for the Company’s services and solutions 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 the Company’s ability to:
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| • | enhance existing products and services; |
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| • | introduce new products and services quickly and cost effectively; |
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| • | achieve market acceptance for new products and services; and |
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| • | 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 the Company’s technology. The costs associated with refining, enhancing and developing these systems may increase significantly in the future. Existing software and technology may become obsolete as a result of ongoing technological developments in the marketplace.
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| The healthcare marketplace is characterized by consolidation, which may result in fewer potential customers for the Company’s services. |
In general, consolidation initiatives in the healthcare marketplace may result in fewer potential customers for the Company’s services. Some of these types of initiatives include employer initiatives such as creating group purchasing cooperatives (“GPOs”); provider initiatives, such as risk-sharing among healthcare
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providers and managed care companies through capitated contracts; and integration among hospitals and physicians into comprehensive delivery systems. Consolidation of management and billing services through integrated delivery systems may result in a decrease in demand for the Company’s business management outsourcing services for particular physician practices. In addition, consolidation among the Company’s customers may result in such customers having greater leverage, which could adversely affect the price the Company is able to charge for the Company’s products.
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| The healthcare industry is highly regulated, which may increase the Company’s costs of operation or have a material adverse effect on the Company’s businesses. |
The healthcare industry is highly regulated and is subject to changing political, economic and regulatory influences. 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, such as the Balanced Budget Act of 1997 and the Medicare Prescription Drug, Improvement, and Modernization Act of 2003. 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 the Company’s businesses. 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 use these laws to investigate healthcare providers and companies that provide billing and collection services, or that provide consulting services in connection with billing and collection activities. Such laws also could potentially be used to bring enforcement actions against companies like Per-Se that provide software and other services used by healthcare providers to support their billing and collection activities. In connection with these laws, the Company may be subjected to federal or state government investigations and possible penalties may be imposed upon us, false claims actions may have to be defended, private payers may file claims against us, and the Company may be excluded from Medicare, Medicaid or other government-funded healthcare programs. In the past, Per-Se has been the subject of federal investigations relating to the Company’s billing and collection activities, and the Company may become the subject of future false claims litigation or additional investigations. Any such proceeding or investigation could have a material adverse effect on the Company’s businesses.
The federal anti-kickback law prohibits any person or entity from offering, paying, soliciting or receiving anything of value, directly or indirectly, for the referral of patients covered by Medicare, Medicaid and other federal healthcare programs or the leasing, purchasing, ordering or arranging for, or recommending the lease, purchase, order or arrangement for, any item, good, facility or service covered by these programs. The anti-kickback law is broad and may apply to some of the Company’s activities and its relationships with customers or business partners. Penalties for violating the anti-kickback law include imprisonment, fines and exclusion from participating, directly or indirectly, in Medicare, Medicaid and other federal healthcare programs. Many states have similar anti-kickback laws that are not necessarily limited to items or services for which payment is made by a federal healthcare program. The Company carefully reviews its business practices in an effort to ensure that it complies with all applicable laws. However, the laws in this area are both broad and vague and it is often difficult or impossible to determine precisely how the laws will be applied. Any determination by a state or federal regulatory agency that any of these practices violate any of these laws could subject us to civil or criminal penalties and require us to change or terminate some portions of the Company’s businesses.
Numerous federal and state civil and criminal laws govern the collection, use, storage and disclosure of health information for the purpose of safeguarding the privacy and security of such information. Federal or state governments may impose penalties for noncompliance, both criminal and civil. Persons who believe their health information has been misused or disclosed improperly may bring claims against us or the Company’s customers seeking monetary damages.
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Under the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), final rules have been published regarding standards for electronic transactions as well as standards for privacy and security of individually identifiable health information. The HIPAA rules set new or higher standards for the healthcare industry in handling healthcare transactions and information, with penalties for noncompliance. The Company has incurred and will continue to incur costs to comply with these rules. Although management believes that future compliance costs will not have a material impact on the Company’s results of operations, compliance with these rules may prove to be more costly than anticipated. Failure to comply with such rules may have a material adverse effect on the Company’s businesses and may subject us to civil and criminal penalties as well as loss of customers.
Per-Se relies upon third parties to provide data elements to process electronic medical claims in a HIPAA-compliant format. While Per-Se believes it is fully and properly prepared to process electronic medical claims in a HIPAA-compliant format, there can be no assurance that third parties, including healthcare providers and payers, will likewise be prepared to supply all the data elements required to process electronic medical claims and make electronic remittance under HIPAA’s standards. If payers reject electronic medical claims and such claims are processed manually rather than electronically, there could be a material adverse affect on the Company’s businesses. The Company has made and expects to continue to make investments in product enhancements to support customer operations that are regulated by HIPAA. Responding to HIPAA’s impact may require us to make investments in new products or charge higher prices.
Passage of HIPAA is part of a wider healthcare reform initiative. The Company expects that the debate on healthcare reform will continue. 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. We cannot predict whether the government will enact new legislation and regulations, and, if enacted, whether such new developments will affect the Company’s businesses.
Payment restrictions by governmental and private payers and the use of measures such as payment bundling, medical necessity edits, and post-payment audits may decrease revenue to the Company’s provider clients and consequently, decrease revenue derived by the Company and increase the cost of services.
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| The trading price of the Company’s common stock may be volatile and may negatively affect your investment. |
The trading price of Per-Se common stock may be volatile. The market for Per-Se 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 business services and high technology companies in particular, has experienced 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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| Per-Se has significantly increased its long-term debt as a result of the NDCHealth acquisition, which could limit funds available to Per-Se to finance other activities. |
Per-Se has increased its long-term debt from approximately $125 million to approximately $520 million. If unable to make the required debt payments, Per-Se could be required to reduce or delay capital expenditures, sell certain assets, restructure or refinance its indebtedness, or seek additional equity capital. The ability of Per-Se to make payments on its debt obligations will depend on the Company’s future operating performance, which may be affected by conditions beyond the Company’s control.
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| The agreements governing Per-Se’s debt limit the Company’s financial and operating flexibility. |
Per-Se’s debt agreements contain restrictive covenants that limit its financial and operating flexibility. Those agreements contain restrictions regarding, among other things:
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| • | incurring additional indebtedness or guarantee obligations; |
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| • | declaring or paying dividends and other distributions; |
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| • | prepaying or modifying the terms of indebtedness; |
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| • | creating liens; |
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| • | making capital expenditures; |
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| • | making investments or acquisitions; |
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| • | entering into acquisitions or consolidations; |
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| • | making sales of assets; and |
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| • | engaging in transactions with affiliates. |
In addition, Per-Se is required to comply with specified financial covenants, including a maximum leverage ratio, a minimum fixed charge coverage ratio and a minimum interest expense ratio.
The covenants summarized above could place Per-Se at a disadvantage compared to some of its competitors, which may have fewer restrictive covenants and may not be required to operate under these restrictions.
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| Loss of key management could adversely affect the Company’s business. |
The success of Per-Se is materially dependent upon its key managers and, in particular, upon the continued services of Philip M. Pead, Per-Se’s Chairman, President and Chief Executive Officer. In addition, Per-Se does not carry key employee insurance on Mr. Pead or other members of management. The combined company’s future business and financial results could be adversely affected if the services of Mr. Pead or other key managers cease to be available.
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| Per-Se may be unable to successfully integrate the businesses of Per-Se and NDCHealth and may be unable to realize the anticipated benefits of the acquisition. |
Per-Se is required to devote significant management attention and resources to integrating NDCHealth’s business practices and operations with those of Per-Se. Potential difficulties that the Company may encounter in the integration process include the following:
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| • | the inability to achieve the cost savings and operating synergies anticipated in the acquisition, including a reduction in costs associated with the acquisition; |
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| • | complexities associated with managing the geographic scope of the combined businesses, coupled with those of consolidating multiple physical locations where management may determine consolidation is desirable; |
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| • | integrating personnel from diverse corporate cultures while maintaining focus on providing consistent, high quality customer service; and |
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| • | potential unknown liabilities and increased costs associated with the acquisition. |
The process of integrating operations could cause a disruption of, or loss of momentum in, the activities of the combined business, the loss of key personnel and/or the loss of key or large customers. In addition, customer contracts of NDCHealth contain provisions that may permit the customer to terminate the contract as a result of the acquisition. The diversion of management’s attention and any delays or difficulties
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encountered in connection with the integration of the two companies’ operations could have an adverse effect on business and financial results.
The integration process may result in additional and unforeseen expenses, and the anticipated benefits of such integration plans may not be realized.
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| If Per-Se is unable to manage its growth profitably, its business and financial results could suffer. |
Over the past several years, each of Per-Se and NDCHealth has engaged in the identification of and competition for, growth and expansion opportunities. The Company’s future financial results depend in part on managing growth profitably. Management needs to maintain existing customers and attract new customers, recruit, train, retain and effectively manage employees as well as expand operations, customer support and financial control systems. If Per-Se is unable to manage its growth profitably, its business and financial results could suffer.
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| As part of the acquisition, Per-Se and NDCHealth entered into, and are bound by the terms of, long-term data sharing agreements with Wolters Kluwer that place certain restrictions on the Company’s ability to sell certain products to third parties and compete in certain markets. |
In connection with the completion of the acquisition and the related sale of NDCHealth’s information management business to Wolters Kluwer, Per-Se and NDCHealth entered into long-term data sharing agreements with Wolters Kluwer, pursuant to which Per-Se and NDCHealth will share with, and receive from Wolters Kluwer, certain specified information used in their respective businesses for the consideration specified in these agreements. Those agreements provide, among other things, that Per-Se and NDCHealth will sell certain information exclusively to Wolters Kluwer, and that neither Per-Se nor NDCHealth will compete with Wolters Kluwer with respect to certain uses of data purchased by, or sold by, Wolters Kluwer in specified markets for various time periods set forth in those agreements. In addition, the stock purchase agreement with Wolters Kluwer prohibits NDCHealth from competing with Wolters Kluwer in the provision of certain products and services to specified markets traditionally served by NDCHealth’s information management business for five years from the closing of that transaction. These restrictions and limitations will limit the types of products and customers to whom the Company can market such products and could have a material and adverse impact on the Company’s operating and financial results.
Additionally, because the healthcare marketplace is rapidly changing, it is difficult to predict whether the data sharing agreements will be favorable to us over the full20-year term of the agreements. In the event those agreements prove to be unfavorable to us, they could have a long-term negative impact on the Company’s results of operations.
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| The Company is regularly involved in litigation, which may expose us to significant liabilities. |
The Company is involved in litigation arising in the ordinary course of business, which may expose us to loss contingencies. These matters include, but are not limited to, claims brought by former customers with respect to the operation of the Company’s businesses. The Company has also received written demands from customers and former customers that have not yet resulted in legal action.
NDCHealth is a named defendant in certain other lawsuits, including a putative securities class-action lawsuit, captioned Garfield v. NDCHealth Corporation, et. al. The complaint in that action generally alleged, among other things, that members of a purported class of stockholders who purchased NDCHealth common stock between August 21, 2002, and August 9, 2004, were damaged as a result of (i) improper revenue recognition practices in NDCHealth’s physician business unit; (ii) the failure to timely write-down NDCHealth’s investment in MedUnite; and (iii) the improper capitalization and amortization of costs associated with software development. The second amended complaint alleges that, as a result of such conduct, NDCHealth’s previously issued financial statements were materially false and misleading, thereby causing the price of NDCHealth’s common stock to be inflated artificially. The second amended complaint asserts violations of certain provisions of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Rule 10b-5 thereunder, and seeks unspecified monetary damages and other relief. A U.S. federal
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district court judge granted NDCHealth’s motion to dismiss these claims on July 27, 2005. The Boardplaintiffs have appealed this decision to the 11th Circuit Court of DirectorsAppeals, and that appeal is pending.
NDCHealth is also a defendant in a private securities lawsuit filed by MMI Investments, a former stockholder of NDCHealth. This lawsuit is generally based on the same allegations contained in the securities class-action lawsuit. The parties to this lawsuit are currently engaged in discovery.
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, the Company’s insurance coverage may not fully cover resulting losses. Although the Company maintains insurance coverage in amounts that the Company believes are sufficient, such coverage may prove to be inadequate or may become unavailable on acceptable terms, if at all. A successful claim brought against the Company that is uninsured or under-insured, could materially harm the Company’s businesses, results of operations or financial condition.
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| Per-Se and NDCHealth are each the subject of separate SEC investigations, the resolution of which could have a material adverse effect on the combined companies. |
On April 4, 2005, Per-Se announced that it had been notified by the SEC staff of the issuance of an order of investigation, which Per-Se believes relates to allegations of wrongdoing made by a former employee in 2003. These allegations were the subject of a prior investigation by the audit committee of Per-Se’s board of directors and an outside accounting firm that resulted in the performance of extensive additional procedures. Per-Se has produced documents and provided testimony relating to these allegations to the SEC.
On December 14, 2004, the SEC staff obtained a formal order of investigation relating to certain NDCHealth accounting matters. NDCHealth restated its financial statements for the fiscal years ended May 28, 2004, May 30, 2003, and May 31, 2002, to correct errors relating to these accounting matters. NDCHealth produced documents relating to the restatement to the SEC, and the SEC took the testimony of a number of current and former employees in relation to its investigation.
Responding to these investigations requires significant defense costs, attention and resources of management. Either or both companies could face civil or criminal penalties that could have a material adverse effect on the combined companies.
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| Prior to its acquisition by Per-Se, NDCHealth identified material weaknesses in its internal control over financial reporting. If such deficiencies persist or if additional weaknesses are discovered, the combined company may not be able to accurately report its financial results and management may not be able to conclude that the Company’s internal control over financial reporting is effective. |
NDCHealth’s former management and its independent registered public accounting firm identified three “material weaknesses” in its internal control over financial reporting. A material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. As of May 27, 2005, the date of NDCHealth’s fiscal year end, NDCHealth’s former management concluded that NDCHealth’s documentation and procedures relating to (1) the revenue recognition and billing processes, (2) the financial statement close process and (3) NDCHealth’s accounting for income taxes resulted in more than a remote likelihood that a material misstatement of the financial statements would not be prevented or detected. For a more detailed description of these identified weaknesses see Part I, Item 4., Controls and Procedures, above.
Prior to the acquisition, NDCHealth’s former management undertook steps designed to remediate the weaknesses discussed above, and, subsequent to the acquisition, the Company authorizedhas implemented changes to the repurchaseinternal control structure of upthe acquired business operations as set forth above in Part I, Item 4 under the caption “Changes in Internal Control Over Financial Reporting.” Further, a portion of the material weakness regarding revenue recognition and billing processes was attributable to one millionthe pharmaceutical information business that was sold to Wolters Kluwer Health prior to the acquisition. While the Company’s management
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believes that the material weaknesses previously identified with respect to the internal control of the acquired business operations have been remediated sufficiently to make the conclusion set forth in Part I, Item 4 regarding the effectiveness of the Company’s disclosure controls and procedures, it should be noted that the Company has not fully tested the effectiveness of internal control within the acquired business operations, and, therefore, there can be no assurance that the identified weaknesses have been remediated or that additional weaknesses in such controls will not be found upon further testing.
Any such weaknesses could result in a material misstatement of the Company’s financial statements and could adversely impact the accuracy and future timeliness of the Company’s financial reports filed pursuant to the Exchange Act. As a result, current and potential stockholders could lose confidence in the Company’s financial reporting, which could harm the trading price of the Company’s common stock.
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| Item 4. | Submission of Matters to a Vote of Security Holders |
The Company held a Special Meeting of Stockholders on January 5, 2006, to vote on a proposal to approve the issuance of shares of the Company's Common Stock.Company’s common stock in connection with the Company’s acquisition of NDCHealth Corporation. That proposal was approved. The Company completed the
share repurchase program in April 2005 by repurchasing approximately 190,000
shares of its outstanding Common Stock at a cost of approximately $3.0 million.
ITEM 6. EXHIBITSvotes cast were 25,915,216 for, 110,087 against, and 15,830 abstained.
(A) Exhibits
EXHIBIT
NUMBER DOCUMENT
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2.1 -- Asset Purchase Agreement dated as of June 18, 2003, among
Misys Hospital Systems, Inc., Misys Healthcare Systems
(International) Limited, Misys plc, Registrant, and PST
Products, LLC., together with the First Amendment thereto
dated as of June 28, 2003 (incorporated by reference to
Exhibit 2.1 to Current Report on Form 8-K filed on August 5,
2003).
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, as amended (incorporated by
reference to Exhibit 3.2 to Annual Report on Form 10-K for
the year ended December 31, 2003).
4.1 -- 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).
4.2 -- First Amendment to Rights Agreement dated as of February 11,
1999, between Registrant and American Stock Transfer & Trust
Company, entered into as of May 4, 2000 (incorporated by
reference to Exhibit 4.4 to Quarterly Report of Form 10-Q
for the quarter ended March 31, 2000).
4.3 -- Second Amendment to Rights Agreement dated as of February
11, 1999, between Registrant and American Stock Transfer &
Trust Company, entered into as of December 6, 2001, to be
effective as of March 6, 2002 (incorporated by reference to
Exhibit 4.12 to Annual Report on Form 10-K for the year
ended December 31, 2001).
4.4 -- Third Amendment to Rights Agreement dated as of February 11,
1999, between Registrant and American Stock Transfer & Trust
Company, entered into as of March 10, 2003 (incorporated by
reference to Exhibit 4.13 to Annual Report on Form 10-K for
the year ended December 31, 2002).
4.5 -- Fourth Amendment to Rights Agreement dated as of February
11, 1999, between Registrant and American Stock Transfer &
Trust Company, entered into as of February 18, 2005
(incorporated by reference to Exhibit 4.1 to Current Report
on Form 8-K filed on February 22, 2005).
4.6 -- Indenture dated as of June 30, 2004, between Registrant and
U.S. Bank National Association, as Trustee, relating to
Registrant's 3.25% Convertible Subordinated Debentures Due
2024 (incorporated by reference to Exhibit 4.5 to Quarterly
Report on Form 10-Q for the quarter ended June 30, 2004).
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EXHIBIT
NUMBER DOCUMENT
------- --------
4.7 -- Resale Registration Rights Agreement dated as of June 30,
2004, between Registrant and Banc of America Securities LLC,
as representative of the several initial purchasers of
Registrant's 3.25% Convertible Subordinated Debentures Due
2024 (incorporated by reference to Exhibit 4.6 to Quarterly
Report on Form 10-Q for the quarter ended June 30, 2004).
31.1 -- Certification of Chief Executive Officer pursuant to
Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 -- Certification of Chief Financial Officer pursuant to
Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 -- Certification of Chief Executive Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
32.2 -- Certification of Chief Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
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| | | | | | | |
| Exhibit | | |
| Number | | |
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| | 2 | .1 | | — | | Agreement and Plan of Merger, dated as of August 26, 2005, among Registrant, Royal Merger Co. and NDCHealth Corporation (incorporated by reference to Exhibit 2.1 to Current Report on Form 8-K filed on August 30, 2005). (schedules and similar attachments to this exhibit have not been filed; Registrant agrees to furnish supplementally a copy of any of these materials to the Securities and Exchange Commission upon request). |
| | 2 | .2 | | — | | Stock Purchase Agreement, dated as of August 26, 2005, among Wolters Kluwer Health, Inc., NDC Health Information Services (Arizona). Inc., and NDCHealth Corporation (incorporated herein by reference to Exhibit 2.1 to NDCHealth Corporation’s Current Report on Form 8-K filed on August 29, 2005). (schedules and similar attachments to this exhibit have not been filed; Registrant agrees to furnish supplementally a copy of any of these materials to the Securities and Exchange Commission upon request). |
| | 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, as amended (incorporated by reference to Exhibit 3.2 to Current Report on Form 8-K filed on July 29, 2005). |
| | 4 | .1 | | — | | 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 | .2 | | — | | First Amendment to Rights Agreement dated as of February 11, 1999, between Registrant and American Stock Transfer & Trust Company, entered into as of May 4, 2000 (incorporated by reference to Exhibit 4.4 to Quarterly Report of Form 10-Q for the quarter ended March 31, 2000). |
| | 4 | .3 | | — | | Second Amendment to Rights Agreement dated as of February 11, 1999, between Registrant and American Stock Transfer & Trust Company, entered into as of December 6, 2001, to be effective as of March 6, 2002 (incorporated by reference to Exhibit 4.12 to Annual Report on Form 10-K for the year ended December 31, 2001). |
| | 4 | .4 | | — | | Third Amendment to Rights Agreement dated as of February 11, 1999, between Registrant and American Stock Transfer & Trust Company, entered into as of March 10, 2003 (incorporated by reference to Exhibit 4.13 to Annual Report on Form 10-K for the year ended December 31, 2002). |
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| Exhibit | | |
| Number | | |
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| | | Document |
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| | 4 | .5 | | — | | Fourth Amendment to Rights Agreement dated as of February 11, 1999, between Registrant and American Stock Transfer & Trust Company, entered into as of February 18, 2005 (incorporated by reference to Exhibit 4.1 to Current Report on Form 8-K filed on February 22, 2005). |
| | 4 | .6 | | — | | Fifth Amendment to Rights Agreement dated as of February 11, 1999, between Registrant and American Stock Transfer & Trust Company, entered into as of August 26, 2005 (incorporated by reference to Exhibit 4.1 to Current Report on Form 8-K filed on August 26, 2005). |
| | 4 | .7 | | — | | Indenture dated as of June 30, 2004, between Registrant and U.S. Bank National Association, as Trustee, relating to Registrant’s 3.25% Convertible Subordinated Debentures Due 2024 (incorporated by reference to Exhibit 4.5 to Quarterly Report on Form 10-Q for the quarter ended June 30, 2004). |
| | 10 | .1 | | — | | Amended and Restated Credit Agreement, dated as of January 6, 2006, among Registrant, certain domestic subsidiaries of Registrant, Bank of America, N.A., Wachovia Bank, National Association, and the other lenders party thereto (incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed on January 12, 2006). |
| | 10 | .2 | | — | | Data Supply and Services Agreement, dated as of January 6, 2006, among NDC Health Information Services (Arizona). Inc., NDCHealth Corporation and Registrant (incorporated by reference to Exhibit 10.2 to Current Report on Form 8-K filed on January 12, 2006). |
| | 10 | .3 | | — | | Retail Informatics Data and Services Agreement, dated as of January 6, 2006, between NDC Health Information Services (Arizona). Inc. and NDCHealth Corporation(incorporated by reference to Exhibit 10.3 to Current Report on Form 8-K filed on January 12, 2006). |
| | 10 | .4 | | — | | Per-Se Technologies, Inc. 2006 Senior Management Incentive Compensation Plan (incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed on March 7, 2006). |
| | 31 | .1 | | — | | Certification of Chief Executive Officer pursuant to Exchange Act Rules 13a-14(a). and 15d-14(a)., as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| | 31 | .2 | | — | | Certification of Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a). and 15d-14(a)., as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| | 32 | .1 | | — | | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| | 32 | .2 | | — | | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
40
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this amendment 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/ RICHARD A. FLYNT
------------------------------------
Richard A. Flynt
Vice President and Corporate
Controller
(Principal Accounting Officer)
| |
| Per-Se Technologies, Inc. |
| (Registrant) |
| |
| |
| Chris E. Perkins |
| Executive Vice President, |
| Chief Operating Officer and |
| Interim Chief Financial Officer |
| |
| |
| Richard A. Flynt |
| Senior Vice President and Corporate Controller |
| (Principal Accounting Officer) |
Date: May
6, 2005
25
10, 200641
INDEX TO EXHIBITS
EXHIBIT
NUMBER DOCUMENT
------- --------
2.1 -- Asset Purchase Agreement dated as of June 18, 2003, among
Misys Hospital Systems, Inc., Misys Healthcare Systems
(International) Limited, Misys plc, Registrant, and PST
Products, LLC., together with the First Amendment thereto
dated as of June 28, 2003 (incorporated by reference to
Exhibit 2.1 to Current Report on Form 8-K filed on August 5,
2003).
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, as amended (incorporated by
reference to Exhibit 3.2 to Annual Report on Form 10-K for
the year ended December 31, 2003).
4.1 -- 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).
4.2 -- First Amendment to Rights Agreement dated as of February 11,
1999, between Registrant and American Stock Transfer & Trust
Company, entered into as of May 4, 2000 (incorporated by
reference to Exhibit 4.4 to Quarterly Report of Form 10-Q
for the quarter ended March 31, 2000).
4.3 -- Second Amendment to Rights Agreement dated as of February
11, 1999, between Registrant and American Stock Transfer &
Trust Company, entered into as of December 6, 2001, to be
effective as of March 6, 2002 (incorporated by reference to
Exhibit 4.12 to Annual Report on Form 10-K for the year
ended December 31, 2001).
4.4 -- Third Amendment to Rights Agreement dated as of February 11,
1999, between Registrant and American Stock Transfer & Trust
Company, entered into as of March 10, 2003 (incorporated by
reference to Exhibit 4.13 to Annual Report on Form 10-K for
the year ended December 31, 2002).
4.5 -- Fourth Amendment to Rights Agreement dated as of February
11, 1999, between Registrant and American Stock Transfer &
Trust Company, entered into as of February 18, 2005
(incorporated by reference to Exhibit 4.1 to Current Report
on Form 8-K filed on February 22, 2005).
4.6 -- Indenture dated as of June 30, 2004, between Registrant and
U.S. Bank National Association, as Trustee, relating to
Registrant's 3.25% Convertible Subordinated Debentures Due
2024 (incorporated by reference to Exhibit 4.5 to Quarterly
Report on Form 10-Q for the quarter ended June 30, 2004).
4.7 -- Resale Registration Rights Agreement dated as of June 30,
2004, between Registrant and Banc of America Securities LLC,
as representative of the several initial purchasers of
Registrant's 3.25% Convertible Subordinated Debentures Due
2024 (incorporated by reference to Exhibit 4.6 to Quarterly
Report on Form 10-Q for the quarter ended June 30, 2004).
31.1 -- Certification of Chief Executive Officer pursuant to
Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 -- Certification of Chief Financial Officer pursuant to
Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 -- Certification of Chief Executive Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
32.2 -- Certification of Chief Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
| | | | | | | |
| Exhibit | | |
| Number | | |
| | | |
| | | Document |
| | | |
| | 2 | .1 | | — | | Agreement and Plan of Merger, dated as of August 26, 2005, among Registrant, Royal Merger Co. and NDCHealth Corporation (incorporated by reference to Exhibit 2.1 to Current Report on Form 8-K filed on August 30, 2005) (schedules and similar attachments to this exhibit have not been filed; Registrant agrees to furnish supplementally a copy of any of these materials to the Securities and Exchange Commission upon request). |
| |
| | 2 | .2 | | — | | Stock Purchase Agreement, dated as of August 26, 2005, among Wolters Kluwer Health, Inc., NDC Health Information Services (Arizona) Inc., and NDCHealth Corporation (incorporated herein by reference to Exhibit 2.1 to NDCHealth Corporation’s Current Report on Form 8-K filed on August 29, 2005) (schedules and similar attachments to this exhibit have not been filed; Registrant agrees to furnish supplementally a copy of any of these materials to the Securities and Exchange Commission upon request). |
| |
| | 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, as amended (incorporated by reference to Exhibit 3.2 to Current Report on Form 8-K filed on July 29, 2005). |
| |
| | 4 | .1 | | — | | 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 | .2 | | — | | First Amendment to Rights Agreement dated as of February 11, 1999, between Registrant and American Stock Transfer & Trust Company, entered into as of May 4, 2000 (incorporated by reference to Exhibit 4.4 to Quarterly Report of Form 10-Q for the quarter ended March 31, 2000). |
| |
| | 4 | .3 | | — | | Second Amendment to Rights Agreement dated as of February 11, 1999, between Registrant and American Stock Transfer & Trust Company, entered into as of December 6, 2001, to be effective as of March 6, 2002 (incorporated by reference to Exhibit 4.12 to Annual Report on Form 10-K for the year ended December 31, 2001). |
| |
| | 4 | .4 | | — | | Third Amendment to Rights Agreement dated as of February 11, 1999, between Registrant and American Stock Transfer & Trust Company, entered into as of March 10, 2003 (incorporated by reference to Exhibit 4.13 to Annual Report on Form 10-K for the year ended December 31, 2002). |
| |
| | 4 | .5 | | — | | Fourth Amendment to Rights Agreement dated as of February 11, 1999, between Registrant and American Stock Transfer & Trust Company, entered into as of February 18, 2005 (incorporated by reference to Exhibit 4.1 to Current Report on Form 8-K filed on February 22, 2005). |
| |
| | 4 | .6 | | — | | Fifth Amendment to Rights Agreement dated as of February 11, 1999, between Registrant and American Stock Transfer & Trust Company, entered into as of August 26, 2005 (incorporated by reference to Exhibit 4.1 to Current Report on Form 8-K filed on August 26, 2005). |
| |
| | 4 | .7 | | — | | Indenture dated as of June 30, 2004, between Registrant and U.S. Bank National Association, as Trustee, relating to Registrant’s 3.25% Convertible Subordinated Debentures Due 2024 (incorporated by reference to Exhibit 4.5 to Quarterly Report on Form 10-Q for the quarter ended June 30, 2004). |
| |
| | 10 | .1 | | — | | Amended and Restated Credit Agreement, dated as of January 6, 2006, among Registrant, certain domestic subsidiaries of Registrant, Bank of America, N.A., Wachovia Bank, National Association, and the other lenders party thereto (incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed on January 12, 2006). |
| |
| | 10 | .2 | | — | | Data Supply and Services Agreement, dated as of January 6, 2006, among NDC Health Information Services (Arizona) Inc., NDCHealth Corporation and Registrant (incorporated by reference to Exhibit 10.2 to Current Report on Form 8-K filed on January 12, 2006). |
| |
| | 10 | .3 | | — | | Retail Informatics Data and Services Agreement, dated as of January 6, 2006, between NDC Health Information Services (Arizona) Inc. and NDCHealth Corporation(incorporated by reference to Exhibit 10.3 to Current Report on Form 8-K filed on January 12, 2006). |
| | | | | | | |
| Exhibit | | |
| Number | | |
| | | |
| | | Document |
| | | |
| | 10 | .4 | | — | | Per-Se Technologies, Inc. 2006 Senior Management Incentive Compensation Plan (incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed on March 7, 2006). |
| |
| | 31 | .1 | | — | | Certification of Chief Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| |
| | 31 | .2 | | — | | Certification of Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| |
| | 32 | .1 | | — | | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| |
| | 32 | .2 | | — | | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |