<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
Current Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
SEPTEMBER 12, 2000
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Date of Report (Date of earliest event reported)
WEBMD CORPORATION
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(Exact name of registrant as specified in its charter)
DELAWARE 0-24975 94-3236644
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(State or other jurisdiction of (Commission File Number) (I.R.S. Employer
incorporation) Identification No.)
400 THE LENOX BUILDING
3399 PEACHTREE ROAD NE
ATLANTA, GEORGIA 30326
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(Address of principal executive offices, including zip code)
(404) 495-7600
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(Registrant's telephone number, including area code)
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(Former name or address, if changed since last report)
<PAGE> 2
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
On September 13, 2000, Registrant filed its Current Report on Form 8-K
describing its acquisition of Medical Manager Corporation and CareInsite, Inc.
Financial statements for the acquired business and pro forma information that
were not available at the time of the initial filing of the Current Report on
Form 8-K are provided in this Current Report on Form 8-K/A.
(a) Financial Statements of Businesses Acquired
The following historical financial statements and notes thereto are of
Medical Manager Corporation and Subsidiaries prior to the consummation
of the acquisition and are attached hereto at pages F-1 to F-27.
- Report of Independent Public Accountants
- Consolidated Balance sheet as of June 30, 2000
- Consolidated Statement of Operations for the year ended June
30, 2000
- Consolidated Statement of Changes in Stockholders' Equity for
the year ended June 30, 2000
- Consolidated Statement of Cash Flows for the year ended June
30, 2000
- Notes to Consolidated Financial Statements
(b) Pro Forma Financial Information
The following pro forma financial statements and notes thereto are
attached hereto at pages PF-1 to PF-13.
- Pro Forma Condensed Combined with Medical Manager and
CareInsite Statement of Operations for the year ended December
31, 1999 (unaudited)
- Pro Forma Condensed Combined with Medical Manager and
CareInsite Statement of Operations for the nine months ended
September 30, 2000 (unaudited)
- Notes to Pro Forma Condensed Combined with Medical Manager and
CareInsite Financial Information (unaudited)
- Pro Forma Condensed Combined Statements of Operations with
WebMD, Inc., MedE America, Medcast, The News Corporation
Strategic Alliance, Kinetra and Envoy for the year ended
December 31, 1999 (unaudited)
- Pro Forma Condensed Combined Statement of Operations with
Envoy for the nine months ended September 30, 2000 (unaudited)
- Notes to Pro Forma Condensed Statements of Operations Combined
with WebMD, Inc., MedE America, Medcast, The News Corporation
Strategic Alliance, Kinetra and Envoy (unaudited)
- Pro Forma Combined Condensed Statement of Operations of
Medical Manager with Physician Computer Network for the twelve
months ended December 31, 1999 (unaudited)
- Pro Forma Combined Condensed Statement of Operations of
Medical Manager with Physician Computer Network for the nine
months ended September 30, 2000 (unaudited)
- Notes to Pro Forma Combined Condensed Financial Statements of
Medical Manager with Physician Computer Network (unaudited)
2
<PAGE> 3
(c) Exhibits
<TABLE>
<S> <C>
Exhibit 3.1* Tenth Amended and Restated Certificate of
Incorporation of the Registrant, as amended,
including Certificate of Designations of the Series A
Payment-in-Kind Preferred Stock of the Registrant and
Certificate of Designations of the Series B
Convertible Redeemable Preferred Stock of the
Registrant
Exhibit 3.2* Amended and Restated Bylaws of the Registrant
Exhibit 23.1 Consent of Independent Public Accountants
Exhibit 99.1* Press release dated September 12, 2000, titled
"WebMD Announces Completion of Medical Manager,
CareInsite, and OnHealth Network Transactions"
</TABLE>
*Previously Filed
3
<PAGE> 4
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
WEBMD CORPORATION
By: /s/ Anthony Vuolo
-------------------------------------------
Anthony Vuolo
Executive Vice President and
Chief Financial Officer
Dated: November 27, 2000
4
<PAGE> 5
MEDICAL MANAGER CORPORATION AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS F-2
FINANCIAL STATEMENTS:
Consolidated Balance Sheet as of June 30, 2000 F-3
Consolidated Statement of Operations for the Year Ended June 30, 2000 F-4
Consolidated Statement of Changes in Stockholders' Equity
for the Year Ended June 30, 2000 F-5
Consolidated Statement of Cash Flows for the Year Ended June 30, 2000 F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-7
</TABLE>
F-1
<PAGE> 6
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Medical Manager Corporation:
We have audited the accompanying consolidated balance sheet of Medical Manager
Corporation (a Delaware Corporation) and subsidiaries (formerly Synetic, Inc.)
as of June 30, 2000, and the related consolidated statement of operations,
changes in stockholders' equity and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Medical Manager Corporation and
subsidiaries as of June 30, 2000 and the results of its operations and its cash
flows for the year then ended, in conformity with accounting principles
generally accepted in the United States.
/S/ ARTHUR ANDERSEN, LLP
New York, New York
October 20, 2000
F-2
<PAGE> 7
MEDICAL MANAGER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 2000
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 67,268
Marketable securities 50,467
Accounts receivable, net of allowances for doubtful accounts and sales returns
of $7,788 at June 30, 2000 77,952
Inventories 18,037
Other current assets 22,849
-----------
Total current assets 236,573
-----------
PROPERTY, PLANT AND EQUIPMENT:
Land and improvements 3,566
Buildings and improvements 23,535
Machinery and equipment 74,384
Furniture and fixtures 8,647
Construction in progress 13,196
-----------
123,328
Less: Accumulated depreciation (48,640)
-----------
Property, plant and equipment, net 74,688
-----------
OTHER ASSETS:
Marketable securities 245,017
Capitalized software development costs, net of accumulated amortization of
$3,655 at June 30, 2000 27,675
Goodwill and other intangible assets, net of accumulated amortization of $37,379 at June 30, 2000 431,159
Other 13,653
-----------
Total other assets 717,504
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$ 1,028,765
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ 3,213
Accounts payable 16,196
Accrued and other liabilities 47,289
Customer deposits and deferred maintenance revenue 25,834
Income taxes payable 5,757
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Total current liabilities 98,289
-----------
LONG-TERM DEBT, LESS CURRENT PORTION 12,276
-----------
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARY 119,938
-----------
OTHER LIABILITIES 54,853
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COMMITMENTS AND CONTINGENCIES (NOTE 10)
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; 10,000,000 shares authorized; none issued --
Common stock, $.01 par value; 300,000,000 shares authorized; 46,062,887 shares issued; 40,794,424 461
shares issued and outstanding at June 30, 2000
Paid-in capital 741,753
Retained earnings 41,877
Treasury stock, at cost; 5,268,463 shares at June 30, 2000 (38,287)
Accumulated other comprehensive loss (2,395)
-----------
Total stockholders' equity 743,409
-----------
$ 1,028,765
===========
</TABLE>
The accompanying notes to financial statements are an integral part of this
balance sheet.
F-3
<PAGE> 8
MEDICAL MANAGER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 2000
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<S> <C>
NET REVENUES $ 368,048
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COSTS AND EXPENSES:
Cost of revenues 195,259
Selling, general and administrative 130,622
Research and development 36,164
Minority interest in CareInsite (15,027)
Net gain on sale of investments (24,887)
Litigation costs 1,950
Merger costs 24,712
Depreciation and amortization 48,904
Interest and other income (26,349)
Interest expense 6,184
-----------
377,532
-----------
Loss before provision for income taxes (9,484)
PROVISION FOR INCOME TAXES 14,098
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Net loss $ (23,582)
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NET LOSS PER SHARE - BASIC AND DILUTED:
Net loss per share $ (0.63)
===========
Weighted average shares outstanding 37,720
===========
</TABLE>
The accompanying notes are an integral part of this consolidated statement.
F-4
<PAGE> 9
MEDICAL MANAGER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED JUNE 30, 2000
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
Common Stock
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Number of Paid-In Retained Treasury
Shares Amount Capital Earnings Stock
--------- ------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
BALANCE, June 30, 1999 41,104 $ 411 $ 455,699 $ 68,441 $(38,287)
Net loss -- -- -- (23,582) --
Foreign currency translation adjustment -- -- -- -- --
Unrealized loss on marketable securities -- -- -- -- --
Comprehensive loss -- -- -- -- --
Adjustment for poolings treated prospectively 118 1 1,283 (1,973) --
Dividends -- -- -- (1,009) --
Increase in carrying value of CareInsite -- -- 17,761 -- --
Issuance of common stock for acquired companies 1,449 14 77,922 -- --
Purchase of 40,000 shares of common stock for
treasury -- -- -- -- (2,156)
Issuance of common stock for exercise of
stock options, warrants, 401(k) plan,
bonus payment and redemption of convertible
securities 3,392 35 189,088 -- 2,156
-------- ------- --------- -------- --------
BALANCE, June 30, 2000 46,063 $ 461 $ 741,753 $ 41,877 $(38,287)
======== ======= ========= ======== ========
<CAPTION>
Accumulated
Other Total
Comprehensive Stockholders'
Loss Equity
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<S> <C> <C>
BALANCE, June 30, 1999 $ (921) $ 485,343
Net loss -- (23,582)
Foreign currency translation adjustment (970) (970)
Unrealized loss on marketable securities (504) (504)
---------
Comprehensive loss -- (25,056)
Adjustment for poolings treated prospectively -- (689)
Dividends -- (1,009)
Increase in carrying value of CareInsite -- 17,761
Issuance of common stock for acquired companies -- 77,936
Purchase of 40,000 shares of common stock for
treasury -- (2,156)
Issuance of common stock for exercise of
stock options, warrants, 401(k) plan,
bonus payment and redemption of convertible
securities -- 191,279
-------- ---------
BALANCE, June 30, 2000 $ (2,395) $ 743,409
======== =========
</TABLE>
The accompanying notes are an integral part of this consolidated statement.
F-5
<PAGE> 10
MEDICAL MANAGER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED JUNE 30, 2000
(IN THOUSANDS)
<TABLE>
<S> <C>
CASH FLOWS USED IN OPERATING ACTIVITIES:
Net loss $ (23,582)
Adjustments to reconcile net loss to net cash used in operating activities:
Net gain on sale of investments (24,887)
Depreciation and amortization 48,904
Deferred income taxes 3,546
Write-off of equipment 540
Net loss from investment in unconsolidated affiliate 895
Minority interest in net loss in consolidated subsidiary (15,027)
Changes in operating assets and liabilities, net of the effects of acquisitions:
Accounts receivable, net (12,693)
Inventories 1,640
Other assets (2,207)
Accounts payable (5,591)
Accrued liabilities (16,347)
Other liabilities 3,807
Income taxes payable (462)
Customer deposits and deferred maintenance revenue (6,325)
-----------
Net cash used in operating activities (47,789)
-----------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Maturities and redemptions of marketable securities 67,518
Purchases of marketable securities (90,421)
Proceeds from sale of investments 50,394
Capital expenditures, net (25,573)
Cash acquired from poolings treated prospectively (54)
Net cash paid for acquired businesses (68,678)
Purchase of other investments (6,000)
-----------
Net cash used in investing activities (72,814)
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CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:
Purchases of treasury stock $ (2,156)
Proceeds from exercise of stock options, warrants and 401(k) issuances, including related tax
benefits 32,610
Repurchase of Convertible Debentures (274)
Proceeds from CareInsite's sale of Convertible Redeemable Preferred Stock 10,000
Payments on long-term debt (1,923)
Payments on notes payable (4,220)
Dividends (1,059)
-----------
Net cash provided by financing activities 32,978
-----------
Net decrease in cash and cash equivalents (87,625)
CASH AND CASH EQUIVALENTS, beginning of period 154,893
-----------
CASH AND CASH EQUIVALENTS, end of period $ 67,268
===========
</TABLE>
The accompanying notes are an integral part of this consolidated statement.
F-6
<PAGE> 11
MEDICAL MANAGER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
1. NATURE OF OPERATIONS AND SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
On July 23, 1999, Medical Manager Corporation (the "Company") (formerly known as
Synetic, Inc.) acquired all of the outstanding stock of Medical Manager Health
Systems, Inc. ("Health Systems") (formerly known as Medical Manager Corporation)
in exchange for 14,109,455 newly issued shares of Medical Manager Corporation
common stock. In connection with this merger, Synetic, Inc. changed its name to
Medical Manager Corporation. The merger was accounted for as a tax-free
pooling-of-interests. Additionally, the Company executed and closed agreements
to acquire the following companies in exchange for 1,089,126 newly issued shares
of Medical Manager common stock: Clinical Management Solutions, Inc.
("Clinical"), MicroSense, Inc., Resource America, Inc., Service Dimensions,
Inc., Terry Kidd, Inc., d/b/a TKI Computer Services ("TKI"), PSI Computer
Systems, Direct 1 Medical, Inc., Versyss-MidSouth Business Systems, Inc., Briar
Hill Enterprises, Inc. ("Briar Hill"), Aztec Financial, Inc., Innovative
Healthcare Solutions, Inc., Altman Information Systems, Inc., Medical Software
Specialists, Inc., Americlaims, Ltd., MedsAmerica, Inc., Medical Office
Management Solutions, Inc. and HealthPro Solutions, Inc. ("HealthPro"). These
acquisitions were accounted for by the pooling of interests method. The
Company's consolidated financial statements reflect the historical operations of
the Company for all years prior to the business combinations, and have been
retroactively restated to include the financial position, results of operations
and cash flows of Health Systems and the acquired companies (collectively
"MMHS").
During the year ended June 30, 2000, the Company recorded $17,991,000 of
acquisition and related expenses primarily related to the acquisition of MMHS.
The major components of this charge are as follows: $10,567,000 of transaction
costs such as financial advisory fees, professional fees and printing fees;
$5,718,000 of amounts vested, as a result of the acquisition, under certain MMHS
employment agreements; $1,259,000 of acquisition related severance costs
attributable to employees terminated or notified of termination as of September
30, 1999; and $447,000 of other related expenses.
The consolidated financial statements of the Company include reclassifications
made to conform financial statement presentation of MMHS to that of the Company.
The Company has two operating segments: physician services and plastics and
filtration technologies.
The Company's physician services business is conducted through its wholly-owned
subsidiary, MMHS, and through its majority-owned subsidiary, CareInsite, Inc.
("CareInsite"). MMHS is a leading provider of comprehensive physician practice
management information systems to independent physicians, independent practice
associations, management service organizations, physician practice management
organizations, management care organizations and other providers of health care
services in the United States. MMHS develops, markets and supports the Medical
Manager practice management system, which addresses the financial,
administrative, clinical and practice management needs of physician practices.
In January 1999, the Company formed CareInsite and contributed to it
substantially all of the assets and liabilities of the Company's healthcare
electronic commerce business. CareInsite is in the development stage. CareInsite
intends to provide a broad range of healthcare electronic commerce services
which will leverage Internet technology to improve communication among
physicians, payers, suppliers and patients and is developing a comprehensive set
of transaction, messaging and content services to the healthcare industry
participants. The provision of products and services using Internet technology
in the healthcare electronic commerce industry is subject to risks, including
but not limited, to those associated with competition from existing companies
offering the same or similar services, uncertainty with respect to market
acceptance of its products and services, rapid technological change, management
of growth, availability of future capital and minimal previous record of
operations or earnings.
On June 16, 1999, CareInsite completed its initial public offering of 6,497,500
shares of its common stock (the "Offering"). The net proceeds of the Offering
were approximately $106,446,000. The Company currently owns 67.4% of CareInsite.
F-7
<PAGE> 12
MEDICAL MANAGER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
The Company's plastics and filtration technologies business is conducted through
Porex Technologies Corp. and its affiliated companies ("Porex"). Over the past
37 years Porex has established a leading reputation in the porous plastics
industry as a designer, manufacturer and distributor of porous and solid plastic
components and products. Porex's porous and solid plastic components and
products are used by other manufacturers in a wide range of healthcare,
consumer, life sciences and industrial applications primarily to filter, wick,
diffuse, drain, vent or control the flow of fluids or gases.
Definitive Agreement with Healtheon/WebMD Corporation
On February 13, 2000, the Company and CareInsite signed definitive agreements
(the "Healtheon/WebMD Agreements") to be acquired by Healtheon/WebMD Corporation
("Healtheon/WebMD"). Under the terms of the agreements, as amended on June 18,
2000, Healtheon/WebMD will pay 2.5 shares of Healtheon/WebMD common stock for
each share of the Company's common stock and 1.3 shares for each share of
CareInsite's common stock not owned by the Company. The acquisitions, which will
be accounted for as purchase transactions, were completed on September 12, 2000.
During the year ended June 30, 2000, the Company recorded $6,721,000 of merger
and related expenses primarily related to the merger with Healtheon/WebMD. The
majority of these costs were transaction costs such as financial advisory fees
and professional fees.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the
Company and its wholly-owned operating subsidiaries, including MMHS and Porex,
and its majority owned subsidiary, CareInsite, after elimination of all material
intercompany accounts and transactions.
Foreign Currency Translation
Assets and liabilities of Porex's foreign manufacturing facilities are
maintained in their functional currency and translated into U.S. dollars at the
exchange rate on the balance sheet date. Revenues, costs and expenses are
translated at average exchange rates during the year. Foreign currency
translation adjustments resulting from this process are charged or credited to
accumulated other comprehensive loss in stockholders' equity.
Revenue Recognition
Revenue is recognized for plastic and filtration technology products upon
shipment, net of sales returns and allowances. Service revenues are recognized
as services are performed. Revenue from software licenses is recognized upon
sale and shipment in accordance with Statement of Position 97-2, " Software
Revenue Recognition," ("SOP 97-2"). SOP 97-2 requires the total contract revenue
to be allocated to the various elements of the contract based upon objective
evidence of the fair values of such elements and allows for only the allocated
revenue to be recognized upon completion of those elements. Amounts billed in
advance of recognized revenue are deferred. Revenue from support and maintenance
contracts is recognized as the services are performed ratably over the contract
period, which typically does not exceed one year. Revenue from other services
are recognized as they are provided. Certain expenses are allocated between the
cost of revenue for systems and maintenance and other based upon revenue, which
basis management believes to be reasonable.
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-8
<PAGE> 13
MEDICAL MANAGER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
Cash and Cash Equivalents
The Company considers all investment instruments with an original maturity of
three months or less to be the equivalent of cash for purposes of balance sheet
presentation and for the consolidated statement of cash flows. These short-term
investments are stated at cost, which approximates market.
Marketable Securities
Management determines the appropriate classification of its investments in debt
securities at the time of purchase and re-evaluates such determinations at each
balance sheet date. Debt securities are classified as held to maturity when the
Company has the positive intent and ability to hold the securities to maturity.
Held-to-maturity securities are carried at cost, net of unamortized premium or
discount. Debt securities for which the Company does not have the intent or
ability to hold to maturity are classified as available-for-sale.
Available-for-sale securities are carried at fair value as of the balance sheet
date. At June 30, 2000, the Company's investments consisted principally of U.S.
Treasury Notes and Federal Agency Notes. These investments had an aggregate
market value of $291,311,000 at June 30, 2000. Of the investments at June 30,
2000, debt securities with a cost of $50,000,000 were classified as
available-for-sale maturing within one year. Unrealized losses on these
securities were ($445,000) at June 30, 2000. At June 30, 2000, gross unrealized
losses pertaining to marketable securities and other investments were
($4,618,000). Gains and losses on the sale of marketable securities and other
investments are calculated using the specific identification method. During the
year ended June 30, 2000, the Company recorded a net gain of $24,887,000
primarily related to the sale by CareInsite of common stock of a publicly held
company. These shares were acquired through the conversion of its $2,000,000
investment in Series B Preferred Stock of a privately held company, which was
subsequently merged into this publicly held company.
Inventories
Inventories are stated at the lower of (first-in, first-out) cost or market.
Cost for manufactured products includes raw materials, direct labor, and
manufacturing overhead. Market is based on current replacement cost for raw
materials and supplies and on net realizable value for work-in-process, finished
goods and peripheral computer equipment. Inventories consisted of the following
(in thousands) as of June 30, 2000-
<TABLE>
<S> <C>
Raw materials and supplies $ 5,878
Work-in-process 1,809
Finished goods 7,420
Peripheral computer equipment 2,930
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$18,037
=======
</TABLE>
Property, Plant and Equipment
Property, plant and equipment are stated at cost. For financial reporting
purposes, depreciation is provided principally on the straight-line method over
the estimated useful lives of the assets. Annual depreciation rates range from
7% to 8% for land improvements, from 2% to 5% for buildings and improvements and
from 9% to 33% for machinery and equipment and furniture and fixtures. For
income tax purposes, certain assets are depreciated using accelerated methods.
Expenditures for maintenance, repair and renewals of minor items are charged to
operations as incurred. Major betterments are capitalized.
Product Development Costs
Software
Costs in the software development process, which are classified as research and
development costs, are expensed as incurred until technological feasibility has
been established. Once technological feasibility has been established, software
development costs, if significant, are capitalized until the software is
commercially available. Costs
F-9
<PAGE> 14
MEDICAL MANAGER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
capitalized include direct labor and related overhead for software produced by
CareInsite and the costs of software licensed from third parties. Such costs are
recorded at the lower of unamortized cost or net realizable value.
Software licensed from vendors primarily relates to the perpetual software
licenses obtained from Cerner Corporation ("Cerner"). Amortization expense
related to capitalized software costs, which are being amortized over 5 years,
was $3,655,000 for the year ended June 30, 2000.
Plastics and Filtration Technologies
The Company incurs costs for the development of new and improved products,
product applications and manufacturing processes using porous and injection
molded plastics. These development costs are expensed as incurred.
Accrued and Other Liabilities
Accrued and other liabilities consisted of the following (in thousands) as of
June 30, 2000-
<TABLE>
<S> <C>
Accrued payroll and benefit costs $17,803
Accrued professional fees 9,121
Accrued legal costs 4,018
Accrued non-income taxes 4,519
Accrued commission 2,145
Other 9,683
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Total $47,289
=======
</TABLE>
Income Taxes
The Company accounts for income taxes pursuant to Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes," which uses the
liability method to calculate deferred income taxes. The realization of deferred
tax assets is based on historical tax positions and expectations about future
taxable income (See Note 7). A valuation allowance is provided against the
future benefits of deferred tax assets if it is determined that it is more
likely than not that the future tax benefits associated with the deferred tax
asset will not be realized.
Net Loss Per Share
The Company reports earnings per share in accordance with Statement of Financial
Accounting Standards No. 128, "Earnings Per Share" ("SFAS No. 128"). Under SFAS
No. 128, basic net income per share is computed by dividing net income by the
weighted-average number of common shares outstanding for the period. Diluted net
income per share reflects the potential dilution that could occur if securities
or other contracts to issue common stock were exercised or converted into common
stock.
Goodwill and Other Intangible Assets
Goodwill, which represents the excess of purchase price and related costs over
the value assigned to the net tangible assets of businesses acquired, is
amortized on a straight line basis over periods ranging from three to 20 years
for physician services acquisitions and 35 to 40 years for plastics and
filtration technologies acquisitions. Other intangible assets primarily relate
to patented and unpatented technologies and trade names and are amortized on a
straight line basis over periods ranging from 19 to 40 years.
Accounting for Stock-Based Compensation
As permitted by Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" ("SFAS No. 123"), the Company has elected to
continue following the guidance of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB No. 25"), for measurement
F-10
<PAGE> 15
MEDICAL MANAGER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
and recognition of stock-based transactions with employees and non-employee
directors. The Company discloses on a pro forma basis both net income and
earnings per share as if the fair value based accounting method were used and
the difference between compensation cost recognized under APB No. 25 and the
fair value method of SFAS No. 123 (See Note 9).
Recently Adopted Accounting Standards
The Company adopted Statement of Position 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use," ("SOP 98-1")
effective July 1, 1999. SOP 98-1 requires that entities capitalize certain costs
related to internal-use software once certain criteria have been met. Adoption
of SOP 98-1 had no material impact on the Company's financial position or
results of operations.
The Company adopted Statement of Position 98-5, "Reporting on the Costs of
Start-Up Activities," ("SOP 98-5") effective July 1, 1999. SOP 98-5 requires
that entities expense start-up costs as incurred. Adoption of SOP 98-5 had no
impact on the Company's financial position or results of operations.
Recently Issued Accounting Standards
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivatives and
Hedging Activities" ("SFAS No. 133"), which establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. In July 1999, the FASB
issued Statement of Financial Accounting Standards No. 137, "Accounting for
Derivative Instruments and Hedging Activities - Deferral of the Effective Date
of FASB Statement No. 133", which amends SFAS No. 133 to be effective for all
fiscal quarters of all fiscal years beginning after June 15, 2000. In June 2000,
the FASB issued Statement of Financial Accounting Standards No. 138, "Accounting
for Certain Derivative Instruments and Certain Hedging Activities" ("SFAS No.
138"), which amends the accounting and reporting requirements of SFAS No. 133
for certain derivative instruments and certain hedging activities. SFAS No. 138
is effective for all fiscal quarters of all fiscal years beginning after June
15, 2000. The Company believes that the impact of the adoption of these
standards, as amended, would not have a material effect on the Company's results
of operations, financial position or cash flow.
2. ACQUISITIONS
Plastics and Filtration Technologies Acquisitions
Mupor, LTD
On November 18, 1999, the Company completed the acquisition of Mupor LTD,
located in Scotland, United Kingdom for $2,420,000 in cash. The acquisition was
accounted for using the purchase method of accounting with the purchase price
being allocated to assets acquired based on their estimated fair values. Mupor
LTD's results of operations have been included in the Company's financial
statements beginning November 18, 1999. The goodwill is being amortized on a
straight-line basis over a period of 40 years.
Physician Services
Pooling-of-Interests Transactions
During the three months ended September 30, 1999, the Company acquired the
following resellers of the Medical Manager Software: Computer Business
Solutions, Inc. based in Indianapolis, Indiana and Modern Business Machines,
Inc. based in Chadron, Nebraska. The Company also acquired LaPook Lear Systems,
Inc. located in New York, New York (the "First Quarter Acquired Companies"). The
aggregate consideration paid for the First Quarter Acquired Companies was 98,390
shares of the Company's common stock. The acquisitions of the First Quarter
Acquired Companies were accounted for using the pooling-of-interests method of
accounting. The Company's results of operations and cash flows for the year
ended June 30, 2000 reflect the results of operations and cash flows
F-11
<PAGE> 16
MEDICAL MANAGER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
of the First Quarter Acquired Companies as if they were acquired as of July 1,
1999. Prior periods have not been restated as the combined results would not be
materially different from the results as previously presented.
During the three months ended December 31, 1999, the Company acquired the
following companies: Clinical Management Solutions, Inc. based in Norcross,
Georgia; MicroSense, Inc. based in Springfield, Missouri; Resource America, Inc.
based in Louisville, Kentucky; Service Dimensions, Inc. based in Overland Park,
Kansas; Terry Kidd, Inc., d/b/a TKI Computer Services based in Benton, Arkansas;
and PSI Computer Systems based in Highland, California (the "Second Quarter
Acquired Companies"). The aggregate consideration paid for the Second Quarter
Acquired Companies was 125,486 shares of the Company's common stock. The
acquisitions of the Second Quarter Acquired Companies were accounted for using
the pooling-of-interests method of accounting. The financial statements reflect
the historical operations of the Company for all periods prior to the business
combinations, and have been retroactively restated to include the financial
position, results of operations and cash flows of the Second Quarter Acquired
Companies. The accompanying financial statements include revenue and net income
of the Second Quarter Acquired Companies prior to the date of acquisition of
$7,093,000 and $810,000 for the year ended June 30, 2000.
During the three months ended March 31, 2000, the Company acquired the following
companies: Direct 1 Medical, Inc., based in Marietta, Georgia; Versyss-MidSouth
Business Systems, Inc., based in Memphis, Tennessee; Briar Hill Enterprises,
Inc., based in Northbrook, Illinois; Aztec Financial, Inc., based in Fort Myers,
Florida; Innovative Healthcare Solutions, Inc., based in Chicago, Illinois;
Altman Information Systems, Inc., based in Chicago, Illinois; Medical Software
Specialists, Inc., based in Galesburg, Illinois; Americlaims, Ltd., based in
Beaumont, Texas; MedsAmerica, Inc., based in Houston, Texas; Medical Office
Management Solutions, Inc., based in Little Rock, Arkansas; and Health Pro
Solutions, Inc., based in Windsor, California (the "Third Quarter Acquired
Companies"). The aggregate consideration paid for the Third Quarter Acquired
Companies was 963,640 shares of the Company's common stock. The acquisitions of
the Third Quarter Acquired Companies were accounted for using the
pooling-of-interests method of accounting. The financial statements reflect the
historical operations of the Company for all periods prior to the business
combinations, and have been retroactively restated to include the financial
position, results of operations and cash flows of the Third Quarter Acquired
Companies. The accompanying financial statements include revenue and net income
of the Third Quarter Acquired Companies prior to the date of acquisition of
$26,254,000 and $1,916,000 for the year ended June 30, 2000.
During the three months ended March 31, 2000, the Company also acquired Ebills,
Ltd., based in Beaumont, Texas; Medcoast Services, LLC, based in Houston, Texas;
and RJR Enterprises, Ltd., based in Beaumont, Texas. The aggregate consideration
paid for these three companies was 19,232 shares of the Company's common stock.
These acquisitions were accounted for using the pooling of interests method of
accounting. The Company's results of operations and cash flows for the year
ended June 30, 2000 reflect the results of operations and cash flows of Ebills,
Ltd., Medcoast Services, LLC and RJR Enterprises, Ltd. as if they were acquired
as of January 1, 2000. Prior periods have not been restated as the combined
results would not be materially different from the results as previously
presented.
Purchase Business Combinations
Physician Computer Network, Inc.
On March 30, 2000, the Company completed the acquisition of substantially all of
the operating assets of Physician Computer Network, Inc. ("PCN"), a provider of
physician practice management information systems located in Morris Plains, New
Jersey, for approximately $22,500,000 in cash (including forgiveness of
$7,000,000 of outstanding loans made by the Company to PCN) and 778,867 shares
of the Company's common stock. The fair value of the shares, as determined by
management, was approximately $48.15 per share.
The acquisition was accounted for using the purchase method of accounting with
the purchase price being allocated to the assets acquired based on their
estimated fair values. This transaction is a taxable transaction for federal,
state and local income tax purposes. PCN's results have been included in the
Company's financial statements beginning March 30, 2000.
F-12
<PAGE> 17
MEDICAL MANAGER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
A preliminary summary of the purchase price allocation is as follows (in
thousands)-
<TABLE>
<S> <C>
Cash and cash equivalents $ 2,306
Accounts receivable 5,288
Inventories 806
Other current assets 1,778
Property, plant and equipment 541
Goodwill and other intangible assets 81,653
Other assets 102
-------
$92,474
=======
</TABLE>
The goodwill is being amortized over a period of 5 years.
The Health Information Network Connection LLC ("THINC")
In January 2000, CareInsite acquired the 80% equity interest in THINC owned by
Empire Blue Cross and Blue Shield, Group Health Incorporated, HIP Health Plans
and Greater New York Hospital Association (the "THINC founding members") for
600,800 shares of CareInsite's stock in a transaction valued at $45,672,000. The
fair value of the shares, as determined by management, was $76.018 per common
share. THINC is a New York-based provider of software and services to facilitate
the exchange of healthcare information in the metropolitan New York area among
physicians, hospitals, laboratories, and payers. Concurrently with the
acquisition, warrants to purchase an aggregate of 3,247,294 shares of
CareInsite's common stock, which represented the THINC founding members'
interest in the warrants issued by CareInsite to THINC in January 1999, were
distributed to the THINC founding members. Immediately following this
transaction, the THINC founding members exercised their warrants in full. All
shares including those issued upon the exercise of the warrants are subject to
certain restrictions on transfer. Simultaneously, CareInsite acquired Cerner's
2% non-voting ownership interest in THINC for a note payable of $2,735,000. The
note bears interest at 5.8% per annum and is repayable on demand after September
2002.
The acquisition of THINC was accounted for using the purchase method of
accounting with the purchase price being allocated to assets acquired and
liabilities assumed based on their fair values. The goodwill related to the
transaction is being amortized over a three-year period. THINC's results of
operations have been included in the Company's financial statements as of
January 1, 2000.
A preliminary summary of the purchase price allocation is as follows (in
thousands)-
<TABLE>
<S> <C>
Current assets $ 1,605
Goodwill 61,412
Other noncurrent assets 1,954
-------
$64,971
=======
</TABLE>
Provider Technology Group ("PTG")
On March 27, 2000, CareInsite acquired substantially all of the assets of
Provider Technology Group ("PTG"), the e-commerce network of Blue Cross Blue
Shield of Massachusetts ("BCBSMA"), for $26,500,000 in cash and 651,968 shares
of CareInsite's common stock. Pursuant to the asset purchase agreement, if
BCBSMA does not realize at least $22,500,068 in proceeds from the sale of
325,984 of the common shares issued, CareInsite has agreed to pay BCBSMA an
amount equal to the shortfall in cash. Accordingly, the fair value of 325,984 of
the common shares issued was $69.022 per share. The fair value of the remaining
325,984 shares of common stock, as determined by management, was $40.646 per
share.
The acquisition of PTG was accounted for using the purchase method of accounting
with the purchase price being allocated to assets acquired and liabilities
assumed based on their fair values. The goodwill related to the transaction
F-13
<PAGE> 18
MEDICAL MANAGER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
is being amortized over a five year period. PTG's results of operations have
been included in the Company's financial statements as of March 27, 2000.
A preliminary summary of the purchase price allocation is as follows (in
thousands):
<TABLE>
<S> <C>
Current assets $ 114
Goodwill 64,406
Other noncurrent assets 65
-------
$64,585
=======
</TABLE>
Provider Connectivity Business of Medical Mutual of Ohio ("MMO")
On May 25, 2000, CareInsite executed and closed a definitive agreement to
acquire MMO for 653,997 shares of CareInsite common stock. Pursuant to the asset
purchase agreement, with respect to the first 225,669 shares of such shares sold
by Medical Mutual of Ohio after May 25, 2001, if the price per share payable to
Medical Mutual of Ohio is less than $22.16 per share, then CareInsite is
obligated to pay the difference to Medical Mutual of Ohio. Accordingly, the fair
value of 225,669 of the common shares issued was $22.16 per share. The fair
value of the remaining 428,328 shares of common stock, as determined by
management, was $19.91 per share.
The acquisition of MMO was accounted for using the purchase method of accounting
with the entire purchase price being allocated to goodwill. The goodwill related
to the transaction is being amortized over a five year period. MMO's results of
operations have been included in the Company's financial statements as of May
25, 2000.
Other
During the year ended June 30, 2000, the Company acquired substantially all of
the assets or all of the outstanding equity securities of the following
companies which individually, and in the aggregate, are not significant (the
"2000 Purchased Companies")-
<TABLE>
<CAPTION>
Company Acquired Date of Acquisition Location
------------------------------------------------ ------------------- -------------------------
<S> <C> <C>
The Wismer Martin division of Physician
Computer Network July 9, 1999 Spokane, Washington
Hyperion Business Systems July 20, 1999 Oakland, California
Mooney Edward Enterprises, Inc.
d/b/a Medical Information Systems, Inc. July 28, 1999 Pensacola, Florida
Turnkey Business Systems, Inc. September 23, 1999 Nashville, Tennessee
Intellex Medical Management Systems, Inc. September 24, 1999 Ft. Myers, Florida
Abacus Data Systems, Inc. September 27, 1999 Elkhart, Indiana
Health-Net Services of WA & AK, Inc. October 12, 1999 Eagle River, Alaska
Micro Edge, Inc. December 16, 1999 Stamford, Connecticut
Mednetrix.com, Inc. January 21, 2000 Boca Raton, Florida
SCINET, Inc. March 7, 2000 Scottsdale, Arizona
Delta Computing Solutions, LLC March 14, 2000 Pittsburgh, Pennsylvania
HCC Communications, Inc. March 20, 2000 Lincoln, Nebraska
PC Anywhere Group, LLC March 23, 2000 Danbury, Connecticut
Systems Design Group, Inc. May 15, 2000 Lexington, Kentucky
LogiMed, Inc. May 24, 2000 McAllen, Texas
Turnkey Physicians Services, Inc. May 25, 2000 Amarillo, Texas
NRP Technology Associates, Inc. d/b/a Advanced
Technology Associates; Advanced Billing
Services, Inc. June 1, 2000 Waukesha, Wisconsin
</TABLE>
F-14
<PAGE> 19
MEDICAL MANAGER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
The acquisitions of the 2000 Purchased Companies were accounted for using the
purchase method of accounting. The aggregate consideration paid for the 2000
Purchased Companies was $19,963,000 in cash and 667,698 shares of the Company's
common stock. The amortization period for the goodwill related to these
acquisitions is between five and twenty years.
On March 7, 2000, Medical Manager sold to CareInsite the EDI division of SCINET,
Inc., a company acquired by Medical Manager on March 7, 2000. The consideration
paid was 182,197 shares of CareInsite common stock, valued at $12,000,000. The
goodwill related to the transaction is being amortized over a three year period.
On March 13, 2000, CareInsite executed and closed a definitive agreement to
acquire Netics, Inc. ("Netics"), a Maryland based developer of web-enabled
software which is used in the provision of electronic data interchange claims
clearing, statement processing and remittance advice postage and other services
for medical practices. The consideration paid for the acquisition of Netics was
35,125 shares of CareInsite common stock. The acquisition was accounted for
using the purchase method of accounting. The goodwill related to the transaction
is being amortized over a three year period.
Pro Forma Information
The following summary, prepared on a pro forma basis, combines the results of
operations of the Company, PCN, the 2000 Purchased Companies, THINC and PTG
assuming the acquisitions were consummated at the beginning of the period
presented. The pro forma financial data does not purport to represent what the
Company's results of operations actually would have been if these transactions
had been consummated on the dates or for the periods presented, or what such
results will be for any future date or for any future period. All other purchase
acquisitions were not material to the financial statements and results of
operations of the Company.
<TABLE>
<CAPTION>
Year Ended
June 30,
2000
(unaudited)
-----------
<S> <C>
Net revenues $436,541
Net loss $(74,565)
Net loss per share-basic $ (1.93)
Net loss per share-diluted $ (1.93)
</TABLE>
3. SIGNIFICANT TRANSACTIONS
America Online Agreement
In September 1999, CareInsite entered into a strategic alliance with America
Online, Inc. ("AOL") for CareInsite to be AOL's exclusive provider of a
comprehensive suite of services that connect AOL's members, as well as
CompuServe members and visitors to AOL's Web-based services, Netcenter, AOL.COM
and Digital City (collectively, "AOL Members"), to physicians, health plans,
pharmacy benefit managers, covered pharmacies and labs. Under the agreement,
CareInsite and AOL have agreed to create co-branded sites which will enable AOL
Members to manage their healthcare through online communication with their
physicians, health plans, pharmacy benefit managers, covered pharmacies and
labs. The agreement has an initial term of four years, subject to the rights of
the parties to terminate the agreement under certain conditions, including the
right of AOL to terminate the agreement upon the completion of CareInsite's
pending merger with Healtheon/WebMD. Through this arrangement, AOL Members will
have access to CareInsite's secure, real-time services being developed that
allow them, among other things, to select and enroll in health plans, choose
their providers, schedule appointments, renew and refill plan-approved
prescriptions, view lab results, review claims status, receive explanations of
benefits, review patient education materials provided by their health plans,
understand plan policies and procedures and receive plan treatment
authorizations. CareInsite and AOL have also agreed to collaborate in sales and
marketing to
F-15
<PAGE> 20
MEDICAL MANAGER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
the healthcare industry, and they intend to leverage their alliance into
cross-promotional and shared advertising revenue initiatives. Under the
financial terms of the arrangement, CareInsite has agreed to make $30,000,000 of
guaranteed payments to AOL over three years. CareInsite made the first payment
of $10,000,000 in September 1999. The remaining $20,000,000 is due over the next
two years. Due to the completion of the merger with Healtheon/WebMD, AOL has the
right to terminate its strategic alliance with CareInsite, in which case the
remaining guaranteed payments due to AOL under the agreement shall become
immediately payable by CareInsite.
CareInsite also entered into a four year agreement with Netscape Communications
Corporation ("Netscape") under which CareInsite acquired a nonexclusive and
nontransferable right and license for the use of an unlimited quantity of the
Netscape and Sun Microsystems software offered via the Sun Microsystems-Netscape
Alliance. The cost of the products was $3,750,000, with a maintenance fee of
$750,000 in the initial year, and an option to purchase maintenance at
$1,000,000 per year in the second, third and fourth years of the agreement.
Under a separate agreement entered into in September 1999, AOL purchased 100
shares of newly issued CareInsite Series A Convertible Redeemable Preferred
Stock ("CareInsite Preferred Stock") at a price of $100,000 per share, or $10
million of CareInsite Preferred Stock in the aggregate, with an option to
purchase up to an additional 100 shares of CareInsite Preferred Stock in
September 2000 at the same price ("CareInsite Preferred Option"). At the option
of AOL, in March 2002, the CareInsite Preferred Stock is either redeemable in
whole for $100,000 per share in cash or convertible in whole, on a per share
basis, into (i) the number of shares of CareInsite's common stock equal to
$100,000 divided by $49.25 (or 2,030.5 shares) and (ii) a warrant exercisable
for the same number of shares of CareInsite's common stock, or 2,030.5 shares,
at a price of $49.25 per share. In the event that AOL elects to convert the 100
shares of CareInsite Preferred Stock it purchased in September 1999, it would
receive 203,046 shares of CareInsite's common stock and a warrant exercisable
into an additional 203,406 shares at a price of $49.25 per share. Prior to March
2002, AOL has the right to require CareInsite to redeem the CareInsite Preferred
Stock in whole at $100,000 per share in the event of certain changes in control
of CareInsite, which would not include the pending mergers of the Company and
CareInsite with Healtheon/WebMD under the Healtheon/WebMD Agreements. The
CareInsite Preferred Stock is non-voting except under certain extraordinary
circumstances and no dividend is payable on the CareInsite Preferred Stock
unless CareInsite declares a dividend on its common stock.
The proceeds received of $10,000,000 were allocated based on the relative fair
values of the CareInsite Preferred Stock and the CareInsite Preferred Option, as
determined by management. Accordingly, $7,608,000 was allocated to the
CareInsite Preferred Stock and $2,392,000 was allocated to the CareInsite
Preferred Option. Additionally, as the CareInsite Preferred Stock is convertible
into equity securities with a value in excess of $10,000,000 (the "beneficial
conversion feature"), a portion of the proceeds has been allocated to the
beneficial conversion feature and is reflected as a discount to the CareInsite
Preferred Stock. The value of the beneficial conversion feature, as determined
by management, was $5,268,000. The discount is being amortized through March
2002 using the effective interest method and is reflected in minority interest
in net loss of consolidated subsidiary in the accompanying statement of
operations. The CareInsite Preferred Stock and CareInsite Preferred Option are
classified as a component of minority interest in the accompanying balance
sheet.
Realignment of Porex Bio Products, Inc. ("Bio Products")
During the year ended June 30, 2000, Porex consolidated its manufacturing
efforts in its Bio Products group by closing its manufacturing facility in
Newman, Georgia and moving the related equipment to its newly expanded facility
in California. The Company recorded a $1,950,000 charge, included in selling,
general and administrative expense, related to the consolidation of its Bio
Products business. The major components of this charge are as follows: $705,000
of costs to disconnect and ship manufacturing equipment to the new facility;
$384,000 of severance costs related to employees terminated or notified of
termination as of March 31, 2000; $540,000 of write-downs, primarily related to
equipment used to manufacture vials which Porex will no longer carry in its
product offering; and $321,000 of other expenses.
F-16
<PAGE> 21
MEDICAL MANAGER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
4. STOCKHOLDERS' EQUITY
In April 1997, the Company announced that its Board of Directors authorized a
repurchase program involving the purchase of the Company's common stock and
outstanding convertible debentures not to exceed $15,000,000 in the aggregate.
For the year ended June 30, 2000, the Company repurchased 40,000 shares at a
cost of approximately $2,156,000. The Company has reissued all of these shares
for employee stock option exercises. In August 1999, the Board of Directors
rescinded the repurchase program.
On July 23, 1999, the Company amended and restated Article Four of its
Certificate of Incorporation, increasing the number of authorized shares to
310,000,000 of which 300,000,000 were designated as common stock.
5. INCREASE IN CARRYING VALUE OF CAREINSITE
Securities and Exchange Commission Staff Accounting Bulletin No. 51, "Accounting
for Sales of Stock by a Subsidiary," permits the difference between the carrying
value of the parent's investment in its subsidiary and the underlying book value
of the subsidiary after a stock issuance by the subsidiary to be reflected as a
gain or loss in the consolidated financial statements, or as a capital
transaction. The Company recorded a credit to paid-in capital of $17,761,000,
net of deferred taxes as a result of the shares issued by CareInsite during the
years ended June 30, 2000.
6. LONG-TERM DEBT
The following table summarizes the Company's long-term debt as of June 30, 2000
(in thousands)-
<TABLE>
<S> <C>
Note payable due April 2003 with interest at 6.23% payable quarterly (a) $ 6,531
Note payable to Cerner for their 2% non-voting ownership interest in THINC with
interest at 5.8% 2,735
Obligations under capital leases 2,236
Other long-term debt (b) 3,987
-------
Total 15,489
Less current portion 3,213
-------
Long-term portion $12,276
=======
</TABLE>
(a) The note is callable under certain circumstances.
(b) The other long term debt included above consists of various loans with
interest rates ranging from 7.25% - 23.44%.
In February 1997, the Company issued to the public $165,000,000 aggregate
principal amount of its 5% convertible subordinated debentures due 2007 (the
"Debentures"). The Debentures were convertible at any time prior to maturity,
unless previously redeemed into shares of the Company's common stock, at a
conversion price of $60.00 per share, subject to adjustment under certain
circumstances. In connection with the issuance of the Debentures, the Company
recorded debt issuance costs of approximately $5,100,000. Such costs were being
amortized to interest expense using the effective interest method over the life
of the Debentures. Due to the call for redemption as described below,
unamortized debt issuance costs of $3,468,000 were charged against paid-in
capital. In conjunction with the repurchase program discussed in Note 4, the
Company repurchased $5,500,000 face amount of Debentures during the fiscal year
ended June 30, 1998 and subsequently retired these Debentures during the fiscal
year ended June 30, 1999. During the fiscal year ended June 30, 1999, holders of
$16,000 principal amount of the Company's Debentures converted their Debentures
into approximately 267 shares of the Company's common stock. During the fiscal
year ended June 30, 2000, prior to the call for redemption as described below,
holders of $96,000 principal amount of the Company's Debentures converted their
Debentures into approximately 1,598 shares of the Company's common stock. On
January 31, 2000, the Company called for redemption on February 15, 2000, the
entire $159,388,000 aggregate principal amount of its outstanding Debentures. As
an alternative to redemption, the outstanding Debentures were convertible into
the Company's common stock at the rate of approximately 16.667
F-17
<PAGE> 22
MEDICAL MANAGER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
shares of common stock per $1,000 principal amount of Debentures, with cash to
be paid in lieu of any fractional shares, for Debentures surrendered on or prior
to February 14, 2000. $159,114,000 aggregate principal amount of the Debentures
were surrendered to the Company for conversion into 2,651,828 shares of the
Company's common stock. The remaining $274,000 aggregate principal amount of the
Debentures were redeemed at a redemption price of $1,053.57 per $1,000 principal
amount of the Debentures including accrued interest. The Company recorded a
charge of $3,404,000 in selling, general and administrative expense, which
consisted of financial advisory and professional fees related to the call of the
Debentures.
The annual maturities of long-term debt, excluding capital lease obligations,
are as follows (in thousands)-
<TABLE>
<S> <C>
June 30-
2001 $1,821
2002 497
2003 9,965
2004 224
2005 221
Thereafter 525
</TABLE>
Future minimum payments under capital lease obligations are as follows (in
thousands)-
<TABLE>
<S> <C>
June 30-
2001 $1,505
2002 765
2003 121
2004 6
------
Total minimum lease payments 2,397
Less - Amount representing interest (161)
------
Present value of minimum lease payments $2,236
======
</TABLE>
7. INCOME TAXES
The income tax provision is summarized as follows (in thousands)-
<TABLE>
<S> <C>
Current-
Federal $ 9,896
Foreign 1,316
State (660)
-------
Total current 10,552
-------
Deferred-
Federal 2,081
State 1,465
-------
Total deferred 3,546
-------
Total income tax provision $14,098
=======
</TABLE>
F-18
<PAGE> 23
MEDICAL MANAGER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
A reconciliation of the income tax provision, computed by applying the federal
statutory rate to income before taxes, and the actual provision for income taxes
is as follows-
<TABLE>
<CAPTION>
Year Ended
June 30, 2000
-------------
<S> <C>
Loss before provision for income taxes $ (9,484)
Loss in CareInsite, net of minority interest for which
no tax benefit is recognized --
32,821
--------
$ 23,337
========
Federal statutory rate (35%) $ 8,168
State tax, net of federal benefit 524
Foreign tax 222
S-Corporations income not subject to income tax (625)
Non-deductible merger expenses 5,781
Other, net 28
--------
$ 14,098
========
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities as of June 30, 2000 are as
follows (in thousands)-
<TABLE>
<CAPTION>
Current Long-Term
------- ---------
<S> <C> <C>
Deferred Tax Assets-
Accrued expenses $ 339 $ 113
Net operating loss carryforwards -- 29,107
Bad debts 578 --
Inventory 605 --
Prepaid and other 449 41
Non-deductible merger costs -- 2,300
Deferred compensation (stock options) -- 1,809
------- --------
Gross deferred tax assets 1,971 33,370
Valuation allowance (254) (17,042)
------- --------
Total deferred tax assets 1,717 16,328
------- --------
Deferred Tax Liabilities-
Depreciation and amortization -- 10,614
Sale of stock by a subsidiary -- 44,770
Capitalized research and development costs -- 1,664
------- --------
Total deferred tax liabilities -- 57,048
------- --------
Net deferred tax asset (liability) $ 1,717 $(40,720)
======= ========
</TABLE>
As of June 30, 2000, the Company has available net operating loss carryforwards
totaling $84,156,000, of which $45,925,000 relates to CareInsite. Effective with
the Offering of CareInsite's common stock on June 16, 1999, the Company no
longer consolidates CareInsite for federal income tax purposes. As CareInsite
was in the development stage, a valuation allowance was established for the net
operating loss related to CareInsite for the period when CareInsite was no
longer included in the Company's consolidated federal income tax return. The
Company has assessed its past earnings history and trends and expiration dates
of its net operating loss carryforwards and has determined that it is more
likely than not that the net operating loss carryforwards, except those related
to CareInsite as CareInsite is in the development stage, will be realized.
F-19
<PAGE> 24
MEDICAL MANAGER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
Tax Sharing Agreement
Effective June 16, 1999, CareInsite no longer files a consolidated federal
income tax return with the Company, but will continue to file a combined tax
return with the Company for unitary state income tax purposes. The Company and
CareInsite entered into a tax sharing agreement providing, among other things,
that for periods prior to the Offering and during which CareInsite was included
in the Company's consolidated federal income tax returns, CareInsite will be
required to pay the Company an amount equal to CareInsite's federal income tax
liabilities for these periods, determined as if CareInsite had filed federal
income tax returns on a separate company basis. Additionally, for periods both
before and after the Offering, in situations where CareInsite files a combined
return with the Company for state income tax purposes, such as for California,
CareInsite will be required to pay the Company an amount equal to CareInsite's
state income tax liabilities, determined as if CareInsite had filed state income
tax returns on a separate company basis. If CareInsite experiences a net
operating loss resulting in no federal or state income tax liability for a
taxable period in which it was included in the Company's consolidated federal or
combined state income tax returns, CareInsite will be entitled to a payment from
the Company equal to the reduction, if any, in the federal or state income tax
liability of the Company consolidated group by reason of the use of CareInsite's
net operating loss. Further, under the tax sharing agreement, if CareInsite
receives a net tax benefit for certain equity based compensation arrangements
involving the Company stock, or for the payment by the Company of certain
litigation expenses and damages pursuant to the terms of an indemnification
agreement between CareInsite and the Company, then CareInsite is required to pay
an amount equal to those tax benefits to the Company when they are actually
realized by CareInsite. The tax sharing agreement also provides for the Company
to conduct tax audits and tax controversies on CareInsite's behalf for periods,
and with respect to returns, in which CareInsite is included in the Company
consolidated or combined returns.
8. PENSION AND PROFIT SHARING PLANS
The Company formerly maintained defined benefit pension plans covering certain
of its employees. On May 1, 1998, the Company ceased all benefit accruals under
the plan. During the year ended June 30, 2000, the Company settled all of its
obligations by either a cash settlement paid to employees or the purchase of
annuity contracts on behalf of plan participants. The remaining assets, after
settling all pension plan obligations, reverted back to the Company resulting in
a net gain of $2,246,000, which is included in selling, general and
administrative expense. The change in benefit obligation, change in plan assets
and reconciliation of net periodic pension benefit are as follows-
<TABLE>
<CAPTION>
Year Ended,
June 30, 2000
-------------
<S> <C>
Change in benefit obligation-
Benefit obligation at beginning of year $ 6,088
Service Cost --
Interest Cost 317
Effect of settlement (381)
Benefits paid (6,024)
----------
Benefit obligation at end of year $ --
==========
</TABLE>
F-20
<PAGE> 25
MEDICAL MANAGER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
The following table sets forth the funded status of the plans and amounts
recognized in the Company's consolidated balance sheet (in thousands)-
<TABLE>
<CAPTION>
Year Ended
June 30, 2000
-------------
<S> <C>
Change in plan assets-
Fair value of plan assets at beginning of year $ 9,511
Actual return on plan assets 287
Reversion to Company (3,774)
Benefits paid (6,024)
-------
Fair value of plan assets at end of year $ --
=======
Net periodic pension benefit-
Service cost $ --
Interest cost 317
Expected return on plan assets (473)
Net amortization (119)
-------
Net periodic pension benefit $ (275)
=======
</TABLE>
Assumptions used in the accounting for the Company's defined benefit plans as of
June 30, 2000 were:
<TABLE>
<S> <C>
Discount rate 5.25%
Cost-of-living increase on benefit and pay limits N/A
Expected rate of return on plan assets 5.0%
</TABLE>
The Company maintains defined contribution profit sharing plans covering
substantially all of its employees. Participants must be at least 21 years of
age and have completed one year of service and may contribute up to $10,000 of
their earnings annually. The Company matches 50% of the first 2% and 25% of the
second 4% of participants' earnings that are contributed to the plan. For the
year ended June 30, 2000, the Company issued 17,450 shares of common stock to
the plan and recorded expense of $872,000.
On July 1, 1997, the Company began a qualified 401(k) savings plan (the "Plan")
covering certain MMHS employees meeting certain eligibility requirements. The
Plan permits each participant to reduce his or her taxable compensation basis by
up to 15% and have the amount of such reduction contributed to the Plan. The
Company makes a contribution of 25% of the first 6% of the compensation deferred
by each participant. Salary reduction contributions are immediately vested in
full; matching contributions vest 20% per year over a five year period. During
the year ended June 30, 2000, the Company made contributions of $492,000.
9. STOCK OPTIONS
The Company has various stock option plans ("Plans") for directors, officers and
key employees that provide for non-qualified and incentive stock options.
Generally, options granted become exercisable at a rate of 20% to 25% on each
annual anniversary of the grant. No options may be granted under any of the
Plans after July 21, 2008, and all options expire within ten to fifteen years
from the date of the grant. Generally, options granted under the Plans have an
exercise price equal to 100% of the fair market value of the Company's common
stock on the date of grant. There are 23,730,000 shares reserved for issuance
under these Plans.
In addition to the Plans, the Company has granted options to certain directors,
consultants and key employees. At June 30, 2000, there were 2,206,000 options
granted to these individuals. The terms of these grants are similar to the
Company's non-qualified stock option plans.
F-21
<PAGE> 26
MEDICAL MANAGER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
A summary of the status of the Company's stock option plans for the year ended
June 30, 2000 is presented below (shares in thousands, except for weighted
average exercise price)-
<TABLE>
<CAPTION>
Weighted
Average
Shares Exercise Price
------ ----------------
<S> <C> <C>
Beginning of year 11,893 $35.35
Granted 13,964 $45.29
Exercised (666) $25.88
Cancelled (847) $48.53
------
End of year 24,344 $40.87
------
Exercisable at end of year 5,267
======
</TABLE>
The following table summarizes information with respect to options outstanding
and options exercisable at June 30, 2000 (shares in thousands)-
<TABLE>
<CAPTION>
Options Exercisable Options Outstanding
-------------------------------------------------- ------------------------------
Range of Weighted Weighted
Exercise Weighted Average Average Average
Prices Options Remaining Contractual Exercise Options Exercise
(in dollars) Outstanding Life Price Exercisable Price
--------------- ------------ --------------------- -------- ------------ -----------
<S> <C> <C> <C> <C> <C>
$ 1.25 - $25.00 2,695 5.52 $ 15.06 2,609 $ 14.86
$26.88 - $28.88 6,469 9.90 $ 28.86 88 $ 28.11
$30.00 - $36.88 4,945 8.99 $ 34.52 1,711 $ 34.81
$37.00 - $57.13 5,196 10.02 $ 47.69 680 $ 44.86
$57.25 - $94.13 5,039 9.35 $ 69.29 179 $ 74.67
</TABLE>
CareInsite Stock Option Plans
During the year ended June 30, 1999, CareInsite adopted the CareInsite, Inc.
1999 Officer Stock Option Plan (the "Officer Stock Plan") and the CareInsite,
Inc. 1999 Employee Stock Option Plan (the "Employee Stock Plan"). During the
year ended June 30, 2000, CareInsite adopted the CareInsite, Inc. 1999 Director
Stock Option Plan (the "Director Plan") and the CareInsite, Inc. 1999 Vendor
Stock Option Plan (the "Vendor Plan"). All four plans are collectively referred
to as the "CareInsite Plans." The maximum number of shares of CareInsite common
stock that will be subject to options under the Officer Stock Plan, the Employee
Stock Plan, the Director Plan and the Vendor Plan are 4,000,000; 4,500,000;
500,000, and 57,200, subject to adjustment in accordance with the terms of the
Plans. The options under the Officer Stock Plan and the Employee Stock Plan vest
40% at the end of a thirty month period following the date of grant, and the
remainder vests in increments of 20% at the end of each subsequent twelve month
period, with the options being fully vested sixty-six months from the date of
grant. The options under the Director Plan vest 20% on each of the first five
successive anniversaries of the date of grant, provided that no option shall
become vested and exercisable prior to December 15, 2001. The options under the
Vendor Plan vest 100% on the second anniversary of the date of grant. Generally,
options granted under the CareInsite Plans have an exercise price equal to 100%
of the fair market value of CareInsite's common stock on the date of the grant.
The options granted under the Officer Stock Plan and the Employee Stock Plan
expire ten years after the date of grant. The options granted under the Director
Plan and Vendor Plan expire fifteen years and one year after the date of grant,
respectively. During the year ended June 30, 2000, CareInsite granted options to
purchase an aggregate of 3,852,600 shares of its common stock at a weighted
average exercise price of $44.66. None of these options are exercisable at June
30, 2000.
F-22
<PAGE> 27
MEDICAL MANAGER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
The Company has elected to follow APB No. 25 in accounting for its employee
stock options. Accordingly, no compensation cost has been recognized for the
Company's and CareInsite's option plans had the determination of compensation
costs for these plans been based on the fair value at the grant dates for awards
under these plans, consistent with the method of SFAS No. 123, the Company's net
loss and basic and diluted loss per share, on a pro forma basis, would have been
as follows (in thousands, except per share data)-
<TABLE>
<S> <C>
Net loss $ (91,567)
==========
Basic and diluted loss per share $ (2.43)
==========
</TABLE>
The pro forma results indicated above are not intended to be indicative of or a
projection of future results.
The fair value of each option grant of the Company is estimated on the date of
grant by using the Black-Scholes option-pricing model. The following weighted
average assumptions were used-
<TABLE>
<S> <C>
Expected dividend yield 0%
Expected volatility .6193
Risk-free interest rates 6.3%
Expected option lives (years) 0.5-1.5
Weighted average fair value of options granted during the year $22.73
</TABLE>
The fair value of each CareInsite option grant is estimated on the date of grant
by using the Black-Scholes option-pricing model. The following weighted average
assumptions were used-
<TABLE>
<S> <C>
Expected dividend yield 0%
Expected volatility .6889
Risk-free interest rates 6.3%
Expected option lives (years) 0.5-1.5
Weighted fair value of options granted during the year $26.48
</TABLE>
10. COMMITMENTS AND CONTINGENCIES
Leases
The Company leases office and warehouse space, equipment and automobiles under
various noncancellable operating leases. Certain facilities leased by MMHS are
leased under operating leases from entities owned by certain stockholders. These
leases expire between the years 2001 and 2004. Rental expense was $9,561,000 for
the fiscal year ended June 30, 2000, of which $627,000 was paid to these
stockholders.
The minimum aggregate rental commitments under noncancellable leases, excluding
renewal options, are as follows (in thousands)-
<TABLE>
<S> <C>
Years Ending June 30,
2001 $ 11,598
2002 9,103
2003 6,346
2004 5,064
2005 2,044
Thereafter 6,701
</TABLE>
F-23
<PAGE> 28
MEDICAL MANAGER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
Legal proceedings
In the normal course of business, the Company is involved in various claims and
legal proceedings. While the ultimate resolution of these matters has yet to be
determined, the Company does not believe that their outcome will have a material
adverse effect on its financial position.
On February 18, 1999, Merck & Co., Inc. ("Merck") and Merck-Medco Managed Care,
L.L.C. ("Merck-Medco") filed a complaint in the Superior Court of New Jersey
against the Company, CareInsite, Martin J. Wygod, Chairman of the Company, and
Paul C. Suthern, Roger C. Holstein and Charles A. Mele, officers and/or
directors of the Company. Merck and Merck-Medco asserted that the Company,
CareInsite and the individual defendants were in violation of certain
non-competition, non-solicitation and other agreements. The complaint sought to
enjoin the Company, CareInsite, and the individual defendants from conducting
the Company's healthcare e-commerce business and from soliciting Merck-Medco's
customers. A hearing was held on March 22, 1999 on the plaintiffs' application
for a preliminary injunction. On April 15, 1999, the Superior Court denied that
application. In March 2000, the Superior Court ruled in favor of the Company,
CareInsite and Messrs. Wygod, Suthern, Holstein and Mele entered an order
dismissing with prejudice all of the plaintiffs' claims. The Court's orders
terminate Merck's and Merck-Medco's right to seek any claim for injunctive
relief or damages arising out of the Company's and CareInsite's activities to
deploy its healthcare e-commerce services. The Company's and CareInsite's
counterclaims against Merck and Merck-Medco are still pending.
The Company has recorded $1,950,000 in litigation costs associated with the
Merck and Merck-Medco litigation in the fiscal year ended June 30, 2000.
On March 14, 2000, CareInsite was served with a summons in a lawsuit which was
filed on February 17, 2000 against CareInsite, the Company and certain of their
officers and directors, among other parties, in the New Jersey Superior Court,
Chancery Division, in Bergen County. The plaintiff purported to be a holder of
CareInsite common stock. The lawsuit, captioned Ina Levy, et al. vs. Martin J.
Wygod, et al. purported to bring an action on behalf of the plaintiff and others
similarly situated. The plaintiff alleged that the defendants breached their
fiduciary duties in that the proposed Merger favored the interests of the
Company and its shareholders over the interests of CareInsite's minority
shareholders. The plaintiff also alleged that the proposed Merger provided the
defendants and other shareholders of the Company with a premium which exceeds
the premium provided to CareInsite's minority shareholders. The lawsuit sought,
among other things, an injunction prohibiting the proposed Merger unless certain
mechanisms were implemented by CareInsite, as well as plaintiff's costs and
disbursements. Prior to the consummation of the Merger on September 12, 2000,
the parties entered into a Memorandum of Understanding that reflects the terms
of settlement, subject to court approval, and that will resolve the matter. The
parties intend to present the settlement to the court on October 27, 2000.
Porex has been named as one of many co-defendants in a number of actions brought
by recipients of silicone mammary implants. One of the pending claims is styled
as a purported class action. Certain of the actions against Porex have been
dismissed or settled by the manufacturer or insurance carriers of Porex without
material cost to Porex. The Company believes its insurance coverage provides
adequate coverage against liabilities that could arise from actions or claims
arising out of Porex's distribution of implants.
A class action lawsuit was brought against the Company alleging Year 2000 issues
regarding The Medical Manager software in versions prior to Version 9.0. Seven
additional lawsuits were also brought against the Company, each purporting to
sue on behalf of those similarly situated and raising essentially the same
issues. In March 1999, the Company entered into an agreement to settle the class
action lawsuit, as well as five of the seven other similar cases. The settlement
created a settlement class of all purchasers of Version 7 and 8 and upgrades to
Version 9 of The Medical Manager software, and released the Company from Year
2000 claims arising out of the sales of these versions of the Company's product.
Under the terms of the settlement, Version 8.12, containing the Company's
Version of 8.11 software with a Year 2000 patch, will be licensed without a
license fee to Version 7 and 8 users who participate in the settlement. In
addition, the settlement also provided that participating users who purchased a
Version 9 upgrade will have the option to obtain one of four optional modules
from the Company without a license fee, or to elect to take a share of a
settlement cash fund. The settlement required the Company to make a cash
F-24
<PAGE> 29
MEDICAL MANAGER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
payment of $1,455,000. Pursuant to the settlement, the Company was released from
liability due to the Year 2000 non-compliance of Versions 7 and 8 by all users
of Versions 7 and 8 except 27 users who opted-out of the class settlement and
could potentially still bring lawsuits against the Company.
The Company has received notice of a lawsuit which was filed against the Company
and certain of its officers and directors, among other parties, on October 23,
1998 in the United States District Court for the Middle District of Florida. The
lawsuit, styled George Ehlert, et al. vs. Michael A. Singer, et al., purports to
bring an action on behalf of the plaintiffs and others similarly situated to
recover damages for alleged violations of the federal securities laws and
Florida laws arising out of the Company's issuance of allegedly materially false
and misleading statements concerning its business operations, including the
development and sale of its principal product, during the class period. An
amended complaint was served on March 2, 1999. The amended complaint was
dismissed on a motion to dismiss but this dismissal is currently being appealed.
The lawsuit seeks, among other things, compensatory damages in favor of the
plaintiffs and the other purported class members and reasonable costs and
expenses. The Company believes that this lawsuit is without merit and intends to
vigorously defend against it.
Indemnification Agreement
The Company and CareInsite entered into an indemnification agreement, under the
terms of which CareInsite will indemnify and hold harmless the Company, on an
after tax basis, with respect to any and all claims, losses, damages,
liabilities, costs and expenses that arise from or are based on the operations
of the business of CareInsite before or after the Offering. Similarly, the
Company will indemnify and hold harmless CareInsite, on an after tax basis, with
respect to any and all claims, losses, damages, liabilities, costs and expenses
that arise from or are based on the operations of the Company other than the
business of CareInsite before or after the Offering. With respect to the Merck
litigation, this agreement provides that the Company will bear both the actual
costs of conducting the litigation and any monetary damages that may be awarded
to Merck and Merck-Medco in the litigation. The agreement further provides that
any damages awarded to the Company and CareInsite in the litigation will be for
the account of the Company. Finally, the agreement provides that the Company
shall not be responsible for any losses suffered by CareInsite resulting from
any equitable relief obtained by Merck-Medco against CareInsite, including, but
not limited to, any lost profits, other losses, damages, liabilities, or costs
or expenses arising from such equitable relief.
11. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial instruments is
made in accordance with the requirements of Statement of Financial Accounting
Standards No. 107, "Disclosures about Fair Value of Financial Instruments." The
Company, using available market information, has determined the estimated fair
value amounts. However, considerable judgment is required in interpreting market
data to develop the estimates of fair value. Accordingly, the estimates
presented herein are not necessarily indicative of the amounts that the Company
could realize in a current market exchange. The use of different market
assumptions and/or estimation methodologies may have a material effect on the
estimated fair value amounts.
<TABLE>
<CAPTION>
At June 30, 2000
--------------------------
Carrying Estimated
Amount Fair Value
---------- -----------
(in thousands)
<S> <C> <C>
Assets-
Cash and cash equivalents $ 67,268 $ 67,268
Marketable securities 295,484 291,311
Liabilities-
Long-term debt 12,276 12,276
</TABLE>
F-25
<PAGE> 30
MEDICAL MANAGER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
Cash and Cash Equivalents
The carrying amounts of these items are a reasonable estimate of their fair
value.
Marketable Securities
Marketable securities, consisting primarily of publicly-traded U.S. Treasury
Notes and Federal Agency Notes, are valued based on quoted market prices or
dealer quotes.
Long-term Debt
The carrying amounts of long-term debt are a reasonable estimate of their fair
value.
The fair value estimates presented herein are based on information available to
the Company as of June 30, 2000. Although the Company is not aware of any
factors that would significantly affect the estimated fair value amounts, such
amounts have not been revalued since that date, and current estimates of fair
value may differ significantly from the amounts presented herein.
12. SUPPLEMENTAL CASH FLOW INFORMATION (in thousands)
<TABLE>
<CAPTION>
Year Ended
June 30, 2000
--------------
<S> <C>
Interest paid $ 4,631
Income taxes paid 4,345
Issuance of warrants by CareInsite to dealers 555
</TABLE>
Additional information with respect to the acquisitions is as follows (in
thousands):
<TABLE>
<CAPTION>
Year Ended
June 30, 2000
--------------
<S> <C>
Net cash paid $ 68,678
Value of stock issued 77,937
Liabilities assumed 165,951
--------------
Fair value of assets acquired $ 312,566
==============
</TABLE>
13. SEGMENT REPORTING
The accounting policies of the reportable segments are described in Note 1 to
the consolidated financial statements. The Company evaluates the performance of
its operating segments based on pre-tax income. Summarized financial information
concerning the Company's reportable segments is shown in the following table (in
thousands)-
F-26
<PAGE> 31
<TABLE>
<CAPTION>
Plastics and
Physician Filtration Corporate
Services Technologies and Other Total
---------- ------------- ------------ -----------
<S> <C> <C> <C> <C>
Fiscal 2000
Net revenues $ 245,311 $ 122,737 $ -- $ 368,048
Cost of revenues 136,213 59,046 -- 195,259
Selling, general and administrative 96,894 22,822 10,906 130,622
Research and development 33,041 3,123 -- 36,164
Minority interest in CareInsite (15,027) -- -- (15,027)
Litigation costs 1,950 -- -- 1,950
Merger costs 14,855 -- 9,857 24,712
--------- --------- --------- -----------
Earnings before interest and other income, taxes,
depreciation and amortization (22,615) 37,746 (20,763) (5,632)
Depreciation and amortization (37,713) (10,218) (973) (48,904)
Gain (loss) on sale of investments 24,887 -- -- 24,887
Interest and other income, net 7,115 2,437 10,613 20,165
--------- --------- --------- -----------
Income (loss) before provision for income taxes $ (28,326) $ 29,965 $ (11,123) $ (9,484)
========= ========= ========= ===========
Capital expenditures, net $ 17,163 $ 8,136 $ 274 $ 25,573
========= ========= ========= ===========
Total assets $ 518,005 $ 250,954 $ 259,806 $ 1,028,765
========= ========= ========= ===========
</TABLE>
The following table represents revenues by region based on the location of the
use of the product (in thousands)-
<TABLE>
<S> <C>
United States $ 335,705
Europe 19,147
Asia 8,594
All Other 4,602
------------
$ 368,048
============
</TABLE>
For the fiscal year ended June 30, 2000, no customer accounted for more than 10%
of the Company's net revenues.
The following table represents assets by region (in thousands)-
<TABLE>
<S> <C>
United States $ 1,017,319
Europe 11,446
--------------
$ 1,028,765
==============
</TABLE>
F-27
<PAGE> 32
WEBMD CORPORATION
UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL INFORMATION
The following unaudited pro forma condensed combined financial
information is presented herein:
- unaudited pro forma condensed combined statements of operations
for the year ended December 31, 1999 and nine months ended
September 30, 2000 reflecting the Medical Manager and CareInsite
mergers
- unaudited pro forma condensed combined statements of operations of
WebMD for the year ended December 31, 1999 and nine months ended
September 30, 2000 reflecting the November 1999 acquisitions of
WebMD, Inc., MedE America Corporation and Greenberg News Networks,
Inc., which is referred to as Medcast, the January 2000
acquisition of Kinetra LLC, the May 2000 acquisition of Envoy
Corporation and the January 2000 strategic alliance with The News
Corporation Limited, Fox Entertainment Group and some of their
affiliates, which are collectively referred to as News Corporation
- unaudited pro forma condensed combined statements of operations of
Medical Manager and CareInsite for the year ended December 31,
1999 and nine months ended September 30, 2000 reflecting the March
30, 2000 acquisition of certain assets of Physician Computer
Network.
The following unaudited pro forma condensed combined financial
information does not include unaudited pro forma condensed combined balance
sheets for any of the transactions described herein because historical balance
sheets which include the effects of these transactions have previously been
filed.
The historical financial information has been derived from the
respective historical financial statements of WebMD and Medical Manager, which
contains the historical financial information of Medical Manager's wholly owned
subsidiaries and its majority-owned subsidiary, CareInsite. Because of the
September 28, 2000 announcement of the WebMD board of directors' approval of a
plan to dispose of Porex Corporation and other plastics and filtration
subsidiaries ("Porex"), the results of operations of Porex have been excluded
from Medical Manager's results of operations for all periods presented.
The unaudited pro forma condensed combined statements of operations
combine the historical statements of operations of WebMD and Medical Manager,
which contains the statements of operations of Medical Manager's wholly owned
subsidiaries and its majority-owned subsidiary, CareInsite, and give effect to
the mergers, including the amortization of goodwill and other intangible assets
resulting from the mergers, as if they occurred on January 1, 1999. Medical
Manager's fiscal year end is June 30, and its financial information has been
presented on a December 31 calendar-year basis to conform to WebMD's December 31
fiscal year end. The unaudited pro forma condensed combined statement of
operations for the year ended December 31, 1999 combines the unaudited pro forma
consolidated statement of operations of WebMD for the year ended December 31,
1999, after giving effect to the November 1999 mergers with WebMD, Inc., MedE
America and Medcast, the January 2000 acquisition of Kinetra and strategic
alliance with News Corporation and the May 2000 acquisition of Envoy, and the
unaudited pro forma consolidated statement of operations of Medical Manager for
the twelve months ended December 31, 1999, after giving effect to the March 2000
acquisition of certain assets of Physician Computer Network. The unaudited pro
forma condensed combined statement of operations for the nine months ended
September 30, 2000 combines the unaudited pro forma combined condensed statement
of operations of WebMD for the nine months ended September 30, 2000, after
giving effect to the May 2000 acquisition of Envoy, and the unaudited pro forma
consolidated statement of operations of Medical Manager for the nine months
ended September 30, 2000, after giving effect to the March 2000 acquisition of
certain assets of Physician Computer Network.
The unaudited pro forma condensed combined information is presented for
illustrative purposes only and is not indicative of the operating results or
financial position that would have actually occurred if the mergers, either
individually or combined, had been consummated as of the dates indicated, nor is
it necessarily indicative of the future operating results or financial position
of the combined company.
PF-1
<PAGE> 33
WEBMD CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINED
WITH MEDICAL MANAGER AND CAREINSITE
STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999
---------------------------------------------------------------------
WEBMD MEDICAL MANAGER
PRO FORMA PRO FORMA
COMBINED COMBINED PRO FORMA PRO FORMA
(I) (II) (8) ADJUSTMENTS COMBINED
------------- --------------- -------------- -------------
<S> <C> <C> <C> <C>
Revenue ................................... $ 416,014 $ 286,533 $ (6,174) (4) $ 696,373
Operating costs and expenses:
Cost of operations ..................... 271,673 164,440 $ (6,174) (4) 429,939
Development and engineering ............ 81,507 24,441 -- 105,948
Selling, general and administrative .... 309,911 102,786 30,448 (1) 443,145
Litigation expenses .................... -- 5,400 -- 5,400
Merger and related costs ............... 10,563 17,991 -- 28,554
Non-cash equity transfer ............... 29,216 -- -- 29,216
Depreciation and amortization .......... 2,221,059 26,525 (23,013) (3) 3,014,960
790,389 (1)
Interest and other income, net ......... 7,865 15,164 (1,001) (7) 22,028
Gain on sale of investments ............ -- 24,887 (25,511) (6) (624)
Income taxes ........................... -- 1,554 9,956 (5) 11,510
Dividends on preferred stock ........... (139,525) -- -- (139,525)
Extraordinary Loss ..................... (2,198) -- -- (2,198)
Accretion of redeemable warrants to
redemption value ..................... (538) -- -- (538)
------------ ------------ ------------ ------------
Net loss applicable to common
stockholders ............................ $ (2,642,311) $ (13,445) $ (814,380) $ (3,470,136)
============ ============ ============ ============
Basic and diluted net loss per common
share.................................... $ (13.81) $ (10.65)
============ ============
Weighted-average shares outstanding
used in computing basic and diluted
net loss per common share ............... 191,350 134,607 (2) 325,957
============ ============ ============
</TABLE>
------------------
(i) Reflects the mergers of WebMD, Inc., MedE America and Medcast with WebMD in
November 1999, WebMD's January 2000 acquisition of Kinetra and strategic
alliance with News Corporation, the May 2000 acquisition of Envoy, and all
pro forma adjustments associated with these transactions. See PF-5 for
detailed information on WebMD pro forma condensed combined statement of
operations.
(ii) Includes the consolidated statements of operations of Medical Manager, its
wholly owned subsidiaries and its majority-owned subsidiary, CareInsite,
the acquisition by Medical Manager of Physician Computer Network on March
30, 2000 and all pro forma adjustments associated with this transaction.
Excludes the operations of Medical Manager's wholly owned subsidiary,
Porex. See PF-10 for detailed information on Medical Manager pro forma
condensed combined statement of operations.
See accompanying notes.
PF-2
<PAGE> 34
WEBMD CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINED
WITH MEDICAL MANAGER AND CAREINSITE
STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 2000
-----------------------------------------------------------------
MEDICAL
WEBMD MANAGER
PRO FORMA PRO FORMA
COMBINED COMBINED PRO FORMA PRO FORMA
(I) (II) (8) ADJUSTMENTS COMBINED
----------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
Revenue ................................... $ 409,379 $ 189,953 $ (2,601) (4) $ 596,731
Operating costs and expenses:
Cost of operations ..................... 289,678 116,478 (8) (2,601) (4) 403,555
Development and engineering ............ 45,536 29,898 (8) -- 75,434
Selling, general and administrative .... 381,018 97,343 21,314 (1) 499,675
Depreciation and amortization .......... 1,687,078 52,449 (52,449) (3) 2,249,170
562,092 (1)
Merger and restructuring ............... 44,881 -- -- 44,881
Interest and other income, net ......... (2,674) 36,665 (23,179) (7) 10,812
Income taxes ........................... -- 4,642 (4,642) (5) --
----------- ----------- ----------- -----------
Net loss applicable to common
stockholders ............................ $(2,041,486) $ (64,908) $ (542,687) $(2,665,172)
----------- ----------- ----------- -----------
Basic and diluted net loss per common
share ................................... $ (9.04) $ (7.58)
=========== ===========
Weighted-average shares outstanding
used in computing basic and diluted
net loss per common share ............... 225,906 125,633 (2) 351,540
=========== =========== ===========
</TABLE>
------------------
(i) Reflects WebMD's May 2000 acquisition of Envoy and all pro forma
adjustments associated with this transaction. See PF-5 for detailed
information on WebMD pro forma condensed combined statement of operations.
(ii) Includes the consolidated statements of operations of Medical Manager, its
wholly owned subsidiaries and its majority-owned subsidiary, CareInsite,
the acquisition by Medical Manager of Physician Computer Network on March
30, 2000 and all pro forma adjustments associated with this transaction.
Excludes the operations of Medical Manager's wholly owned subsidiary,
Porex. See PF-10 for detailed information on Medical Manager pro forma
condensed combined statement of operations.
See accompanying notes.
PF-3
<PAGE> 35
WEBMD CORPORATION
NOTES TO THE UNAUDITED PRO FORMA CONDENSED
COMBINED WITH MEDICAL MANAGER AND CAREINSITE
FINANCIAL INFORMATION
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The total purchase price of the Medical Manager and CareInsite mergers
have been allocated on a preliminary basis to assets and liabilities based on
management's estimate of their fair values. The excess of the purchase prices
over the fair value of the net assets acquired has been allocated to goodwill
and other intangible assets. Although the purchase prices and their allocation
are not final, it is anticipated that a portion of the purchase prices will be
allocated to assembled workforce, strategic relationships, contracts,
trademarks, customer lists and relationships and technology. These allocations
are subject to change pending the completion of the final analysis of the total
purchase prices and fair values of the assets acquired and liabilities assumed.
The impact of any of these changes could be material.
Reclassifications have been made to the historical financial statements
to conform to the presentation of the merged companies.
The adjustments to the unaudited pro forma condensed combined statement
of operations for the year ended December 31, 1999 and the nine months ended
September 30, 2000 assume the mergers occurred as of January 1, 1999 and are as
follows:
(1) To reflect the amortization of goodwill, deferred stock
compensation, and other intangible assets resulting from the
mergers. The goodwill is being amortized over three years and
other intangible assets are being amortized over periods of
approximately ten to fifteen years. The deferred stock
compensation is being amortized over the vesting period of the
related stock options of approximately five years.
(2) Basic and diluted net loss per share have been adjusted to
reflect the issuance of approximately 134.6 million shares of
WebMD's common stock as if the shares had been outstanding for
the entire periods presented. Stock options and warrants
assumed in the mergers have not been included as their
inclusion would be anti-dilutive.
(3) To eliminate amortization related to historical intangible
assets of the acquired companies.
(4) To eliminate intercompany revenue and cost of operations.
(5) To eliminate income tax expense as a result of pro forma
consolidated loss.
(6) To eliminate the gain on sale of WebMD common stock by Medical
Manager.
(7) To eliminate the minority interest in CareInsite's net loss.
(8) The Medical Manager pro forma combined financial information
includes its majority-owned subsidiary CareInsite.
PF-4
<PAGE> 36
WEBMD CORPORATION
UNAUDITED PRO FORMA CONDENSED STATEMENTS OF OPERATIONS FOR
WEBMD CORPORATION COMBINED WITH WEBMD, INC., MEDE AMERICA, MEDCAST,
THE NEWS CORPORATION STRATEGIC ALLIANCE, KINETRA AND ENVOY
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The following unaudited pro forma condensed combined statements of
operations for the year ended December 31, 1999 and nine months ended September
30, 2000 reflect WebMD's acquisitions of WebMD, Inc, MedE America, Medcast,
Kinetra and Envoy and the completion of its strategic alliance with News
Corporation as if the acquisitions and strategic alliance had been completed on
January 1, 1999. The unaudited pro forma condensed combined statements of
operations for the nine months ended September 30, 2000 do not reflect the
historical operations of Kinetra and the strategic alliance with News
Corporation prior to acquisition as these results were not material. The
following unaudited pro forma condensed combined statements of operations also
give effect to reclassifications to the unaudited historical financial
statements to conform the presentation of the historical operations of the
merged companies. The following is a brief description of the acquisitions and
strategic alliance:
- In November 1999, WebMD merged with WebMD, Inc., exchanging
1.796 shares of its common stock valued at $34.48 per share
for each share of WebMD, Inc. outstanding capital stock in a
transaction accounted for as a purchase. The total purchase
consideration was approximately $3,659,921 and resulted in
goodwill of $2,944,804, which is being amortized over three
years, and approximately $196,307 of intangible assets related
to WebMD, Inc.'s acquired technology, customer lists,
trademarks and other intangibles.
- In November 1999, WebMD acquired MedE America, exchanging
0.7494 shares of its common stock valued at $37.31 per share
for each share of MedE America outstanding capital stock in a
transaction accounted for as a purchase. The total purchase
consideration was approximately $417,292 and resulted in
goodwill of $324,983, which is being amortized over four
years, and approximately $105,545 of intangible assets related
to MedE America's customer lists, trademarks and acquired
technology.
- In November 1999, WebMD acquired Medcast, exchanging 2,692,501
shares or options to purchase shares of its common stock
valued at $40.10 per share and approximately $2,336 in cash
for all Medcast outstanding capital stock in a transaction
accounted for as a purchase. The total purchase consideration
was approximately $112,953 and resulted in goodwill of
approximately $109,755, which is being amortized over three
years, and intangible assets of approximately $17,700 related
to Medcast's customer lists, trademarks and acquired
technology.
- In January 2000, WebMD completed the transactions contemplated
by its strategic alliance agreement with News Corporation.
Under this strategic partnership, News Corporation became one
of WebMD's minority stockholders. The financial terms of the
strategic partnership include: $700,000 in media branding
services by News Corporation, comprised of $400,000
domestically and $300,000 internationally over 10 years; a
$100,000 cash investment commitment by News Corporation in an
international joint venture; a $60,000 five-year licensing
agreement for syndication of WebMD daily broadcast content;
and the transfer to WebMD of 50% interests in the Health
Network, a health-focused cable network, and
thehealthnetwork.com.
WebMD issued an aggregate of 155,951 shares of Series A
preferred stock, which shares vote on an as-if-converted basis
with its common stock, in consideration for those assets
listed above. Assuming conversion of all of the shares of
Series A preferred stock, the holders of these shares will
receive approximately 21.3 million shares of WebMD common
stock. These shares are subject to restrictions on their sale
for three years from the date of the initial issuance of the
Series A preferred stock. In addition, affiliates of News
Corporation purchased 2.0 million shares of WebMD common stock
for an aggregate purchase price of $100,000 in cash.
PF-5
<PAGE> 37
- In January 2000, WebMD acquired Kinetra, exchanging 7,437,248
shares of WebMD's common stock valued at $38.49 per share for
all of Kinetra's membership interests in a transaction
accounted for as a purchase. The total purchase consideration
was approximately $290 million and resulted in goodwill and
other intangibles of $270 million, which is being amortized
over three years.
- In May 2000, WebMD acquired Envoy, a subsidiary of Quintiles
Transnational Corp., for 35,000,000 shares of WebMD's common
stock valued at $57.79 per share and $400 million in cash in a
transaction accounted for as a purchase. The total purchase
consideration was approximately $2.5 billion and resulted in
goodwill and other intangibles of $2.4 billion, which are
being amortized over three years.
PF-6
<PAGE> 38
WEBMD CORPORATION
--------------------------------------------------------------------------------
WEBMD CORPORATION UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NEWS
WEBMED, Inc. MEDE CORPORATION
WEBMD (A) AMERICA(A) MEDCAST(A) (A) KINETRA(A) ENVOY(A)
--------- ------------ ---------- ----------- ----------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue .............................. $ 102,149 $ 16,579 $ 51,662 $ 211 $ 7,967 $ 18,661 $219,909
Operating costs and expenses:
Cost of operations ................. 88,576 3,362 20,050 13,016 26,055 22,969 98,769
Development and engineering ........ 29,669 36,676 4,189 1,130 -- 8,675 1,168
Sales and marketing expense ........ 54,556 104,853 12,409 12,041 8,001 4,024 15,353
General and administrative ......... 27,759 25,015 6,039 5,184 3,319 3,276 28,082
Merger and related costs ........... -- -- 1,507 -- -- -- 9,056
Non-cash stock compensation ........ -- 29,216 -- -- -- -- --
Depreciation and amortization ...... 193,067 16,257 8,034 795 2,513 3,236 19,237
Interest and other income, net ..... 3,486 4,407 (1,279) 230 (515) 1,472 64
Income taxes ....................... -- -- -- -- -- -- (23,640)
Dividends on preferred stock ....... -- (139,281) (244) -- -- -- --
Extraordinary loss ................. -- -- (2,198) -- -- -- --
Accretion of redeemable
warrants and preferred
stock to redemption value ........ -- (538) -- (58,539) -- -- --
-------- --------- -------- -------- -------- -------- --------
Net income (loss) applicable
to common stockholders ............. $(287,992) $(334,212) $ (4,287) $(90,264) $(32,436) $(22,047) $ 24,668
========= ========= ======== ======== ======== ======== ========
Basic and diluted net loss
per common share ................... $ (3.58)
=========
Weighted-average shares
outstanding used in
computing basic and diluted
net loss per common share .......... 80,367
========
<CAPTION>
WEBMD, INC. MEDE MEDCAST NEWS KINETRA ENVOY
PRO FORMA PRO FORMA PRO FORMA PRO FORMA PRO FORMA PRO FORMA PRO FORMA
ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS COMBINED
------------ ------------ ----------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Revenue ............................. $ -- (515)(6) $ -- $ -- $ -- $ (609) $ 416,014
Operating costs and expenses:
Cost of operations ................ -- (609)(6) -- -- -- (515)(6) 271,673
Development and engineering ....... -- -- -- -- -- -- 81,507
Sales and marketing expense ....... -- -- -- -- -- -- 211,237
General and administrative ........ -- -- -- -- -- -- 98,674
Merger and related costs .......... -- -- -- -- -- -- 10,563
Non-cash stock compensation ....... -- -- -- -- -- -- 29,216
Depreciation and amortization...... (14,031)(2) (3,952)(2) 37,929(1) 51,745(1) (3,236)(2) (11,710)(2) 2,221,059
917,137(1) 120,021(1) 89,945(1) 794,072(1)
Interest and other income, net .... -- -- -- -- -- -- 7,865
Income taxes ...................... -- -- -- -- -- 23,640(5) --
Dividends on preferred stock ...... -- -- -- -- -- -- (139,525)
Extraordinary loss ................ -- -- -- -- -- -- (2,198)
Accretion of redeemable
warrants and preferred
stock to redemption value ....... -- -- 58,539(4) -- -- -- (538)
--------- --------- ------- -------- -------- --------- -----------
Net income (loss) applicable
to common stockholders............. $(903,106) $(115,975) $20,610 $(51,745) $(86,709) $(758,816) $(2,642,311)
========= ========= ======= ======== ======== ========= ===========
Basic and diluted net loss per
common share....................... $ (13.81)
===========
Weighted-average shares outstanding
used in computing basic and
diluted net loss per common
share ............................. 55,350(3) 9,007(3) 2,189(3) 2,000(3) 7,437(3) 35,000(3) 191,350
========= ========= ======= ======= ========= ========= ===========
</TABLE>
See accompanying notes
PF-7
<PAGE> 39
WEBMD CORPORATION
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
ENVOY
HISTORICAL HISTORICAL PRO FORMA PRO FORMA
WEBMD ENVOY (A) ADJUSTMENTS (6) COMBINED
------------- ------------ ---------------- --------------
<S> <C> <C> <C> <C>
Revenue ............................................... $ 318,202 $ 94,177 $ (3,000) (7) $ 409,379
Operating costs and expenses:
Cost of operations ................................. 246,462 46,216 (3,000) (7) 289,678
Development and engineering ........................ 45,233 303 -- 45,536
Selling, general and administrative ................ 362,626 18,392 -- 381,018
General and administrative
Depreciation and amortization ...................... 1,352,866 6,513 (3,164) (2) 1,687,078
330,863 (1)
Merger and restructuring ........................... 44,881 -- -- 44,881
Interest and other income, net ..................... (2,827) 153 -- (2,674)
Income taxes ....................................... (6,179) 6,179 (5) --
------------ ----------- ------------- -----------
Net income (loss) applicable to common stockholders.... $ (1,736,693) $ 16,727 $ (321,520) (2,041,486)
============ =========== ============= -----------
Basic and diluted net loss per common share ........... $ (8.41) (9.04)
============ ===========
Weighted-average shares outstanding used in
computing basic and diluted net loss per
common share ....................................... 206,462 19,444 (3) 225,906
============ ============= ===========
</TABLE>
See accompanying notes.
PF-8
<PAGE> 40
WEBMD CORPORATION
--------------------------------------------------------------------------------
NOTES TO THE UNAUDITED PRO FORMA CONDENSED STATEMENTS OF OPERATIONS
FOR WEBMD CORPORATION COMBINED WITH WEBMD, INC., MEDE AMERICA, MEDCAST,
THE NEWS CORPORATION STRATEGIC ALLIANCE, KINETRA AND ENVOY
The adjustments to the unaudited pro forma condensed combined statements of
operations for the nine months ended September 30, 2000 and year ended December
31, 1999 assume the mergers occurred as of January 1, 1999 and are as follows:
(A) The historical results of operations only include periods
prior to acquisition by WebMD.
(1) To reflect the amortization of goodwill and other intangible
assets resulting from the mergers. The goodwill and other
intangible assets are being amortized over periods of
approximately three to five years. Currently, management does
not anticipate that any significant value will be attributed
to purchased in-process research and development.
(2) To reflect the elimination of amortization related to
historical intangible assets of the acquired companies.
(3) Basic and diluted net loss per share have been adjusted to
reflect the issuance of WebMD's common stock as if the shares
had been outstanding for the entire periods presented. The
effects of stock options and warrants assumed and preferred
stock issued in the mergers have not been included as their
inclusion would be anti-dilutive.
(4) To reflect the reversal of accretion on redeemable preferred
stock that was forfeited by redeemable preferred stockholders
upon the completion of the Medcast merger.
(5) To eliminate income tax expense as a result of pro forma
consolidated loss.
(6) To eliminate intercompany revenue and cost of operations.
PF-9
<PAGE> 41
UNAUDITED PRO FORMA CONDENSED STATEMENTS OF OPERATIONS OF MEDICAL
MANAGER COMBINED WITH PHYSICIAN COMPUTER NETWORK
The following unaudited pro forma condensed combined statements of
operations for the year ended December 31, 1999 and nine months ended September
30, 2000 reflect the acquisition of certain assets of Physician Computer Network
on March 30, 2000 for a purchase price of $60 million, including forgiveness of
$7 million of outstanding loans made by Medical Manager to Physician Computer
Network, plus the assumption of certain liabilities. The acquisition is
considered a taxable transaction for federal, state and local income tax
purposes.
The Medical Manager unaudited pro forma combined condensed consolidated
statements of operations have been presented as if the Physician Computer
Network acquisition had been consummated on January 1, 1999. For purposes of
combining Medical Manager's historical financial data with Physician Computer
Network's historical financial data in the unaudited pro forma combined
condensed consolidated statement of operations, the unaudited financial data of
Medical Manager for the twelve months ended December 31, 1999 has been combined
with audited financial data of Physician Computer Network for the twelve months
ended December 31, 1999.
PF-10
<PAGE> 42
MEDICAL MANAGER CORPORATION
--------------------------------------------------------------------------------
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1999
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
MEDICAL PHYSICIAN
MANAGER COMPUTER
CORPORATION NETWORK PRO FORMA PRO FORMA
HISTORICAL (A) HISTORICAL ADJUSTMENTS COMBINED
--------------- ----------- ---------------- ---------
<S> <C> <C> <C> <C> <C>
Revenue .................................. $ 218,250 $ 68,823 $ (540) (1) $ 286,533
Operating costs and expenses:
Cost of operations .................... 116,382 48,598 (540) (1) 164,440
Development and engineering ........... 20,478 3,963 -- 24,441
Selling, general and administrative.... 83,313 19,473 -- 102,786
Litigation expenses ................... 5,400 23,400 (23,400) (2) 5,400
Merger and related costs .............. 17,991 -- -- 17,991
Depreciation and amortization ......... 10,155 6,189 (4,719) (3) 26,525
14,900 (4)
--------- --------- --------- ---------
Total operating costs and expenses.. 253,719 101,623 (13,759) 341,583
--------- --------- --------- ---------
Loss from operations ..................... (35,469) (32,800) 13,219 (55,050)
Interest and other income, net ........... 13,419 13,009 (1,426) (5) 15,164
(9,838) (6)
Gain on sale of investments .............. 24,887 -- 24,887
Income taxes ............................. (2,964) (125) 4,643 (7) 1,554
--------- --------- --------- ---------
Net income (loss) applicable to common
stockholders ........................... (127) (19,916) 6,598 (13,445)
========= ========= ========= =========
Basic and diluted net loss per common
share .................................. $ (0.00) $ (0.37)
========= =========
Weighted average Shares outstanding
used in computing basic and
diluted net loss per common share ...... 35,694 779 (8) 36,473
========= ========= =========
</TABLE>
See accompanying notes
PF-11
<PAGE> 43
MEDICAL MANAGER CORPORATION
--------------------------------------------------------------------------------
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
MEDICAL
MANAGER PHYSICIAN COMPUTER
CORPORATION NETWORK PRO FORMA PRO FORMA
HISTORICAL (A)(C) HISTORICAL (B) ADJUSTMENTS COMBINED
----------------- ------------------ ----------- ---------
<S> <C> <C> <C> <C>
Revenue .................................. $ 177,625 $ 12,403 $ (75) (1) $ 189,953
Operating costs and expenses:
Cost of operations ..................... 107,434 9,119 (75) (1) 116,478
Development and engineering ............ 28,688 1,210 -- 29,898
Selling, general and administrative .... 86,962 2,810 -- 89,772
Litigation expenses .................... 850 -- -- 850
Merger and Related Costs ............... 6,721 -- -- 6,721
Depreciation and Amortization .......... 48,493 972 (741) (3) 52,449
3,725 (4)
--------- -------- ------- ---------
Total operating costs and expense ... 279,148 14,111 2,909 296,168
--------- -------- ------- ---------
Income (loss) from operations ............ (101,523) (1,708) (2,984) (106,215)
Interest and other income, net ........... 36,747 275 (357) (5) 36,665
Income taxes ............................. 3,306 -- 1,336 (7) 4,642
--------- -------- ------- ---------
Net loss applicable to common
stockholders............................ (61,470) (1,433) (2,005) (64,908)
========= ======== ======= =========
Basic and diluted net loss per common
share................................... $ (1.62) $ (1.67)
========= =========
Weighted-average shares outstanding used
in computing basic and diluted net
loss per common share................... 37,981 779 (8) 38,760
========= ======= =========
</TABLE>
See accompanying notes
PF-12
<PAGE> 44
MEDICAL MANAGER CORPORATION
NOTES TO PRO FORMA COMBINED CONDENSED
FINANCIAL STATEMENTS
(UNAUDITED)
The total estimated purchase price of Physician Computer Network has
been allocated on a preliminary basis to the assets and liabilities based on
management's best estimates of their fair value with the excess over the net
tangible assets acquired allocated to goodwill. These allocations are subject to
change pending a final determination and analysis of the total purchase price
and the fair value of the assets acquired and liabilities assumed. The
acquisition will be accounted for under the purchase method of accounting. The
excess of the purchase price over the fair value of the net assets acquired is
being amortized over five years.
The following is a summary of the adjustments reflected in the
unaudited pro forma combined condensed consolidated statement of operations (in
thousands):
(A) Because of the September 28, 2000 announcement of the WebMD board of
directors' approval of a plan to dispose of Porex Corporation and other
plastics and filtration subsidiaries ("Porex"), the results of
operations of Porex have been excluded from Medical Manager's results
of operation for all periods presented.
(B) The historical results of operations only include periods prior to
acquisition by Medical Manager.
(C) The historical results of operations only include periods prior to
acquisition by WebMD Corporation.
(1) Represents the elimination of intercompany revenue and cost of
operations.
(2) Represents the elimination of the charge related to Physician Computer
Network's settlement of securities litigation, which resulted in
liabilities not assumed by Medical Manager in its acquisition of
Physician Computer Network.
(3) Represents the elimination of amortization related to historical
intangible assets of Physician Computer Network.
(4) Represents the amortization of the excess of the purchase price over
the net assets acquired of Physician Computer Network.
(5) Represents the decrease in interest income to reflect the payment of
the cash portion of the purchase price and the estimated expenses
associated with the acquisition.
(6) Represents the elimination of the gain on the sale of the Wismer Martin
division of Physician Computer Network to Medical Manager in July 1999.
(7) Represents the tax effect of the adjustments to the unaudited pro forma
combined condensed consolidated statement of operations, excluding the
elimination of the gain on the sale of the Wismer Martin division of
Physician Computer Network to Medical Manager in July 1999 and the
charge related to Physician Computer Network's settlement of securities
litigation, based on a combined federal and state effective tax rate of
40% for all periods presented.
(8) Represents the increase in the number of outstanding shares of Medical
Manager common stock to reflect the payment of the stock portion of the
purchase price. The market price used in the calculation represents the
average of the average closing sale price during the ten trading days
ending on March 27, 2000 and the average closing sale price during the
ten trading days ending on March 28, 2000.
PF-13
<PAGE> 45
Exhibit Index
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
-------- -----------
<S> <C>
3.1* -- Tenth Amended and Restated Certificate of Incorporation of
the Registrant, as amended, including Certificate of
Designations of the Series A Payment-in-Kind Preferred Stock of
the Registrant and Certificate of Designations of the Series B
Convertible Redeemable Preferred Stock of the Registrant
3.2* -- Amended and Restated Bylaws of the Registrant
23.1 -- Consent of Independent Public Accountants
99.1* -- Press release dated September 12, 2000, titled "WebMD
Announces Completion of Medical Manager, CareInsite, and
OnHealth Network Transactions"
</TABLE>
------------------------
* Previously filed
