<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ____________
COMMISSION FILE NUMBER 0-29090
MEDICAL MANAGER CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 59-3396629
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
3001 NORTH ROCKY POINT DRIVE EAST, SUITE 400, TAMPA, FLORIDA 33607
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (813) 287-2990
N/A
(Former Name, Former Address and Former Fiscal Year
if Changed Since Last Report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X]: No [ ]
There were 21,974,700 shares of the Registrant's common stock outstanding as of
November 6, 1998.
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The following consolidated financial statements of Medical Manager
Corporation, a Delaware corporation (the "Company"), have been prepared in
accordance with the instructions to Form 10-Q and, therefore, omit or condense
certain footnotes and other information normally included in financial
statements prepared in accordance with generally accepted accounting principles.
In the opinion of management, all adjustments necessary for a fair presentation
of the financial information for the interim and year-to-date periods reported
have been made. The current year financial statements include the results of
Medical Practice Support Services, Inc., Health Care Management Solutions, Inc.,
d/b/a Healthcare Informatics, Inc., Strategic Systems, Inc., Intelligent Concept
Ltd. (U.S.A.), Health-Tech Systems, Inc., Healthcare Automation Associates,
Inc., Qualified Technology, Inc., Medical Systems, Inc., Prism Microcomputers,
Inc., Advantage Medical Systems, Inc., and Medical Design and Images, Inc., all
of which were acquired by the Company or its affiliates during the nine months
ended September 30, 1998. All of these acquisitions were accounted for using the
pooling of interests method of accounting. Prior period financial statements
have been restated to reflect the results of these acquisitions.
In addition, during the nine months ended September 30, 1998, the
Company acquired substantially all of the assets of Management Integrated
Solutions and LLBC Enterprises, Inc. and all of The Medical Manager assets of
CSA Provider Services, a division of Blue Cross Blue Shield of Arizona, Inc.,
and Wahltek, Inc. These acquisitions were accounted for using the purchase
method of accounting. The financial results associated with these acquisitions
are reflected after their respective acquisition dates.
Results of operations for the three and nine months ended September 30,
1998 are not necessarily indicative of the results for the entire year ending
December 31, 1998.
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MEDICAL MANAGER CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $48,530 $6,848
Accounts receivable, net 24,838 17,441
Inventory 2,713 2,518
Prepaid expenses and other current assets 1,665 2,789
Deferred income taxes 727 727
-------- -------
Total current assets 78,474 30,323
PROPERTY AND EQUIPMENT, net 7,485 5,713
GOODWILL AND OTHER INTANGIBLES, net 24,691 23,775
OTHER ASSETS 1,466 124
-------- -------
Total assets $112,116 $59,935
======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $2,518 $4,580
Accounts payable and accrued liabilities 8,797 7,983
Customer deposits and deferred maintenance revenue 7,608 8,686
Income taxes payable 881 617
------- -------
Total current liabilities 19,804 21,866
LONG-TERM OBLIGATIONS, net of current maturities 2,274 4,221
------- -------
Total liabilities 22,078 26,087
STOCKHOLDERS' EQUITY
Common stock 218 201
Additional paid-in capital 73,417 29,407
Retained earnings 16,403 4,240
------- -------
Total stockholders' equity 90,038 33,848
------- -------
Total liabilities and stockholders' $112,116 $59,935
======== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
2
<PAGE> 4
MEDICAL MANAGER CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
-------------------
1998 1997
------ ------
<S> <C> <C>
Revenue
Systems $23,201 $13,275
Maintenance and other 12,032 9,830
------- -------
Total revenue 35,233 23,105
Cost of revenue
Systems 10,784 6,340
Maintenance and other 6,537 5,220
------- -------
Total costs of revenue 17,321 11,560
------- -------
Gross margin 17,912 11,545
Operating expenses
Selling, general and administrative 9,252 6,454
Research and development 1,201 805
Depreciation and amortization 909 447
------- -------
Total operating expenses 11,362 7,706
------- -------
Income from operations 6,550 3,839
Other income (expense)
Interest expense (18) (34)
Interest income 540 156
Other (expense) (23) 26
------- -------
Income before income taxes 7,049 3,987
Income taxes 2,564 1,705
------- -------
Net income $ 4,485 $ 2,282
======= =======
Basic earnings per share $0.21 $0.12
Shares used in computing basic earnings per share 21,752 19,819
Diluted earnings per share $0.20 $0.11
Shares used in computing diluted earnings per share 22,581 20,500
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE> 5
MEDICAL MANAGER CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Pro Forma Nine
Nine Months Ended Months Ended
September 30, September 30,
------------------ -------------
1998 1997 1997
------ ------ ------
<S> <C> <C> <C>
Revenue
Systems $62,049 $36,986 $38,982
Maintenance and other 34,170 26,082 27,207
------- ------- -------
Total revenue 96,219 63,068 66,189
Cost of revenue
Systems 28,983 16,375 17,503
Maintenance and other 18,660 14,372 14,967
------- ------- -------
Total costs of revenue 47,643 30,747 32,470
------- ------- -------
Gross margin 48,576 32,321 33,719
Operating expenses
Selling, general and administrative 24,299 18,101 18,834
Research and development 3,366 2,393 2,415
Depreciation and amortization 2,417 1,090 1,180
------- ------- -------
Total operating expenses 30,082 21,584 22,429
------- ------- -------
Income from operations 18,494 10,737 11,290
Other income (expense)
Interest expense (162) (252) (252)
Interest income 989 514 514
Other (expense) (23) 78 78
------- ------- -------
Income before income taxes 19,298 11,077 11,630
Income taxes 7,056 3,857 4,334
------- ------- -------
Net income $12,242 $ 7,220 $ 7,296
======= ======= =======
Basic earnings per share $0.58 $0.37 $0.37
Shares used in computing basic earnings
per share 21,073 19,734 19,734
Diluted earnings per share $0.56 $0.36 $0.36
Shares used in computing diluted earnings
per share 21,986 20,041 20,041
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE> 6
MEDICAL MANAGER CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
1998 1997
------ ------
<S> <C> <C>
Cash flows from operating activities:
Net Income $12,242 $ 7,220
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 2,417 1,090
Deferred income taxes 0 (348)
Loss on sale of property and equipment 0 6
Realized gains on marketable securities 0 (52)
Changes in assets and liabilities,
net of effects from acquisitions:
Accounts receivable (7,771) (4,120)
Inventory (537) (584)
Prepaid expenses and other current assets 1,129 (876)
Other assets (1,346) 118
Accounts payable and accrued liabilities 607 (2,325)
Customer deposits and deferred maintenance revenue (941) (166)
Income taxes payable 264 170
------- --------
Net cash provided by operating activities 6,064 133
Cash flow from investing activities:
Purchases of investments (30) 0
Proceeds on sale of investments 30 264
Purchases of property and equipment (2,826) (881)
Proceeds from sale of property and equipment 0 30
Payments for acquisitions made, net of cash
acquired (509) (10,930)
------- --------
Net cash used in investing activities (3,335) (11,517)
Cash flow from financing activities:
Proceeds from the issuance of notes payable 145 314
Payments of notes payable (4,558) (5,550)
Due to affiliates 0 4,997
Net proceeds from the issuance of common stock 43,386 58,270
Payments made to stockholder of R&D 0 (35,062)
Dividends (20) (2,371)
------- --------
Net cash provided by financing activities 38,953 20,598
Net change in cash and cash equivalents 41,682 9,214
Cash and cash equivalents:
Beginning of period 6,848 3,106
------- --------
End of period $48,530 $ 12,320
======= ========
Non-cash dividends $ 58 $ 2,416
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE> 7
MEDICAL MANAGER CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
Medical Manager Corporation ("MMC") was founded on July 10, 1996 to bring
together the research and development, sales, marketing and support resources
for The Medical Manager(R) software, a leading physician practice management
system for health care providers in the United States.
On February 4, 1997, MMC acquired (the "Mergers") simultaneously with the
closing of its initial public offering, five companies (the "Founding
Companies"): Medical Manager Research & Development, Inc. (formerly
Personalized Programming, Inc.) ("MMR&D"), Medical Manager Sales & Marketing,
Inc. (formerly Systems Plus, Inc.) ("MMS&M"), Medical Manager Southeast, Inc.
(formerly National Medical Systems, Inc.) ("MMSE"), Medical Manager Northeast,
Inc. (formerly RTI Business Systems, Inc.) ("MMNE") and Medical Manager
Midwest, Inc. (formerly Systems Management, Inc.) ("MMMW"). The Mergers were
accounted for as a combination of the Founding Companies at historical costs
for accounting purposes.
During the year ended December 31, 1997, MMC or its affiliates executed
and closed agreements to acquire 10 resellers (the "1997 Acquired Companies")
of The Medical Manager software. These acquisitions were accounted for using
the pooling of interests method of accounting. Also during the year ended
December 31, 1997, MMC or its affiliates executed and closed definitive
agreements to acquire substantially all of the assets or all of the outstanding
equity securities of 12 resellers (the "1997 Purchased Companies") of The
Medical Manager software. These acquisitions were accounted for using the
purchase method of accounting.
During the nine months ended September 30, 1998, MMC or its affiliates
executed and closed agreements to acquire the following resellers of The
Medical Manager software (the "1998 Acquired Companies"): (i) Medical Practice
Support Services, Inc. ("MPSS") based in Pittsburgh, Pennsylvania; (ii) Health
Care Management Solutions, Inc. d/b/a Healthcare Informatics, Inc. ("HCMS")
based in Springfield, Illinois ; (iii) Strategic Systems, Inc. ("Strategic")
based in Denver, Colorado; (iv) Intelligent Concept, Ltd. (U.S.A.) ("IC") based
in Los Angeles, California; (v) Health-Tech Systems, Inc. ("Health-Tech") based
in El Paso, Texas; (vi) Healthcare Automation Associates, Inc. ("HAA") based in
Phoenix, Arizona; (vii) Qualified Technology, Inc. ("Qualified") based in Baton
Rouge, Louisiana; (viii) Medical Systems, Inc. ("MSI") based in Dallas, Texas;
(ix) Prism Microcomputers, Inc. ("Prism") based in Fairfax, Virginia; (x)
Advantage Medical Systems, Inc. ("Advantage") based in Hurricane, West
Virginia; and (xi) Medical Design and Images, Inc. ("Medical Design") based in
Austin, Texas. The acquisitions of the 1998 Acquired Companies were accounted
for using the pooling of interests method of accounting. The aggregate
consideration paid for the 1998 Acquired Companies consisted of 336,582 shares
of MMC's common stock par value $.01 per share (the "Common Stock"). The 1997
Acquired Companies and the 1998 Acquired Companies are referred to collectively
as the Acquired Companies.
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<PAGE> 8
On April 4, 1998, MMC or it affiliates executed and closed an agreement to
acquire substantially all of the assets of Management Integrated Solutions
("MIS"), a reseller of The Medical Manager software based in Houston, Texas. On
June 25, 1998, the Company executed and closed an agreement to acquire The
Medical Manager assets of CSA Provider Services ("CSA"), a division of Blue
Cross Blue Shield of Arizona, Inc. based in Phoenix, Arizona. On September 21,
1998, the Company executed and closed an agreement to acquire substantially all
of the assets of LLBC Enterprises, Inc. ("LLBC"), a reseller of The Medical
Manager software based in San Antonio, Texas. On September 1, 1998, the Company
executed and closed an agreement to acquire The Medical Manager assets of
Wahltek, Inc., a reseller of The Medical Manager software based in Des Moines,
Iowa. The acquisitions of MIS, CSA, LLBC, and Wahltek (the "1998 Purchased
Companies") were accounted for using the purchase method of accounting. The
aggregate consideration paid for the 1998 Purchased Companies consisted of
21,445 shares of MMC's Common Stock and $522,500 in cash. The 1997
Purchased Companies and the 1998 Purchased Companies are referred to
collectively as the Purchased Companies.
MMC, the Founding Companies, the Acquired Companies and the Purchased
Companies are referred to as the Company.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation. The accompanying interim financial statements do
not include all disclosures included in the financial statements for the year
ended December 31, 1997 as included in the Company's Annual Report on Form 10-K
for the year ended December 31, 1997 (the "Form 10-K"), and therefore should be
read in conjunction with the financial statements included in the Form 10-K.
In the opinion of management, the interim financial statements filed as
part of this Quarterly Report on Form 10-Q reflect all adjustments, consisting
only of normal recurring accruals, necessary for a fair presentation of the
financial position and the results of operations and cash flows for the interim
periods presented.
The accompanying consolidated financial statements reflect the results of
MMC, MMR&D, and the Acquired Companies through February 4, 1997, the date of
MMC's acquisition of the Founding Companies. After February 4, 1997, the
historical financial statements reflect the results of MMC, the Founding
Companies and the Acquired Companies. The results of the Purchased Companies
are reflected as of their respective acquisition dates.
The pro forma consolidated results of operations for the nine months ended
September 30, 1997 reflect the results of MMC, the Founding Companies and the
Acquired Companies from January 1, 1997, as though the Mergers had occurred on
January 1, 1997. The results of the Purchased Companies are reflected as of
their respective acquisition dates.
Revenue Recognition. Revenue from software licenses is recognized upon
sale and shipment. For the three and nine months ended September 30, 1997,
revenue from the sale of systems was recognized when the system was installed
and when the related client training was completed, as
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established in Statement of Position 91-1, Software Revenue Recognition.
Beginning January 1, 1998, revenue from the sale of systems is recognized 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. The effect of the adoption of SOP
97-2 was not significant to the Company's results of operations for the three
or nine months ended September 30, 1998. 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 is
recognized as the services are provided. Certain expenses are allocated between
the cost of revenue for systems and cost of revenue for maintenance and other
based upon revenue, which basis management believes to be reasonable.
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income". In June 1997, the Financial Accounting Standards Board
issued SFAS No. 130, effective for fiscal periods beginning after December 15,
1997. The new standard requires that comprehensive income, which includes net
income as well as certain changes in assets and liabilities recorded in common
equity, be reported in the financial statements. For the three and nine month
periods ended September 30, 1998 and 1997, there were no components of
comprehensive income other than net income.
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information". SFAS No. 131 is effective for fiscal years beginning after
December 15, 1997. This statement establishes standards for reporting
information about operating segments in annual financial statements and interim
information is required to be reported on the basis that it is used internally
for evaluating performance of and allocation of resources to operating
segments. The Company has not yet determined to what extent the standard will
impact its current practice of reporting operating segment information.
SFAS No. 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits". In February 1998, the Financial Accounting Standards
Board issued SFAS No. 132 which is effective for periods ending after December
15, 1998. The new standard revises employers' disclosures about pensions and
other postretirement benefits. The Company does not believe the standard will
impact its financial statements.
SFAS No. 133, "Accounting for Derivative Investments and Hedging
Activities". SFAS No. 133 is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. This statement establishes accounting and
reporting standards for derivative instruments and hedging activities. The
Company does not maintain any derivative investments nor does it conduct any
hedging activities, therefore, the standard is not expected to impact the
Company.
Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use". In March 1998, the American
Institute of Certified Public Accountants issued SOP 98-1, which is effective
for financial statements for fiscal years beginning
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after December 15, 1998. This SOP provides guidance on accounting for the costs
of computer software developed or obtained for internal use and provides
guidance for determining whether computer software is for internal use. The
Company does not develop any internal use software, therefore, management does
not believe that there will be any impact on the Company's financial
statements.
Non-cash Transactions. Non-cash transactions during the nine months ended
September 30, 1997 included the purchase of assets of four of the Founding
Companies and the 1997 Purchased Companies through the assumption of liabilities
or the issuance of Common Stock. Non-cash transactions during the nine months
ended September 30, 1998 included the purchase of assets of the 1998 Purchased
Companies through the assumption of liabilities or the issuance of Common
Stock and the purchase of equipment through the assumption of a capital lease
obligation.
3. UNAUDITED PRO FORMA INCOME TAX INFORMATION
Prior to their acquisition, several of the companies (the "S
Corporations") acquired by the Company during the year ended December 31, 1997
and during the nine months ended September 30, 1998 were S corporations and,
accordingly, the combined historical financial statements of the Company did
not reflect a provision for income taxes for the S Corporations, as income
taxes were the responsibility of the S Corporations' individual stockholders.
Effective upon their acquisition, the S Corporations terminated their S
corporation status. The following unaudited pro forma income tax information
(in thousands), based on historical information, is presented in accordance
with SFAS No. 109, Accounting for Income Taxes ("SFAS 109"), as if the S
Corporations had each been a C corporation subject to federal and state income
taxes throughout the periods presented.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
-------------------------
1998 1997
------ ------
<S> <C> <C>
Income before provision for income taxes........................... $7,049 $ 3,987
Provision for income taxes......................................... (2,564) (1,482)
------ -------
Pro forma net income............................................... $4,485 $ 2,505
====== =======
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------
1998 1997
------ ------
Income before provision for income taxes........................... $19,298 $11,077
Provision for income taxes......................................... (7,056) (4,121)
------- -------
Pro forma net income............................................... $12,242 $ 6,956
======= =======
</TABLE>
4. SUMMARY FINANCIAL DATA OF THE ACQUISITIONS
The acquisitions of the Acquired Companies discussed in Note 1 have been
accounted for using the pooling of interests method of accounting, and
accordingly, the consolidated financial statements for the periods presented
have been restated to include the Acquired Companies. The Acquired Companies
generated revenues of $1,588,000 for the period from July 1, 1998 through their
respective acquisition dates and revenues of $8,039,000 for the period from
January 1, 1998 through their respective acquisition dates. The Acquired
Companies generated revenues of $21,816,000 for the year ended December 31,
1997. Net income of the Acquired Companies was $234,000 for the period from
July 1, 1998 through their respective acquisitions dates and $1,073,000 for the
period from January 1, 1998 through their respective acquisition dates. The
Acquired Companies had a net loss of $863,000 for the year ended December 31,
1997. There were no changes
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in the Acquired Companies' stockholders' equity for the period from July 1,
1998 through their respective acquisition dates. Changes in the Acquired
Companies' stockholders' equity was $78,000 for the period from January 1, 1998
through their respective acquisition dates. Changes in the Acquired Companies'
stockholders' equity was $997,000 for the year ended December 31, 1997.
The acquisitions of the Purchased Companies discussed in Note 1 were
accounted for using the purchase method of accounting, and accordingly the
consolidated financial statements reflect the results of operations for the
Purchased Companies only since their respective dates of acquisition. The
impact of the 1998 Purchased Companies on revenues, net income, and earnings
per share is not considered significant.
5. EARNINGS PER SHARE
Basic and diluted earnings per share for the three and nine months
ended September 30, 1998 are calculated as set forth below (in thousands,
except per share data):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1998 SEPTEMBER 30, 1998
------------------ ------------------
<S> <C> <C>
Net income........................................... $ 4,485 $12,242
======= =======
BASIC EARNINGS PER SHARE:
Weighted average common shares outstanding........... 21,752 21,073
======= =======
Basic earnings per share............................. $ 0.21 $ 0.58
======= =======
DILUTED EARNINGS PER SHARE:
Weighted average common shares
outstanding.......................................... 21,752 21,073
Common equivalent shares:
Stock options........................................ 829 913
------- -------
Diluted shares....................................... 22,581 21,986
======= =======
Diluted earnings per share........................... $ 0.20 $ 0.56
======= =======
</TABLE>
6. COMMITMENTS AND CONTINGENCIES
On June 10, 1998, a lawsuit was brought against the Company alleging
Year 2000 issues regarding The Medical Manager software in versions prior to
Version 9.0. The lawsuit, captioned Robert Courtney, D.O. v. Medical Manager
Corporation, filed in the Superior Court of New Jersey, Atlantic County, and
removed to the Federal Court for the District of New Jersey, seeks compensatory
damages, treble damages and equitable and injunctive relief. The plaintiff
purports to sue on behalf of himself and others similarly situated. The Company
also received notice of five
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additional lawsuits making claims substantially similar to the Courtney
litigation. Specifically, (i) on August 7, 1998, the Company was notified in
writing that a lawsuit captioned Women's Institute For Fertility Endocrinology
and Menopause and Pediatric Associates Of The Main Line, LTD v. Medical Manager
Corporation had been filed in Pennsylvania State Court, (ii) on August 10, 1998
the Company was served with a lawsuit in California State Court captioned Peter
Glusker and Richard Eisen v. Medical Manager Sales & Marketing, Inc., and
Medical Manager Corporation, (iii) on August 10, 1998, the Company was served
with a lawsuit in New York State Court captioned Rockland Pulmonary And Medical
Associates, P.C. and Rockland Cardiology, P.A. v. Medical Manager Corporation,
Medical Manager Research & Development, Inc. and Medical Manager Sales &
Marketing, Inc.; (iv) on August 28, 1998, the Company was notified that a
lawsuit in Florida State Court captioned Dennis College, M.D. v. Medical Manager
Corporation had been filed; and (v) on November 4, 1998, the Company was
notified that a lawsuit in the United States Court for the Northern District of
Illinois captioned Highland Park Associates, S.C. v. Medical Manager
Corporation, Medical Manager Research & Development, Inc. and Medical Manager
Sales & Marketing, Inc. was filed. The Pennsylvania and New York cases were
removed to Federal Court. The Company believes that these lawsuits are without
merit and intends to vigorously defend against the suits.
The Company has also received notice of a lawsuit which was purportedly
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. Medical
Manager Corporation, 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 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, The
Medical Manager practice management system, during the class period. The class
period is alleged to be between April 23, 1998 and August 5, 1998. 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 the suit.
7. SUBSEQUENT EVENTS
Subsequent to September 30, 1998, the Company or its affiliates
executed and closed an agreement to acquire Lee Data Systems, Inc., a reseller
of The Medical Manager software based in Plymouth Meeting, Pennsylvania. This
acquisition was accounted for using the pooling of interests method of
accounting. The aggregate consideration paid was 206,359 shares of Common Stock.
The impact of the acquisition on revenues, net income or earnings per share is
not considered significant.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
financial statements and related notes thereto appearing elsewhere in this
filing.
OVERVIEW
This filing contains forward-looking statements within the meaning of
the Private Litigation Reform Act of 1995 (the "Reform Act"). All statements
contained in this filing, other than statements of historical fact, may be
considered forward-looking statements. Such statements are based on current
plans and expectations of the Company and involve risks and uncertainties that
could cause future activities and actual results of operations to be materially
different from those set forth in the forward-looking statements. The Company's
actual results may differ due to factors including, among others, risks
associated with acquisitions, fluctuations in operating results because of
acquisitions, uncertainties relating to the ongoing development of the
Company's software and the Year 2000 issue, variations in stock prices, changes
in government regulations, competition, risks of operations and growth and
integration of newly acquired businesses. Forward-looking information provided
by the Company under the Reform Act should be evaluated in the context of the
foregoing factors and the other information included in this filing and other
filings made by the Company with the Securities and Exchange Commission. The
Company expressly disclaims any intent or obligation to update these forward
looking statements.
On February 4, 1997, Medical Manager Corporation ("MMC") acquired (the
"Mergers") simultaneously with the closing of its initial public offering of
Common Stock (the "IPO") five companies (the "Founding Companies"): Medical
Manager Research & Development, Inc. (formerly Personalized Programming, Inc.)
("MMR&D"), Medical Manager Sales & Marketing, Inc. (formerly Systems Plus,
Inc.) ("MMS&M"), Medical Manager Southeast, Inc. (formerly National Medical
Systems, Inc.) ("MMSE"), Medical Manager Northeast, Inc. (formerly RTI Business
Systems, Inc.) ("MMNE") and Medical Manager Midwest, Inc. (formerly Systems
Management, Inc.) ("MMMW").
Subsequent to the IPO, MMC and the Founding Companies executed and
closed agreements to acquire twenty-one resellers of The Medical Manager
software (the "Acquired Companies"). The acquisitions of the Acquired Companies
were accounted for using the pooling of interests method of accounting.
Also subsequent to the IPO, MMC and the Founding Companies executed
and closed definitive agreements to acquire substantially all of the assets or
all of the outstanding equity securities of sixteen resellers of The Medical
Manager software (the "Purchased Companies"). All of the acquisitions of the
Purchased Companies were accounted for using the purchase method of accounting.
MMC, the Founding Companies, the Acquired Companies and the Purchased
Companies are referred to collectively as the Company.
12
<PAGE> 14
UNAUDITED CONSOLIDATED RESULTS OF OPERATIONS
The financial information referenced below includes MMC, MMR&D and the
Acquired Companies through February 4, 1997, the date of MMC's merger with the
Founding Companies, after which the financial information referenced below
reflects the results of MMC, MMR&D, the Acquired Companies, and the Founding
Companies other than MMR&D (the "Other Founding Companies"). The results of the
Purchased Companies are reflected subsequent to their respective acquisition
dates.
REVENUES
The following table reflects actual revenues for the Company's primary
business lines:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED SEPTEMBER 30,
--------------------
1998 1997
------ ------
(in millions)
<S> <C> <C>
Systems.......................................................................... $23.2 $13.3
Maintenance and other............................................................ 12.0 9.8
----- -----
Total.................................................................. $35.2 $23.1
===== =====
Systems percentage of total...................................................... 65.8% 57.5%
Maintenance and other percentage of total........................................ 34.2% 42.5%
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30,
--------------------
1998 1997
------ ------
(in millions)
Systems.......................................................................... $62.0 $37.0
Maintenance and other............................................................ 34.2 26.1
----- -----
Total.................................................................. $96.2 $63.1
===== =====
Systems percentage of total...................................................... 64.5% 58.6%
Maintenance and other percentage of total........................................ 35.5% 41.4%
</TABLE>
The increase in systems revenue for the three and nine months ended
September 30, 1998 was due to the growth of the Company as a whole, the
inclusion of the Purchased Companies from their respective acquisition dates,
and for the nine months ended September 30, 1998, the inclusion of the Other
Founding Companies beginning on February 5, 1997.
An increase in systems sales volume from upgrades, combined with an
increase in the size of individual systems projects, were contributing factors
in the Company's systems revenue growth. The Company has experienced an increase
in upgrade sales in the current year due to the release of Version 9 of The
Medical Manager software in November of 1997. The previous version of The
Medical Manager software, Version 8, was released in 1993. The Company continues
to penetrate its base of smaller physician groups and sole practitioners. The
Company also continues to secure more management service organization ("MSO")
and large independent practice
13
<PAGE> 15
association ("IPA") contracts, which have a greater average revenue per sale.
The Company's Enterprise Business Group ("EBG"), which specifically targets
national/regional clients, recently obtained contracts from which $2.5 million
of revenue was recognized in the three months ended September 30, 1998 and $4.7
million of revenue was recognized in the nine months ended September 30, 1998.
By comparison, $0.9 million of revenue was recognized on EBG sales in the three
months ended September 30, 1997 and $1.4 million of revenue was recognized in
the nine months ended September 30, 1997.
In addition, the Purchased Companies were reflected in the financial
statements subsequent to their respective dates of acquisition. Six of the
Purchased Companies were acquired in the three months ended September 30, 1997.
The remaining Purchased Companies were acquired subsequent to September 30,
1997, thus their results of operations are not reflected in the three and nine
months ended September 30, 1997 but are included in the three and nine months
ended September 30, 1998. The Purchased Companies acquired after September 30,
1997 include Companion Technologies of Florida, Inc. and Companion Technologies
of Texas, both purchased on December 31, 1997, which together contributed $2.1
million of system revenues for the three months ended September 30, 1998 and
$5.4 million of system revenues for the nine months ended September 30, 1998.
Finally, the Other Founding Companies are included beginning February 5, 1997.
The increase in maintenance and other revenue in the three and nine
months ended September 30, 1998 was also due to the growth of the Company as a
whole, the inclusion of the Other Founding Companies, the inclusion of the
Purchased Companies, and the inclusion of electronic data interchange ("EDI")
revenues. The Purchased Companies were reflected in the financial statements
subsequent to their respective dates of acquisition. Six of the Purchased
Companies were acquired in the three months ended September 30, 1997. The
remaining Purchased Companies were acquired subsequent to September 30, 1997,
thus their results of operations are reflected subsequent to September 30, 1997.
For the three months ended September 30, 1998, Companion Technologies of
Florida, Inc. and Companion Technologies of Texas, both purchased on December
31, 1997, together contributed $1.3 million of maintenance and other revenue.
For the nine months ended September 30, 1998, Companion Technologies of Florida,
Inc. and Companion Technologies of Texas together contributed $3.1 million of
maintenance and other revenue. Also, in the three and nine months ended
September 30, 1998, the Company earned approximately $0.3 million and $1.0
million, respectively, in maintenance and other revenue related to national EDI
agreements.
The Company obtains a maintenance contract for a minimum of one year
with most new systems installed. Therefore, a portion of the Company's
maintenance and other revenue is recognized later than billed. Unearned
maintenance and other revenue as of September 30, 1998 was $4.8 million and
will be recognized in future quarters. The balance of unearned revenues on the
accompanying balance sheets represent customer deposits on systems
implementation projects. Revenue on these projects will be recognized in future
periods as the implementation of the system is completed.
14
<PAGE> 16
COSTS OF REVENUES, OPERATING EXPENSES, NON-OPERATING ITEMS AND INCOME TAXES
The following table reflects actual operating expenses for the
Company's primary business lines:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED SEPTEMBER 30,
-------------------
1998 1997
------ ------
(in millions)
<S> <C> <C>
Cost of systems revenues......................................................... $10.8 $ 6.3
Cost of maintenance and other revenues........................................... 6.5 5.2
----- -----
Total cost of revenue.................................................. 17.3 11.5
===== =====
Selling, general, and administrative............................................. 9.3 6.5
Research and development......................................................... 1.2 0.8
Depreciation and amortization.................................................... 0.9 0.4
Systems gross profit percentage................................................. 53.5% 52.2%
Maintenance and other gross profit percentage.................................... 45.7 46.9
Total gross profit percentage.......................................... 50.8 50.0
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30,
-------------------
1998 1997
------ ------
(in millions)
Cost of systems revenues......................................................... $28.9 $16.4
Cost of maintenance and other revenues........................................... 18.7 14.3
----- -----
Total cost of revenue................................................... 47.6 30.7
===== =====
Selling, general, and administrative............................................. 24.3 18.1
Research and development......................................................... 3.4 2.4
Depreciation and amortization.................................................... 2.4 1.1
Systems gross profit percentage................................................. 53.3% 55.7%
Maintenance and other gross profit percentage.................................... 45.4 44.9
Total gross profit percentage.......................................... 50.5 51.3
</TABLE>
The increase in systems cost of revenue and maintenance and other cost
of revenue for the three and nine months ended September 30, 1998 was due to the
growth of systems revenue from the Company as a whole and the inclusion of the
Purchased Companies after their respective acquisition dates. Six of the
Purchased Companies were acquired in the three months ended September 30, 1997.
The remaining Purchased Companies were acquired subsequent to September 30,
1997, thus their results of operations are reflected subsequent to September 30,
1997. Companion Technologies of Florida, Inc. and Companion Technologies of
Texas, both purchased on December 31, 1997, together contributed $1.6 million of
system cost of revenue and $0.6 million of maintenance and other cost of revenue
for the three months ended September 30, 1998. For the nine months ended
September 30, 1998, Companion Technologies of Florida, Inc. and Companion
15
<PAGE> 17
Technologies of Texas together contributed $4.0 million of system cost of
revenue and $1.4 million of maintenance and other cost of revenue.
Systems gross profit percentage for the three months ended September
30, 1998 increased over the three months ended September 30, 1997. This is
primarily due to the restatement of the 1997 financial information to include
the Acquired Companies. For the nine months ended September 30, 1998, systems
gross profit percentage has declined due to the inclusion of Companion
Technologies of Florida, Inc. and Companion Technologies of Texas for 1998.
Also, systems gross profit percentage has decreased as a result of changes in
the sales mix of the Company. The Company has grown primarily from sales to
end-users, which produce a lesser gross profit percentage than revenues from
licensing. Maintenance and other gross profit percentage decreased in the three
months ended September 30, 1998 as compared with the three months ended
September 30, 1997. This was primarily the result of the three months ended
September 31, 1997 including revenue from non-recurring national interface
contracts, which carried little or no associated costs of revenue. Maintenance
and other gross profit percentage increased in the nine months ended September
30, 1998 due to the allocation of costs to a larger basis of revenue. Also
contributing to the increase in maintenance and other gross profit was the
inclusion of Companion Technologies of Florida, Inc. and Companion Technologies
of Texas in the nine months ended September 30, 1998, both providing a
maintenance and other gross profit at a rate greater than the Company
contributed in the nine months ended September 30, 1997.
For the nine months ended September 30, 1998, the increase in selling,
general and administrative expenses was attributable to the growth of the
Company as a whole, the inclusion of the Other Founding Companies, and the
inclusion of the Purchased Companies from their respective dates of acquisition.
For the nine months ended September 30, 1998, selling, general, and
administrative expenses decreased to 25.3% from 28.7% as a percentage of revenue
for the nine months ended September 30, 1997 due to the Company benefiting from
certain efficiencies, including the consolidation of various operations and
office space.
The increase in research and development expenses of $.4 million in
the three months ended September 30, 1998 and $1.0 million in the nine months
ended September 30, 1998 resulted from investments in new research and
development projects focusing on (i) graphical user interface and relational
database technologies for use in future versions of The Medical Manager
software; (ii) significant enhancements in the development of the MSO
Enterprise Manager modules; (iii) enhancements of an electronic medical records
module; and (iv) EDI modules for focusing on pharmaceutical formularies and
laboratories.
Depreciation and amortization expense for the three and nine months
ended September 30, 1998 increased primarily as a result of the acquisition of
the Purchased Companies. The Purchased Companies were reflected in the financial
statements subsequent to their respective dates of acquisition. Six of the
Purchased Companies were acquired in the three months ended September 30, 1997
and depreciation on the assets acquired and amortization of the approximately
$9.0 million of goodwill recorded in connection with the purchase of these six
Purchased Companies are reflected for a portion of the three and nine months
ended September 30, 1997. The remaining Purchased Companies were acquired
subsequent to September 30, 1997, thus depreciation on the assets acquired and
16
<PAGE> 18
amortization expense on the approximately $11.0 million of goodwill recorded in
connection with these Purchased Companies was reflected in the three and nine
months ended September 30, 1998, while no depreciation expense or amortization
expense for these Purchased Companies was reported in the three and nine
months ended September 30, 1997. This goodwill is being amortized over twenty
years subsequent to the acquisition date.
Interest income consisted primarily of interest revenues earned from
the investment of the proceeds from the IPO and the Company's second
underwritten public offering, which occurred in April 1998 ("Second Offering")
of Common Stock. Interest expense is from notes issued and assumed in
connection with the mergers and the acquisitions of the Acquired Companies and
the Purchased Companies.
For the nine months ended September 30, 1998, the existence of tax
exempt interest income and certain other items resulted in an effective tax
rate of 36.6%. For the nine months ended September 30, 1997, income taxes were
provided considering the S corporation status of various acquired entities and
the one-time nonrecurring benefit from the termination of S corporation
status and the corresponding required adoption of SFAS 109 resulting in an
effective tax rate of 34.8%.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
The pro forma consolidated statement of operations presents the
Company as if the Mergers occurred on January 1, 1997. For the thirty-five day
period ended February 4, 1997, the date the Mergers were consummated, the Other
Founding Companies added $3.1 million in revenue, $1.4 million of gross profit,
and $0.5 million of net loss before income taxes.
Certain transactions included in the statements of operations for the
Other Founding Companies for the thirty five day period ended February 4, 1997
have been eliminated including the elimination of restructuring charges taken
in connection with the IPO and the reduction in compensation paid to certain
stockholders of the Founding Companies. In addition, certain adjustments were
made to the pro forma statement of operations to reflect expenses which would
have been incurred by the Company had the Mergers occurred on January 1, 1997.
As a result, for the nine months ended September 30, 1997, the
Company's pro forma revenue was $66.2 million, total pro forma gross margin was
$33.7 million, and pro forma net income was $7.3 million.
17
<PAGE> 19
LIQUIDITY AND CAPITAL RESOURCES
The following table sets forth certain selected statements of cash
flow information for the periods presented:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30,
------------------
1998 1997
------ ------
(in millions)
<S> <C> <C>
Net cash provided by operations.................................................. $ 6.1 $ 0.1
Net cash used in investing activities............................................ (3.3) (11.5)
Net cash provided by financing activities........................................ 38.9 20.6
----- ------
Net change in cash and cash equivalents.......................................... 41.7 9.2
===== ======
</TABLE>
Substantially all of the cash provided by operating activities for the
nine months ended September 30, 1998 resulted from net income, reduced by an
increase in accounts receivable of $7.8 million, a decrease in prepaid expenses
and other current assets of $1.1 million, and an increase in other assets of
$1.3 million. The increase in accounts receivable was due to the growth in the
volume of sales, coupled with an increase in the percentage of sales made to
end-users, which have an extended period of collection as compared to sales to
dealers. The decrease in prepaid expenses and other current assets was primarily
due to the receipt of a $1.0 million tax refund due to the Company. The increase
in other assets was due primarily to the capitalization of a $550,000 marketing
and non-compete agreement.
With regard to investing activities, the Company purchased $0.6
million of software and equipment in the nine months ended September 30, 1998
to help the Company more efficiently provide support to its customers. The
Company also purchased certain furniture, fixtures, and computer equipment
related to the consolidation of geographically repetitive facilities acquired
through acquisition. Investing activities also included the purchase of fixed
assets in the ordinary course of business. Lastly, for the nine months ended
September 30, 1997, amounts paid, net of cash acquired, for the Other Founding
Companies was $9.5 million.
Cash flows from financing activities, for the nine months ended
September 30, 1998, included the net proceeds of approximately $42.3 million
from the Second Offering. During the nine months ended September 30, 1998, the
Company also paid approximately $2.0 million of debt related to the purchase of
Companion Technologies of Texas and Companion Technologies of Florida, Inc.,
$0.7 million on the debt due to a former stockholder of MMR&D, and an additional
$1.2 million on debt acquired from the Acquired Companies. For the nine months
ended September 30, 1997, cash flows from financing activities included cash
flows from the IPO, payments of debt acquired from the Founding Companies and
payments of dividends by MMR&D in 1997 prior to the IPO. On February 4, 1997,
the Company completed the IPO of 6,000,000 shares of Common Stock, resulting in
net proceeds of approximately $58.2 million. Approximately $46.9 million of the
net proceeds were used to pay the cash portion of the purchase price for the
Founding Companies, including $35.0 million paid to the sole stockholder of
MMR&D. Lastly, cash dividends paid by MMR&D and the Acquired Companies prior to
the IPO and their respective purchase dates totaled $2.4 million.
18
<PAGE> 20
The Company entered into a $10 million credit line with NationsBank
of Tampa and executed the credit line agreement on January 14, 1998. The
agreement contains customary events of default and a number of customary
covenants including certain financial ratios and restrictions on dividends.
The Company's cash and cash equivalents were $48.5 million at
September 30, 1998. For purposes of the statement of cash flows, the Company
considers all highly liquid investments with maturity dates of three months or
less when purchased to be cash equivalents. These cash equivalents were
predominately in U.S. dollar domestic tax-free municipal instruments.
The Company believes the net proceeds from the sale of the Common
Stock in the Second Offering, together with existing cash and cash equivalents
and future funds generated from operations and funds available under its $10
million credit line, will provide adequate cash to fund its anticipated cash
needs at least through the next twelve months. The Company's cash and cash
equivalents are also available for strategic investment opportunities or other
potential cash needs that may arise in the pursuit of the Company's long-term
business strategy.
YEAR 2000 COMPLIANCE
The Company is aware of the issues associated with the programming
code in existing computer systems as the next millennium ("Year 2000")
approaches. The Year 2000 issue relates to whether computer systems will
properly recognize and process information relating to dates in and after the
year 2000. These systems could fail or produce erroneous results if they cannot
adequately process dates beyond the year 1999 and are not corrected.
Significant uncertainty exists in the software industry concerning the
potential consequences that may result from the failure of software to
adequately address the Year 2000 issue.
NON-PROPRIETARY (INTERNAL) SOFTWARE AND HARDWARE
The Year 2000 issue creates risk for the Company from unforeseen
problems in its own computer systems and from third parties with which the
Company deals nationwide. The Company has undertaken a program, headed by a
four-person Year 2000 Compliance Team, to determine that its systems will
operate smoothly as the Year 2000 approaches. This process began with an
inventory of the systems vital to the Company's operations to identify those
that may be affected by the Year 2000 issue. In addition, third party vendors
and business partners which the Company relies upon have been asked to confirm
that their systems will be Year 2000 compliant. All critical systems have been
assessed and a prioritized implementation schedule has been defined for
upgrading those systems which are not currently Year 2000 compliant. The
critical systems recognized by the Year 2000 Compliance Team included financial
and accounting systems, human resource systems, customer support call
management systems, telecommunications systems, commercial general and
administrative software used internally, hardware systems, and other databases
including enrollment and serialization databases.
19
<PAGE> 21
FINANCIAL AND ACCOUNTING SYSTEMS. In the second quarter of 1998, the Company
purchased a Year 2000 compliant version of its financial and accounting
software. All subsidiaries of the Company have been using the Year 2000
compliant version of the accounting system since that time. The cost of the
accounting systems was insignificant and, in accordance with Company policy, was
capitalized to be amortized over its appropriate life.
HUMAN RESOURCE SYSTEMS. The Company currently uses an outside vendor to process
payroll. The Company has made a decision to internalize the payroll function by
the end of 1998. The Company's Human Resources Department recently purchased a
software package which is certified as Year 2000 compliant by the author, and
is now in the process of creating the database for use with the software. The
Company's intentions are to test the new software during the fourth quarter of
1998 with a "go-live" date set for January 1999. The cost of the new Human
Resources system and database was insignificant to the Company's results of
operations.
CUSTOMER SUPPORT CALL MANAGEMENT SYSTEMS. The Company uses a software package
to assist in recording, assigning and clearing customer hardware and support
calls. In the second quarter of 1998, the Company purchased a new software
package, which is Year 2000 compliant, to perform these functions. The software
was tested concurrently with the Company's previous support call management
software for one month and is now in use by three subsidiaries of the Company.
The Company intends to have all subsidiaries on the new call management system
by the end of 1999. The Company's previous support software was earmarked for
replacement without regard to the Year 2000 issue and thus the cost of the
system is not considered a part of the Company's costs of Year 2000 compliance.
TELECOMMUNICATIONS SYSTEMS. Telecommunications systems of the Company include
not only voice communications, but significant data communications such as
e-mail and an internal network providing each subsidiary access to servers
located at the corporate offices. In October of 1998, the Company selected a
single national vendor for all voice and data communications throughout the
Company. This vendor has provided a statement of their Year 2000 general plan
which provides for a March 31, 1999 target completion date to be completely
Year 2000 compliant. The implementation of the new system is expected to save
the Company approximately $0.5 million over the next two years and thus, the
cost of the initial outlay for making the telecommunications systems Year 2000
compliant will be fully recovered.
VARIOUS GENERAL AND ADMINISTRATIVE SOFTWARE. As a result of the Year 2000
Compliance Teams efforts, the Company has noted that a portion of the current
in-house personal computers are known to be non-Year 2000 compliant. Some
workstations also have software programs installed which are not Year 2000
compliant. The Company has defined a minimum standard Year 2000 compliant
workstation with standardized software. The target date to have all
workstations in line with the minimum standard is March 31, 1999. To date,
approximately 95% of this project has been completed. The costs of upgrading
all remaining workstations is estimated to be less than $0.5 million.
OTHER DATABASES. The Year 2000 Compliance Team has recognized two critical
databases used internally by the Company. The Network Services Client
Enrollment database is currently Year 2000
20
<PAGE> 22
compliant. The Medical Manager Software Serialization Database is stored in an
internally written database which is not Year 2000 compliant. The Company has
scheduled an upgrade of this database to Access 97, a completely Year 2000
compliant database package, for the third quarter of 1999. The estimated costs
of this upgrade will be the cost of salaried employees which should not
exceed $50,000 per quarter.
THIRD PARTY RELATIONSHIPS. The third party relationships identified as critical
to the Company's operations are computer hardware distributors and shipping
companies. As part of a standardization initiative which began in late 1997,
the Company has partnered with three national distributors to supply all
hardware and third party software products sold to clients. All three companies
have provided documents stating that they are Year 2000 ready. In addition,
all shipping companies used by the Company and our vendors have provided
documents stating their Year 2000 readiness.
The Company intends to continue to monitor the Year 2000 compliance of
its internal software and hardware packages, telecommunications systems, and
vendors. In the event that any of the Company's systems, or any of the Company's
vendors' systems, do not meet the Year 2000 requirement by December 31, 1999,
the Company could experience difficulties in processing sales and other
financial information, customer support calls, serializations of the Company's
product, and orders of product from vendors. This could have a materially
adverse affect on the Company's financial position, results of operations, or
business. Although the Company expects its systems, and its vendors' systems, to
be Year 2000 compliant on or before December 31, 1999, it cannot predict the
success of the Company's Year 2000 compliance program. The Company has not
adopted a contingency plan to address possible risks to its systems. If the
Company experiences a failure in its Year 2000 preparedness, experienced staff
will be redeployed to address any potential Year 2000 compliance issues.
PROPRIETARY (EXTERNAL SOFTWARE)
The Year 2000 issue also creates risk for the Company from problems
that may be experienced by customers of its software. While the Company believes
that Version 9 of The Medical Manager practice management system, which was
commercially released in November 1997, is Year 2000 compliant, prior versions
of the system are not. The Company has encouraged users of pre-Version 9
versions of The Medical Manager software to upgrade to Version 9 in order to
become Year 2000 compliant. In August of 1998, the Company announced that it had
begun testing of a patch that would allow its previous version, Version 8, first
released in November 1993, to handle the date change to the new century. The
Company believes that this patch will be available for general distribution to
its independent sales offices and its installed base prior to the end of the
1998. However, the Year 2000 patch is currently under testing and, as with any
software development project, there is no assurance that the patch will
ultimately be successfully developed, tested and released. In addition, there is
no assurance that Version 8, with or without the Year 2000 patch will not create
additional issues for users of the software including, but not limited to,
additional costs for upgraded hardware, additional costs for new operating
systems and personnel training, and the fact that Version 8 does not take into
account current industry and regulatory requirements. Version 9 will remain the
only enhanced and maintained version of the software.
While the Company does not believe costs incurred by the Company to
develop, test, distribute and install the Year 2000 patch will be material,
there can be no assurance that such costs will not have a material adverse
effect on the Company's financial condition or results of operations.
Additionally, there can be no assurance that the existence of the Year 2000
patch will not delay or reduce the migration of users to Version 9 from earlier
versions. Further, if Version 9 or other customers experience significant
difficulties as a result of the Year 2000 issue, or if the Company encounters
difficulties in responding in a timely manner to customer requests to upgrade to
Version 9, there could be a material adverse impact on the Company's results of
operations, financial condition or business.
Six lawsuits have been brought against the Company alleging Year 2000
issues regarding The Medical Manager software in versions prior to Version 9.0.
Each of these lawsuits purports to sue on behalf of those similarly situated and
raises essentially the same issues. The Company
21
<PAGE> 23
believes that these lawsuits are without merit and intends to vigorously defend
against the suits. See Part II, Item 1, "Legal Proceedings".
NEW ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards ("SFAS") No. 130,
"Reporting Comprehensive Income". In June 1997, the Financial Accounting
Standards Board issued SFAS No. 130, effective for fiscal periods beginning
after December 15, 1997. The new standard requires that comprehensive income,
which includes net income as well as certain changes in assets and liabilities
recorded in common equity, be reported in the financial statements. For the
three and nine month periods ended September 30, 1998 and 1997, there were no
components of comprehensive income other than net income.
SFAS No. 131, Disclosures about Segments of an Enterprise and Related
Information, is effective for fiscal years beginning after December 15, 1997.
This Statement establishes standards for reporting information about operating
segments in annual financial statements and interim financial reports issued to
shareholders. Generally, certain financial information is required to be
reported on the basis that is used internally for evaluating performance of and
allocation of resources to operating segments. The Company has not yet
determined to what extent the standard will impact its current practice of
reporting operating segment information.
SFAS No. 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits". In February 1998, the Financial Accounting Standards
issued SFAS No. 132 which is effective for periods ending after December 15,
1998. The new standard revises employers' disclosures about pensions and other
postretirement benefits. The Company does not believe the standard will impact
its financial statements.
SFAS No. 133, "Accounting for Derivative Investments and Hedging
Activities". SFAS No. 133 is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. This statement establishes accounting and
reporting standards for derivative instruments and hedging activities. The
Company does not maintain any derivative investments nor does it conduct any
hedging activities, therefore, the standard is not expected to impact the
Company.
Statement of Position (SOP) 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use". In March 1998, the
American Institute of Certified Public Accountants issued SOP 98-1, which is
effective for financial statements for fiscal years beginning after December
15, 1998. This SOP provides guidance on accounting for the costs of computer
software developed or obtained for internal use and provides guidance for
determining whether computer software is for internal use. The Company does not
develop any internal use software, therefore, management does not believe that
there will be any impact on the Company's financial statements.
22
<PAGE> 24
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On June 10, 1998, a lawsuit was brought against the Company alleging
Year 2000 issues regarding The Medical Manager software in versions prior to
Version 9.0. The lawsuit, captioned Robert Courtney, D.O. v. Medical Manager
Corporation, filed in the Superior Court of New Jersey, Atlantic County, and
removed to the Federal Court for the District of New Jersey, seeks compensatory
damages, treble damages and equitable and injunctive relief. The plaintiff
purports to sue on behalf of himself and others similarly situated. The Company
also received notice of five additional lawsuits making claims substantially
similar to the Courtney litigation. Specifically, (i) on August 7, 1998, the
Company was notified in writing that a lawsuit captioned Women's Institute For
Fertility Endocrinology and Menopause and Pediatric Associates Of The Main Line,
LTD v. Medical Manager Corporation had been filed in Pennsylvania State Court,
(ii) on August 10, 1998 the Company was served with a lawsuit in California
State Court captioned Peter Glusker and Richard Eisen v. Medical Manager Sales &
Marketing, Inc., and Medical Manager Corporation, (iii) on August 10, 1998, the
Company was served with a lawsuit in New York State Court captioned Rockland
Pulmonary And Medical Associates, P.C. and Rockland Cardiology, P.A. v. Medical
Manager Corporation, Medical Manager Research & Development, Inc. and Medical
Manager Sales & Marketing, Inc.; (iv) on August 28, 1998, the Company was
notified that a lawsuit in Florida State Court captioned Dennis College, M.D. v.
Medical Manager Corporation had been filed; and (v) on November 4, 1998, the
Company was notified that a lawsuit in the United States District Court for the
Northern District of Illinois captioned Highland Park Associates, S.C. v.
Medical Manager Corporation, Medical Manager Research & Development, Inc. and
Medical Manager Sale & Marketing, Inc. was filed. The Pennsylvania and New York
cases were removed to Federal Court. The Company believes that these lawsuits
are without merit and intends to vigorously defend against the suits.
The Company has also received notice of a lawsuit which was purportedly
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. Medical
Manager Corporation, 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 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, The
Medical Manager practice management system, during the class period. The class
period is alleged to be between April 23, 1998 and August 5, 1998. 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 the suit.
The Company is not presently involved in any other material pending
legal proceedings, other than ordinary routine litigation incidental to the
conduct of its business.
23
<PAGE> 25
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not Applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
ITEM 5. OTHER INFORMATION
Not Applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Amended and Restated 1996 Long-Term Incentive Plan
of the Company
11.1 Computation of Basic and Diluted Earnings Per Share for the
Three and Nine Months Ended September 30, 1998
11.2 Computation of Basic and Diluted Earnings Per Share for the
Three and Nine Months Ended September 30, 1997
11.3 Computation of Pro Forma Basic and Diluted Earnings Per Share
for the Nine Months Ended September 30, 1997
27. Financial Data Schedule (filed only electronically with
the SEC)
(b) Reports on Form 8-K
A Current Report on Form 8-K was filed with the Securities
and Exchange Commission on August 11, 1998, to disclose the Company's receipt
of notice of three additional lawsuits alleging Year 2000 issues against the
Company.
A Current Report on Form 8-K was filed with the Securities
and Exchange Commission on September 1, 1998, to disclose the press release
issued by the Company related to the Company's expanded Year 2000 policy and
the Company's formal Year 2000 Statement.
A Current Report of Form 8-K was filed with the Securities
and Exchange Commission on October 29, 1998, to disclose the Company's receipt
of notice of a lawsuit which was purportedly filed against the Company and
certain of its officers and directors, among other
24
<PAGE> 26
parties, on October 23, 1998, to recover damages for alleged violations of the
federal securities 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, The Medical
Manager practice management system.
25
<PAGE> 27
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MEDICAL MANAGER CORPORATION
By: /s/ Lee A. Robbins
---------------------------------
Lee A. Robbins
Vice President and Chief
Financial Officer
Date: November 13, 1998
26
<PAGE> 28
EXHIBIT INDEX
<TABLE>
<CAPTION>
Number Description of Exhibits
- ------ ----------------------
<S> <C>
10.1 Amended and Restated 1996 Long-Term Incentive Plan
of the Company
11.1 Computation of Basic and Diluted Earnings
Per Share for the Three and Nine Months Ended
September 30, 1998
11.2 Computation of Basic and Diluted Earnings
Per Share for the Three and Nine Months Ended
September 30, 1997
11.3 Computation of Pro Forma Basic and Diluted
Earnings Per Share for the Nine Months
Ended September, 1997
27 Financial Data Schedule (filed only electronically
with the SEC)
</TABLE>
27
<PAGE> 1
Exhibit 10.1
MEDICAL MANAGER CORPORATION
AMENDED AND RESTATED
1996 LONG-TERM INCENTIVE PLAN
1. Purpose. The purpose of this 1996 Long-Term Incentive Plan (the
"Plan") of Medical Manager Corporation, a Delaware corporation (the "Company"),
is to advance the interests of the Company and its stockholders by providing a
means to attract, retain and reward executive officers and other key employees
and consultants of and service providers to the Company and its subsidiaries
and to enable such persons to acquire or increase a proprietary interest in the
Company, thereby promoting a closer identity of interests between such persons
and the Company's stockholders.
2. Definitions. The definitions of awards under the Plan, including
Options, SARs (including Limited SARs), Restricted Stock, Deferred Stock, Stock
granted as a bonus or in lieu of other awards, Dividend Equivalents and Other
Stock-Based Awards are set forth in Section 6 of the Plan. Such awards,
together with any other right or interest granted to a Participant under the
Plan, are termed "Awards." For purposes of the Plan, the following additional
terms shall be defined as set forth below:
(a) "Award Agreement" means any written agreement, contract, notice or
other instrument or document evidencing an Award.
(b) "Beneficiary" shall mean the person, persons, trust or trusts
which have been designated by a Participant in his or her most recent written
beneficiary designation filed with the Committee to receive the benefits
specified under the Plan upon such Participant's death or, if there is no
designated Beneficiary or surviving designated Beneficiary, then the person,
persons, trust or trusts entitled by will or the laws of descent and
distribution to receive such benefits.
(c) "Board" means the Board of Directors of the Company.
(d) A "Change in Control" shall be deemed to have occurred if:
(i) any person, other than the Company or an employee benefit
plan of the Company, acquires directly or indirectly the Beneficial
Ownership (as defined in Section 13(d) of the Exchange Act) of any
voting security of the Company and immediately after such acquisition
such Person is, directly or indirectly, the Beneficial Owner of
voting securities representing 50 percent or more of the total voting
power of all of the then-outstanding voting securities of the
Company;
(ii) the following individuals no longer constitute a majority
of the members of the Board: (A) the individuals who, as of the
closing date of the Initial Public Offering, constitute the Board
(the "Original Directors"); (B) the individuals who thereafter are
elected to the Board and whose election, or nomination for election,
to the
<PAGE> 2
Board was approved by a vote of at least two-thirds (2/3) of the
Original Directors then still in office (such directors becoming
"Additional Original Directors" immediately following their
election); and (C) the individuals who are elected to the Board and
whose election, or nomination for election, to the Board was approved
by a vote of at least two-thirds (2/3) of the Original Directors and
Additional Original Directors then still in office (such directors
also becoming "Additional Original Directors" immediately following
their election);
(iii) the stockholders of the Company approve a merger,
consolidation, recapitalization or reorganization of the Company, or
a reverse stock split of outstanding voting securities, or
consummation of any such transaction if stockholder approval is not
obtained, other than any such transaction which would result in at
least 75 percent of the total voting power represented by the voting
securities of the surviving entity outstanding immediately after such
transaction being Beneficially Owned by at least 75 percent of the
holders of outstanding voting securities of the Company immediately
prior to the transaction, with the voting power of each such
continuing holder relative to other such continuing holders not
substantially altered in the transaction; or
(iv) the stockholders of the Company shall approve a plan of
complete liquidation of the Company or an agreement for the sale or
disposition by the Company of all or a substantial portion of the
Company's assets (i.e., 50 percent or more of the total assets of the
Company).
(e) "Code" means the Internal Revenue Code of 1986, as amended from
time to time. References to any provision of the Code shall be deemed to
include regulations thereunder and successor provisions and regulations
thereto.
(f) "Committee" means the Compensation Committee of the Board, or such
other Board committee as may be designated by the Board to administer the Plan;
provided, however, that the Committee shall consist solely of two or more
directors. In appointing members of the Committee, the Board will consider
whether each member will qualify as a "Non-Employee Director" within the
meaning of Rule 16b-3(b)(3) and as an "outside director" within the meaning of
Treasury Regulation 1.162-27(e)(3) under Code Section 162(m), but such members
are not required to so qualify at the time of appointment or during their term
of service on the Committee.
(g) "Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time. References to any provision of the Exchange Act
shall be deemed to include rules thereunder and successor provisions and rules
thereto.
(h) "Fair Market Value" means, with respect to Stock, Awards, or other
property, the fair market value of such Stock, Awards, or other property
determined by such methods or procedures as shall be established from time to
time by the Committee, provided, however, that (i) if the Stock is listed on a
national securities exchange or quoted in an interdealer quotation system, the
Fair Market Value of such Stock on a given date shall be based upon the last
sales
-2-
<PAGE> 3
price or, if unavailable, the average of the closing bid and asked prices
per share of the Stock on such date (or, if there was no trading or quotation
in the Stock on such date, on the next preceding date on which there was
trading or quotation) as reported in the Wall Street Journal (or other
reporting service approved by the Committee), (ii) the "Fair Market Value" of
Stock subject to Options granted effective upon commencement of the Initial
Public Offering shall be the Initial Public Offering price of the shares so
issued and sold in the Initial Public Offering, as set forth in the first final
prospectus used in such offering (the provisions of clause (i) notwithstanding)
and (iii) the "Fair Market Value" of Stock prior to the date of the Initial
Public Offering shall be as determined by the Board of Directors.
(i) "Initial Public Offering" shall mean an initial public offering of
shares of Stock in a firm commitment underwriting registered with the
Securities and Exchange Commission in compliance with the provisions of the
Securities Act of 1933, as amended.
(j) "ISO" means any Option intended to be and designated as an
incentive stock option within the meaning of Section 422 of the Code.
(k) "NQSO" shall mean an Option granted pursuant to the Plan to
purchase shares of the Stock that is not an ISO.
(l) "Participant" means a person who, at a time when eligible under
Section 5 hereof, has been granted an Award under the Plan.
(m) "Rule 16b-3" means Rule 16b-3, as from time to time in effect and
applicable to the Plan and Participants, promulgated by the Securities and
Exchange Commission under Section 16 of the Exchange Act.
(n) "Stock" means the Common Stock, $.01 par value, of the Company and
such other securities as may be substituted for Stock or such other securities
pursuant to Section 4.
3. Administration.
(a) Authority of the Committee. The Plan shall be administered by the
Committee. The Committee shall have full and final authority to take the
following actions, in each case subject to and consistent with the provisions
of the Plan:
(i) to select persons to whom Awards may be granted;
(ii) to determine the type or types of Awards to be granted to
each such person;
(iii) to determine the number of Awards to be granted, the
number of shares of Stock to which an Award will relate, the terms
and conditions of any Award granted under the Plan (including, but
not limited to, any exercise price, grant price or purchase price,
any restriction or condition, any schedule for lapse of restrictions
or conditions relating to transferability or forfeiture,
exercisability or settlement of an Award, and
-3-
<PAGE> 4
waivers or accelerations thereof, performance conditions relating to
an Award (including performance conditions relating to Awards not
intended to be governed by Section 7(f) and waivers and modifications
thereof), based in each case on such considerations as the Committee
shall determine), and all other matters to be determined in
connection with an Award;
(iv) to determine whether, to what extent and under what
circumstances an Award may be settled, or the exercise price of an
Award may be paid, in cash, Stock, other Awards, or other property,
or an Award may be cancelled, forfeited, or surrendered;
(v) to determine whether, to what extent and under what
circumstances cash, Stock, other Awards or other property payable
with respect to an Award will be deferred either automatically, at
the election of the Committee or at the election of the Participant;
(vi) to prescribe the form of each Award Agreement, which need
not be identical for each Participant;
(vii) to adopt, amend, suspend, waive and rescind such rules and
regulations and appoint such agents as the Committee may deem
necessary or advisable to administer the Plan;
(viii) to correct any defect or supply any omission or reconcile
any inconsistency in the Plan and to construe and interpret the Plan
and any Award, rules and regulations, Award Agreement or other
instrument hereunder; and
(ix) to make all other decisions and determinations as may be
required under the terms of the Plan or as the Committee may deem
necessary or advisable for the administration of the Plan.
Other provisions of the Plan notwithstanding, the Board may perform any
function of the Committee under the Plan, including without limitation for the
purpose of ensuring that transactions under the Plan by Participants who are
then subject to Section 16 of the Exchange Act in respect of the Company are
exempt under Rule 16b-3. In any case in which the Board is performing a
function of the Committee under the Plan, each reference to the Committee
herein shall be deemed to refer to the Board.
(b) Manner of Exercise of Committee Authority. Any action of the
Committee with respect to the Plan shall be final, conclusive and binding on
all persons, including the Company, subsidiaries of the Company, Participants,
any person claiming any rights under the Plan from or through any Participant
and stockholders, except to the extent the Committee may subsequently modify,
or take further action not consistent with, its prior action. If not specified
in the Plan, the time at which the Committee must or may make any determination
shall be determined by the Committee, and any such determination may thereafter
by modified by the Committee (subject to Section 8(e)). The express grant of
any specific power to the Committee, and the taking of any action by the
Committee, shall not be construed as limiting any power or authority of the
-4-
<PAGE> 5
Committee. Except as provided under Section 7(f), the Committee may delegate to
officers or managers of the Company or any subsidiary of the Company the
authority, subject to such terms as the Committee shall determine, to perform
such functions as the Committee may determine, to the extent permitted under
applicable law.
(c) Limitation of Liability. Each member of the Committee shall be
entitled to, in good faith, rely or act upon any report or other information
furnished to him by any officer or other employee of the Company or any
subsidiary, the Company's independent certified public accountants or any
executive compensation consultant, legal counsel or other professional retained
by the Company to assist in the administration of the Plan. No member of the
Committee, nor any officer or employee of the Company acting on behalf of the
Committee, shall be personally liable for any action, determination or
interpretation taken or made in good faith with respect to the Plan, and all
members of the Committee and any officer or employee of the Company acting on
its behalf shall, to the extent permitted by law, be fully indemnified and
protected by the Company with respect to any such action, determination or
interpretation.
4. Stock Subject to Plan.
(a) Amount of Stock Reserved. The total amount of Stock that may be
subject to outstanding awards, determined immediately after the grant of any
Award, shall not exceed the greater of two million shares or 12% of the total
number of shares of Stock outstanding at the effective time of such grant.
Notwithstanding the foregoing, the number of shares that may be delivered upon
the exercise of ISOs shall not exceed 500,000 (subject to adjustment as
provided in Section 4(c)), and the number of shares that may be delivered as
Restricted Stock and Deferred Stock (other than pursuant to an Award granted
under Section 7(f)) shall not in the aggregate exceed 500,000 (subject to
adjustment as provided in Section 4(c)), provided, however, that shares subject
to ISOs, Restricted Stock or Deferred Stock Awards shall not be deemed
delivered if such Awards are forfeited, expire or otherwise terminate without
delivery of shares to the Participant. If an Award valued by reference to Stock
may only be settled in cash, the number of shares to which such Award relates
shall be deemed to be Stock subject to such Award for purposes of this Section
4(a). Any shares of Stock delivered pursuant to an Award may consist, in whole
or in part, of authorized and unissued shares, treasury shares or shares
acquired in the market for a Participant's Account.
(b) Annual Per-Participant Limitations. During any calendar year, no
Participant may be granted Awards that may be settled by delivery of more than
250,000 shares of Stock, subject to adjustment as provided in Section 4(c). In
addition, with respect to Awards that may be settled in cash (in whole or in
part), no Participant may be paid during any calendar year cash amounts
relating to such Awards that exceed the greater of the Fair Market Value of the
number of shares of Stock set forth in the preceding sentence at the date of
grant or the date of settlement of Award. This provision sets forth two
separate limitations, so that Awards that may be settled solely by delivery of
Stock will not operate to reduce the amount of cash-only Awards, and vice
versa; nevertheless, Awards that may be settled in Stock or cash must not
exceed either limitation.
-5-
<PAGE> 6
(c) Adjustments. In the event that the Committee shall determine that
any recapitalization, forward or reverse split, reorganization, merger,
consolidation, spin-off, combination, repurchase or exchange of Stock or other
securities, Stock dividend or other special, large and non-recurring dividend
or distribution (whether in the form of cash, securities or other property),
liquidation, dissolution, or other similar corporate transaction or event,
affects the Stock such that an adjustment is appropriate in order to prevent
dilution or enlargement of the rights of Participants under the Plan, then the
Committee shall, in such manner as it may deem equitable, adjust any or all of
(i) the number and kind of shares of Stock reserved and available for Awards
under Section 4(a), including shares reserved for the ISOs and Restricted and
Deferred Stock, (ii) the number and kind of shares of Stock specified in the
Annual Per-Participant Limitations under Section 4(b), (iii) the number and
kind of shares of outstanding Restricted Stock or other outstanding Award in
connection with which shares have been issued, (iv) the number and kind of
shares that may be issued in respect of other outstanding Awards and (v) the
exercise price, grant price or purchase price relating to any Award (or, if
deemed appropriate, the Committee may make provision for a cash payment with
respect to any outstanding Award). In addition, the Committee is authorized to
make adjustments in the terms and conditions of, and the criteria included in,
Awards in recognition of unusual or nonrecurring events (including, without
limitation, events described in the preceding sentence) affecting the Company
or any subsidiary or the financial statements of the Company or any subsidiary,
or in response to changes in applicable laws, regulations, or accounting
principles. The foregoing notwithstanding, no adjustments shall be authorized
under this Section 4(c) with respect to ISOs or SARs in tandem therewith to the
extent that such authority would cause the Plan to fail to comply with Section
422(b)(1) of the Code, and no such adjustment shall be authorized with respect
to Options, SARs or other Awards subject to Section 7(f) to the extent that
such authority would cause such Awards to fail to qualify as "qualified
performance-based compensation" under Section 162(m)(4)(C) of the Code.
5. Eligibility. Executive officers and other key employees of the
Company and its subsidiaries, including any director or officer who is also
such an employee, and persons who provide consulting or other services to the
Company deemed by the Committee to be of substantial value to the Company, are
eligible to be granted Awards under the Plan. In addition, persons who have
been offered employment by the Company or its subsidiaries, and persons
employed by an entity that the Committee reasonably expects to become a
subsidiary of the Company, are eligible to be granted an Award under the Plan;
provided, however, that such Award shall be cancelled if any such person fails
to commence such employment, or such entity fails to become a subsidiary and no
payment of value may be made in connection with such Award until such person
has commenced such employment or until such entity becomes a subsidiary.
6. Specific Terms of Awards.
(a) General. Awards may be granted on the terms and conditions set
forth in this Section 6. In addition, the Committee may impose on any Award or
the exercise thereof such additional terms and conditions, not inconsistent
with the provisions of the Plan, as the Committee shall determine, including
terms requiring forfeiture of Awards in the event of
-6-
<PAGE> 7
termination of employment or service of the Participant. Except as provided in
Section 6(f), 6(h), or 7(a), or to the extent required to comply with
requirements of the Delaware General Corporation Law that lawful consideration
be paid for Stock, only services may be required as consideration for the grant
(but not the exercise) of any Award.
(b) Options. The Committee is authorized to grant options (including
"reload" options automatically granted to offset specified exercises of
options), each of which is either an ISO or an NQSO, on the following terms and
conditions (collectively "Options"):
(i) Exercise Price. The exercise price per share of Stock
purchasable under an Option shall be determined by the Committee;
provided, however, that, except as provided in Section 7(a), such
exercise price shall be not less than the Fair Market Value of a
share on the date of grant of such Option.
(ii) Time and Method of Exercise. The Committee shall determine
the time or times at which an Option may be exercised in whole or in
part, the methods by which such exercise price may be paid or deemed
to be paid, the form of such payment, including, without limitation,
cash, Stock, other Awards or awards granted under other Company plans
or other property (including notes or other contractual obligations
of Participants to make payment on a deferred basis, such as through
"cashless exercise" arrangements, to the extent permitted by
applicable law), and the methods by which Stock will be delivered or
deemed to be delivered to Participants.
(iii) ISOs. The terms of any ISO granted under the Plan shall
comply in all respects with the provisions of Section 422 of the
Code, including but not limited to the requirement that no ISO shall
be granted more than ten years after the effective date of the Plan.
Anything in the Plan to the contrary notwithstanding, no term of the
Plan relating to ISOs shall be interpreted, amended, or altered, nor
shall any discretion or authority granted under the Plan be
exercised, so as to disqualify either the Plan or any ISO under
Section 422 of the Code, unless requested by the affected
Participant.
(iv) Termination of Employment. Unless otherwise determined by
the Committee, upon termination of a Participant's employment with
the Company and its subsidiaries, such Participant may exercise any
Options during the three-month period following such termination of
employment, but only to the extent such Option was exercisable
immediately prior to such termination of employment. Notwithstanding
the foregoing, if the Committee determines that such termination is
for cause, all Options held by the Participant shall terminate as of
the termination of employment.
(c) Stock Appreciation Rights. The Committee is authorized to grant
SARs on the following terms and conditions ("SARs"):
(i) Right to Payment. An SAR shall confer on the Participant to
whom it is granted a right to receive, upon exercise thereof, the
excess of (A) the Fair Market Value
-7-
<PAGE> 8
of one share of Stock on the date of exercise (or, if the Committee
shall so determine in the case of any such right other than one
related to an ISO, the Fair Market Value of one share at any time
during a specified period before or after the date of exercise), over
(B) the grant price of the SAR as determined by the Committee as of
the date of grant of the SAR, which, except as provided in Section
7(a), shall be not less than the Fair Market Value of one share of
Stock on the date of grant.
(ii) Other Terms. The Committee shall determine the time or
times at which an SAR may be exercised in whole or in part, the
method of exercise, method of settlement, form of consideration
payable in settlement, method by which Stock will be delivered or
deemed to be delivered to Participants, whether or not an SAR shall
be in tandem with any other Award, and any other terms and conditions
of any SAR. Limited SARs that may only be exercised upon the
occurrence of a Change in Control may be granted on such terms, not
inconsistent with this Section 6(c), as the Committee may determine.
Limited SARs may be either freestanding or in tandem with other
Awards.
(d) Restricted Stock. The Committee is authorized to grant Restricted
Stock on the following terms and conditions ("Restricted Stock"):
(i) Grant and Restrictions. Restricted Stock shall be subject to
such restrictions on transferability and other restrictions, if any,
as the Committee may impose, which restrictions may lapse separately
or in combination at such times, under such circumstances, in such
installments, or otherwise, as the Committee may determine. Except to
the extent restricted under the terms of the Plan and any Award
Agreement relating to the Restricted Stock, a Participant granted
Restricted Stock shall have all of the rights of a stockholder
including, without limitation, the right to vote Restricted Stock or
the right to receive dividends thereon.
(ii) Forfeiture. Except as otherwise determined by the
Committee, upon termination of employment or service (as determined
under criteria established by the Committee) during the applicable
restriction period, Restricted Stock that is at that time subject to
restrictions shall be forfeited and reacquired by the Company;
provided, however, that the Committee may provide, by rule or
regulation or in any Award Agreement, or may determine in any
individual case, that restrictions or forfeiture conditions relating
to Restricted Stock will be waived in whole or in part in the event
of termination resulting from specified causes.
(iii) Certificates for Stock. Restricted Stock granted under the
Plan may be evidenced in such manner as the Committee shall
determine. If certificates representing Restricted Stock are
registered in the name of the Participant, such certificates may bear
an appropriate legend referring to the terms, conditions, and
restrictions applicable to such Restricted Stock, the Company may
retain physical possession of the certificate, and the Participant
shall have delivered a stock power to the Company, endorsed in blank,
relating to the Restricted Stock.
-8-
<PAGE> 9
(iv) Dividends. Dividends paid on Restricted Stock shall be
either paid at the dividend payment date in cash or in shares of
unrestricted Stock having a Fair Market Value equal to the amount of
such dividends, or the payment of such dividends shall be deferred
and/or the amount or value thereof automatically reinvested in
additional Restricted Stock, other Awards, or other investment
vehicles, as the Committee shall determine or permit the Participant
to elect. Stock distributed in connection with a Stock split or Stock
dividend, and other property distributed as a dividend, shall be
subject to restrictions and a risk of forfeiture to the same extent
as the Restricted Stock with respect to which such Stock or other
property has been distributed, unless otherwise determined by the
Committee.
(e) Deferred Stock. The Committee is authorized to grant Deferred
Stock subject to the following terms and conditions ("Deferred Stock"):
(i) Award and Restrictions. Delivery of Stock will occur upon
expiration of the deferral period specified for an Award of Deferred
Stock by the Committee (or, if permitted by the Committee, as elected
by the Participant). In addition, Deferred Stock shall be subject to
such restrictions as the Committee may impose, if any, which
restrictions may lapse at the expiration of the deferral period or at
earlier specified times, separately or in combination, in
installments or otherwise, as the Committee may determine.
(ii) Forfeiture. Except as otherwise determined by the
Committee, upon termination of employment or service (as determined
under criteria established by the Committee) during the applicable
deferral period or portion thereof to which forfeiture conditions
apply (as provided in the Award Agreement evidencing the Deferred
Stock), all Deferred Stock that is at that time subject to such
forfeiture conditions shall be forfeited; provided, however, that the
Committee may provide, by rule or regulation or in any Award
Agreement, or may determine in any individual case, that restrictions
or forfeiture conditions relating to Deferred Stock will be waived in
whole or in part in the event of termination resulting from specified
causes.
(f) Bonus Stock and Awards in Lieu of Cash Obligations. The Committee
is authorized to grant Stock as a bonus, or to grant Stock or other Awards in
lieu of Company obligations to pay cash under other plans or compensatory
arrangements.
(g) Dividend Equivalents. The Committee is authorized to grant
Dividend Equivalents entitling the Participant to receive cash, Stock, other
Awards or other property equal in value to dividends paid with respect to a
specified number of shares of Stock ("Dividend Equivalents"). Dividend
Equivalents may be awarded on a free-standing basis or in connection with
another Award. The Committee may provide that Dividend Equivalents shall be
paid or distributed when accrued or shall be deemed to have been reinvested in
additional Stock, Awards or other investment vehicles, and subject to such
restrictions on transferability and risks of forfeiture, as the Committee may
specify.
-9-
<PAGE> 10
(h) Other Stock-Based Awards. The Committee is authorized, subject to
limitations under applicable law, to grant such other Awards that may be
denominated or payable in, valued in whole or in part by reference to, or
otherwise based on, or related to, Stock and factors that may influence the
value of Stock, as deemed by the Committee to be consistent with the purposes of
the Plan, including, without limitation, convertible or exchangeable debt
securities, other rights convertible or exchangeable into Stock, purchase rights
for Stock, Awards with value and payment contingent upon performance of the
Company or any other factors designated by the Committee and Awards valued by
reference to the book value of Stock or the value of securities of or the
performance of specified subsidiaries ("Other Stock Based Awards"). The
Committee shall determine the terms and conditions of such Awards. Stock issued
pursuant to an Award in the nature of a purchase right granted under this
Section 6(h) shall be purchased for such consideration, paid for at such times,
by such methods, and in such forms, including, without limitation, cash, Stock,
other Awards, or other property, as the Committee shall determine. Cash awards,
as an element of or supplement to any other Award under the Plan, may be granted
pursuant to this Section 6(h).
7. Certain Provisions Applicable to Awards.
(a) Stand-Alone, Additional, Tandem, and Substitute Awards. Awards
granted under the Plan may, in the discretion of the Committee, be granted
either alone or in addition to, in tandem with or in substitution for any other
Award granted under the Plan or any award granted under any other plan of the
Company, any subsidiary or any business entity to be acquired by the Company or
a subsidiary, or any other right of a Participant to receive payment from the
Company or any subsidiary. Awards granted in addition to or in tandem with
other Awards or awards may be granted either as of the same time as or a
different time from the grant of such other Awards or awards.
(b) Term of Awards. The term of each Award shall be for such period as
may be determined by the Committee; provided, however, that in no event shall
the term of any ISO or an SAR granted in tandem therewith exceed a period of
ten years from the date of its grant (or such shorter period as may be
applicable under Section 422 of the Code).
(c) Form of Payment Under Awards. Subject to the terms of the Plan and
any applicable Award Agreement, payments to be made by the Company or a
subsidiary upon the grant, exercise or settlement of an Award may be made in
such forms as the Committee shall determine, including, without limitation,
cash, Stock, other Awards or other property, and may be made in a single
payment or transfer, in installments or on a deferred basis. Such payments may
include, without limitation, provisions for the payment or crediting of
reasonable interest on installment or deferred payments or the grant or
crediting of Dividend Equivalents in respect of installment or deferred
payments denominated in Stock.
(d) Rule 16b-3 Compliance.
(i) Six-Month Holding Period. Unless a Participant could
otherwise dispose of equity securities, including
derivative securities, acquired under the
-10-
<PAGE> 11
Plan without incurring liability under Section 16(b) of the
Exchange Act, equity securities acquired under the Plan
must be held for a period of six months following the date
of such acquisition, provided that this condition shall be
satisfied with respect to a derivative security if at least
six months elapse from the date of acquisition of the
derivative security to the date of disposition of the
derivative security (other than upon exercise or
conversion) or its underlying equity security.
(ii) Other Compliance Provisions. With respect to a Participant
who is then subject to Section 16 of the Exchange Act in
respect of the Company, the Committee shall implement
transactions under the Plan and administer the Plan in a
manner that will ensure that each transaction by such a
Participant is exempt from liability under Rule 16b-3,
except that such a Participant may be permitted to engage
in a non-exempt transaction under the Plan if written
notice has been given to the Participant regarding the
non-exempt nature of such transaction. The Committee may
authorize the Company to repurchase any Award or shares of
Stock resulting from any Award in order to prevent a
Participant who is subject to Section 16 of the Exchange
Act from incurring liability under Section 16(b). Unless
otherwise specified by the Participant, equity securities,
including derivative securities, acquired under the Plan
which are disposed of by a Participant shall be deemed to
be disposed of in the order acquired by the Participant.
(e) Loan Provisions. With the consent of the Committee, and subject at
all times to, and only to the extent, if any, permitted under and in accordance
with, laws and regulations and other binding obligations or provisions
applicable to the Company, the Company may make, guarantee or arrange for a
loan or loans to a Participant with respect to the exercise of any Option or
other payment in connection with any Award, including the payment by a
Participant of any or all federal, state or local income or other taxes due in
connection with any Award. Subject to such limitations, the Committee shall
have full authority to decide whether to make a loan or loans hereunder and to
determine the amount, terms and provisions of any such loan or loans, including
the interest rate to be charged in respect of any such loan or loans, whether
the loan or loans are to be with or without recourse against the borrower, the
terms on which the loan is to be repaid and conditions, if any, under which the
loan or loans may be forgiven.
(f) Performance-Based Awards. The Committee may, in its discretion,
designate any Award the exercisability or settlement of which is subject to the
achievement of performance conditions as a performance-based Award subject to
this Section 7(f), in order to qualify such Award as "qualified
performance-based compensation" within the meaning of Code Section 162(m) and
regulations thereunder. The performance objectives for an Award subject to this
Section 7(f) shall consist of one or more business criteria and a targeted
level or levels of performance with respect to such criteria, as specified by
the Committee but subject to this Section 7(f). Performance objectives shall be
objective and shall otherwise meet the requirements of Section 162(m)(4)(C) of
the Code. Business criteria used by the Committee in
-11-
<PAGE> 12
establishing performance objectives for Awards subject to this Section 7(f)
shall be selected from among the following:
(1) Annual return on capital;
(2) Annual earnings or earnings per share;
(3) Annual cash flow provided by operations;
(4) Changes in annual revenues; and/or
(5) Strategic business criteria, consisting of one or more
objectives based on meeting specified revenue, market
penetration, geographic business expansion goals, cost targets,
and goals relating to acquisitions or divestitures.
The levels of performance required with respect to such business criteria may
be expressed in absolute or relative levels. Achievement of performance
objectives with respect to such Awards shall be measured over a period of not
less than one year nor more than five years, as the Committee may specify.
Performance objectives may differ for such Awards to different Participants.
The Committee shall specify the weighting to be given to each performance
objective for purposes of determining the final amount payable with respect to
any such Award. The Committee may, in its discretion, reduce the amount of a
payout otherwise to be made in connection with an Award subject to this Section
7(f), but may not exercise discretion to increase such amount, and the
Committee may consider other performance criteria in exercising such
discretion. All determinations by the Committee as to the achievement of
performance objectives shall be in writing. The Committee may not delegate any
responsibility with respect to an Award subject to this Section 7(f).
(g) Acceleration upon a Change of Control. Notwithstanding anything
contained herein to the contrary, unless otherwise provided by the Committee in
an Award Agreement, all conditions and restrictions relating to an Award,
including limitations on exercisability, risks of forfeiture, deferral periods
and conditions and restrictions requiring the continued performance of services
or the achievement of performance objectives with respect to the exercisability
or settlement of such Award, shall immediately lapse upon a Change in Control.
8. General Provisions.
(a) Compliance With Laws and Obligations. The Company shall not be
obligated to issue or deliver Stock in connection with any Award or take any
other action under the Plan in a transaction subject to the registration
requirements of the Securities Act of 1933, as amended, or any other federal or
state securities law, any requirement under any listing agreement between the
Company and any national securities exchange or automated quotation system or
any other law, regulation or contractual obligation of the Company until the
Company is satisfied that such laws, regulations, and other obligations of the
Company have been complied with in full.
-12-
<PAGE> 13
Certificates representing shares of Stock issued under the Plan will be subject
to such stop-transfer orders and other restrictions as may be applicable under
such laws, regulations and other obligations of the Company, including any
requirement that a legend or legends be placed thereon.
(b) Limitations on Transferability. Awards and other rights under the
Plan will not be transferable by a Participant except by will or the laws of
descent and distribution or to a Beneficiary in the event of the Participant's
death, shall not be pledged, mortgaged, hypothecated or otherwise encumbered,
or otherwise subject to the claims of creditors, and, in the case of ISOs and
SARs in tandem therewith, shall be exercisable during the lifetime of a
Participant only by such Participant or his guardian or legal representative;
provided, however, that such Awards and other rights (other than ISOs and SARs
in tandem therewith) may be transferred to one or more transferees during the
lifetime of the Participant to the extent and on such terms as then may be
permitted by the Committee.
(c) No Right to Continued Employment or Service. Neither the Plan nor
any action taken hereunder shall be construed as giving any employee or other
person the right to be retained in the employ or service of the Company or any
of its subsidiaries, nor shall it interfere in any way with the right of the
Company or any of its subsidiaries to terminate any employee's employment or
other person's service at any time.
(d) Taxes. The Company and any subsidiary is authorized to withhold
from any Award granted or to be settled, any delivery of Stock in connection
with an Award, any other payment relating to an Award or any payroll or other
payment to a Participant amounts of withholding and other taxes due or
potentially payable in connection with any transaction involving an Award, and
to take such other action as the Committee may deem advisable to enable the
Company and Participants to satisfy obligations for the payment of withholding
taxes and other tax obligations relating to any Award. This authority shall
include authority to withhold or receive Stock or other property and to make
cash payments in respect thereof in satisfaction of a Participant's tax
obligations.
(e) Changes to the Plan and Awards. The Board may amend, alter,
suspend, discontinue or terminate the Plan or the Committee's authority to
grant Awards under the Plan without the consent of stockholders or
Participants, except that any such action shall be subject to the approval of
the Company's stockholders at or before the next annual meeting of stockholders
for which the record date is after such Board action if such stockholder
approval is required by any federal or state law or regulation or the rules of
any stock exchange or automated quotation system on which the Stock may then be
listed or quoted, and the Board may otherwise, in its discretion, determine to
submit other such changes to the Plan to stockholders for approval; provided,
however, that, without the consent of an affected Participant, no such action
may materially impair the rights of such Participant under any Award
theretofore granted to him. The Committee may waive any conditions or rights
under, or amend, alter, suspend, discontinue, or terminate, any Award
theretofore granted and any Award Agreement relating thereto; provided,
however, that, without the consent of an affected Participant, no such action
may materially impair the rights of such Participant under such Award.
-13-
<PAGE> 14
(f) No Rights to Awards; No Stockholder Rights. No Participant or
employee shall have any claim to be granted any Award under the Plan, and there
is no obligation for uniformity of treatment of Participants and employees. No
Award shall confer on any Participant any of the rights of a stockholder of the
Company unless and until Stock is duly issued or transferred and delivered to
the Participant in accordance with the terms of the Award or, in the case of an
Option, the Option is duly exercised.
(g) Unfunded Status of Awards; Creation of Trusts. The Plan is
intended to constitute an "unfunded" plan for incentive and deferred
compensation. With respect to any payments not yet made to a Participant
pursuant to an Award, nothing contained in the Plan or any Award shall give any
such Participant any rights that are greater than those of a general creditor
of the Company; provided, however, that the Committee may authorize the
creation of trusts or make other arrangements to meet the Company's obligations
under the Plan to deliver cash, Stock, other Awards, or other property pursuant
to any Award, which trusts or other arrangements shall be consistent with the
"unfunded" status of the Plan unless the Committee otherwise determines with
the consent of each affected Participant.
(h) Nonexclusivity of the Plan. Neither the adoption of the Plan by
the Board nor its submission to the stockholders of the Company for approval
shall be construed as creating any limitations on the power of the Board to
adopt such other compensatory arrangements as it may deem desirable, including,
without limitation, the granting of stock options otherwise than under the
Plan, and such arrangements may be either applicable generally or only in
specific cases.
(i) No Fractional Shares. No fractional shares of Stock shall be
issued or delivered pursuant to the Plan or any Award. The Committee shall
determine whether cash, other Awards, or other property shall be issued or paid
in lieu of such fractional shares or whether such fractional shares or any
rights thereto shall be forfeited or otherwise eliminated.
(j) Compliance with Code Section 162(m). It is the intent of the
Company that employee Options, SARs and other Awards designated as Awards
subject to Section 7(f) shall constitute "qualified performance-based
compensation" within the meaning of Code Section 162(m). Accordingly, if any
provision of the Plan or any Award Agreement relating to such an Award does not
comply or is inconsistent with the requirements of Code Section 162(m), such
provision shall be construed or deemed amended to the extent necessary to
conform to such requirements, and no provision shall be deemed to confer upon
the Committee or any other person discretion to increase the amount of
compensation otherwise payable in connection with any such Award upon
attainment of the performance objectives.
(k) Governing Law. The validity, construction and effect of the Plan,
any rules and regulations relating to the Plan and any Award Agreement shall be
determined in accordance with the laws of the State of Delaware, without giving
effect to principles of conflicts of laws, and applicable federal law.
-14-
<PAGE> 15
(l) Effective Date; Plan Termination. The Plan shall become effective
as of the date of its adoption by the Board, subject to stockholder approval
prior to the commencement of the Initial Public Offering, and shall continue in
effect until terminated by the Board.
-15-
<PAGE> 1
EXHIBIT 11.1
MEDICAL MANAGER CORPORATION
BASIC AND DILUTED EARNINGS PER SHARE
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, 1998 SEPTEMBER 30, 1998
------------------ ------------------
<S> <C> <C>
Net Income $ 4,485 $12,242
================== ==================
BASIC EARNINGS PER SHARE:
- ------------------------------------------------
Weighted average common shares outstanding 21,752 21,073
================== ==================
Basic earnings per share $0.21 $0.58
================== ==================
DILUTED EARNINGS PER SHARE:
- ------------------------------------------------
Weighted average common shares outstanding 21,752 21,073
Common equivalent shares:
Stock options 829 913
------------------ ------------------
Diluted shares 22,581 21,986
================== ==================
Diluted earnings per share $ 0.20 $ 0.56
================== ==================
</TABLE>
<PAGE> 1
EXHIBIT 11.2
MEDICAL MANAGER CORPORATION
BASIC AND DILUTED EARNINGS PER SHARE
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, 1997 SEPTEMBER 30, 1997
------------------ ------------------
<S> <C> <C>
Net Income $2,282 $7,220
================== ==================
BASIC EARNINGS PER SHARE:
- ------------------------------------------------
Weighted average common shares outstanding 19,819 19,734
================== ==================
Basic earnings per share $0.12 $0.37
================== ==================
DILUTED EARNINGS PER SHARE:
- ------------------------------------------------
Weighted average common shares outstanding 19,819 19,734
Common equivalent shares:
Stock awards 28 1
Stock options 653 306
------------------ ------------------
Diluted shares 20,500 20,041
================== ==================
Diluted earnings per share $0.11 $0.36
================== ==================
</TABLE>
<PAGE> 1
EXHIBIT 11.3
MEDICAL MANAGER CORPORATION
PRO FORMA
BASIC AND DILUTED EARNINGS PER SHARE
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
NINE MONTHS
ENDED
SEPTEMBER 30, 1997
------------------
<S> <C>
Net Income $ 7,296
==================
BASIC EARNINGS PER SHARE:
- ------------------------------------------------
Weighted average common shares outstanding 19,734
==================
Basic earnings per share $ 0.37
==================
DILUTED EARNINGS PER SHARE:
- ------------------------------------------------
Weighted average common shares outstanding 19,734
Common equivalent shares:
Stock awards 1
Stock options 306
------------------
Diluted shares 20,041
==================
Diluted earnings per share $ 0.36
==================
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<CASH> 48,530
<SECURITIES> 0
<RECEIVABLES> 24,838
<ALLOWANCES> 0
<INVENTORY> 2,713
<CURRENT-ASSETS> 78,474
<PP&E> 7,485
<DEPRECIATION> 0
<TOTAL-ASSETS> 112,116
<CURRENT-LIABILITIES> 19,804
<BONDS> 0
0
0
<COMMON> 218
<OTHER-SE> 89,820
<TOTAL-LIABILITY-AND-EQUITY> 112,116
<SALES> 62,049
<TOTAL-REVENUES> 96,219
<CGS> 28,983
<TOTAL-COSTS> 47,643
<OTHER-EXPENSES> 30,082
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 162
<INCOME-PRETAX> 19,298
<INCOME-TAX> 7,056
<INCOME-CONTINUING> 12,242
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,242
<EPS-PRIMARY> .58
<EPS-DILUTED> .56
</TABLE>
