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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): NOVEMBER 25, 1996
HEALTH MANAGEMENT SYSTEMS, INC.
401 PARK AVENUE SOUTH, NEW YORK, NEW YORK 10016
212-685-4545
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INCORPORATED UNDER THE LAWS OF COMMISSION FILE NUMBER I.R.S. EMPLOYER IDENTIFICATION NUMBER
STATE OF NEW YORK 0-20946 13-2770433
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ITEM 5. OTHER EVENTS.
Effective as of November 25, 1996 (the "Effective Time"), Health Management
Systems, Inc. (the "Company") consummated the acquisition of Quality Standards
in Medicine, Inc. ("QSM") in accordance with the Agreement and Plan of Merger,
as amended (the "Merger Agreement"), by and among the Company, QSM Acquisition
Corp. ("Sub"), a wholly owned subsidiary of the Company, and QSM. The common
stockholders of QSM approved the Merger Agreement and the transactions
contemplated thereby at a Special Meeting of Stockholders held on November 20,
1996. The Merger will be treated as a tax-free reorganization for federal
income tax purposes, and will be accounted for utilizing the pooling of
interests method of accounting.
Pursuant to the Merger Agreement, QSM merged (the "Merger") with Sub, with the
result that QSM became a wholly owned subsidiary of the Company. At the
Effective Time, each share of QSM common and preferred stock issued and
outstanding immediately prior to the Effective Time, together with all (i)
promissory notes issued by QSM which were outstanding immediately prior to the
closing date of the Merger (excluding promissory notes issued to the Company
evidencing working capital loans made to QSM prior to the Effective Time) and
(ii) common stock purchase warrants issued by QSM which were outstanding
immediately prior to the Closing Date were converted into an aggregate of
260,000 shares of common stock, $.01 par value per share, of the Company.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(C) EXHIBITS
99 Press Release of Health Management Systems, Inc.
relating to the consummation of the merger with
Quality Standards in Medicine, Inc.
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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.
HEALTH MANAGEMENT SYSTEMS, INC.
By: /s/ Phillip Siegel
---------------------------------
Phillip Siegel
Vice President and Chief
Financial Officer
Date: December 11, 1996
2
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EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------
99 Press Release of Health Management Systems, Inc. relating to the
consummation of the merger with Quality Standards in Medicine,
Inc.
3
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HEALTH MANAGEMENT SYSTEMS, INC. [HMS LOGO]
401 Park Avenue South
New York, New York 10016
(212) 685-4545
(212) 857-5004 (fax) Nasdaq: HMSY
PRESS RELEASE
Release: November 26, 1996, 6:00 a.m.
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Contact: Felice Blanco, Assistant Corporate Secretary Patrick Hojlo
Office of Investor Relations Noonan/Russo Communications
(212) 857-5423 (212) 696-4455 ext. 246
E-Mail:[email protected] http://www.noonanrusso.com
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HEALTH MANAGEMENT SYSTEMS, INC. REPORTS
FOURTH QUARTER AND FISCAL YEAR 1996 RESULTS
NEW YORK, N.Y. November 26, 1996 - Health Management Systems, Inc. (Nasdaq:
HMSY) announced fourth quarter and fiscal year 1996 results today. As indicated
in the Company's announcement of November 15, 1996, results for the quarter were
below expectations, due primarily to shortfalls in revenue. HMSY's fourth
quarter revenue of $23.9 million declined 3% from the comparable prior year
period, with revenue from the Company's core proprietary services (RCR, TPLR,
and CAMS, exclusive of affiliate revenue) declining 3%. HMSY's fourth quarter
operating margin of $5.2 million produced an operating margin rate of 22%, an
increase of $0.1 million or 2% in operating margin from the comparable prior
year period. Net income for the quarter was $2.9 million, resulting in earnings
per share of $0.16, a decrease of 6% from the same period last year.
HMSY's fiscal year 1996 revenue of $100.7 million increased 12% over fiscal year
1995, with revenue from the Company's core proprietary services increasing 19%.
During fiscal year 1996, the Company incurred a one-time charge relating to the
discontinuance of a data processing agreement with, and the write-off of an
investment in, HHL Financial Services, Inc. (HHL). The one-time charge included
a revenue reversal of $2.2 million, a net decrease in operating margin of $8.7
million, a write-off of investment of $0.9 million, and a net tax benefit of
$3.9 million. Exclusive of the third quarter revenue reversal for HHL, fiscal
year 1996 revenue was $102.8 million, increasing 15% over fiscal year 1995.
HMSY's fiscal year 1996 operating margin of $14.3 million produced an operating
margin rate of 14%, and reflected a decrease of $3.8 million or 21% from fiscal
year 1995. Exclusive of one-time charges for HHL, fiscal year 1996 operating
margin of $23.1 million produced an operating margin rate of 22%. Net income for
the year was $8.2 million. Exclusive of the one-time charge for HHL, and merger
costs for CDR Associates, Inc., net income was $14.4 million in fiscal year
1996. Excluding merger costs for HCm, Inc. in fiscal year 1995, this represents
an increase of $3.8 million or 35% over the prior year. The Company's
performance for fiscal year 1996 resulted in earnings per share of $0.45, a
decrease of 18% from the prior year. Excluding the revenue reversal, and all
one-time charges from fiscal years 1996 and 1995, earnings per share in fiscal
year 1996 increased from $0.61 to $0.79, an increase of 30% over the prior year.
On November 25, 1996, the Company completed the acquisition of Quality Standards
in Medicine, Inc. (QSM), a Boston-based company providing clinical quality
management systems, for 260,000 shares of HMSY common stock. This transaction is
being treated as a pooling of interests, is expected to be approximately $0.03
per share dilutive, and is included in HMSY's current fiscal year 1997
estimates. From a substantive vantage point, QSM adds clinical expertise
critical to the Company's business model. Founded in 1986, QSM provides
hospitals with sophisticated systems and consulting services to help define and
measure the quality of care. QSM had 1995 revenue of $0.8 million, and is well
positioned with clients in 13 states, the District of Columbia, and the United
Kingdom. QSM will be combined with HCm, HMSY's decision support systems
subsidiary.
Paul J. Kerz, President and Chief Executive Officer, observed: "While HMSY's
otherwise strong results for the year were tempered and obscured by adverse
third and fourth quarter client-related events, we completed the year solidly
profitable and with positive cash flow. In the fourth quarter, cash collections
improved, days sales outstanding declined by a significant amount, and at the
end of the quarter cash balances improved almost $10 million."
Mr. Kerz continued, "At the time of our announcement of preliminary results, we
believed it judicious to reaffirm our traditional target annual growth rate of
15-20% at both the top and bottom lines. Moreover, commenting on the need for
sensitivity to the Company's comparatively small size, we realerted the
investment community to variations in quarterly comparisons, while suggesting
that several quarters of revenue consolidation lay ahead, with an orderly
assumption of growth likely for later in the year."
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HEALTH MANAGEMENT SYSTEMS, INC. [HMS LOGO]
401 Park Avenue South
New York, New York 10016
(212) 685-4545
(212) 857-5004 (fax)
PRESS RELEASE
Mr. Kerz concluded, "As is generally acknowledged, the transformations affecting
health care and the transfer payment processes associated with health care
reimbursement are profound. These changes impact patients, providers, and
purchasers, and entail complex implications yet to be made manifest.
Reformations of this scope predictably cause perturbations in the marketplace --
in turn affecting decision-making about engagements of increasing complexity and
size. Yet, the overall theme is: increased complexity drives the need for more
information, derived from expanded, increasingly granular, data sets. Thus, we
see myriad opportunities for an information management company devoted to the
utilization of innovative tools and processes for improving client revenue,
profitability, quality, and cost-effectiveness. HMSY has realized value for its
clients -- including many of the largest governmental, corporate, and
not-for-profit institutions in the country -- for 22 years. We continue to work
in close partnership with clients to develop and apply proprietary information
management services and systems at the vanguard of change in the health care
industry."
HMSY furnishes proprietary information management and data processing services
and software to hospitals and health care providers, government health services
agencies, other payors or purchasers of health care, and companies serving the
health care industry. The Company's offerings constitute an outsourcing of
various aspects of the information processing functions associated with the
health care transfer payment process, affording HMSY's clients the benefits of
enhanced revenue (achieved through improved reimbursability and/or
collectibility), accelerated cash flow, and reduced operating and administrative
costs.
This press release contains forward-looking statements. Such statements involve
various risks that may cause actual results to differ materially. These risks
include but are not limited to the ability of HMSY to grow internally or by
acquisition and to integrate acquired businesses into the HMSY group of
companies, changing conditions in the health care industry which could simplify
the reimbursement process and adversely affect HMSY's business, government
regulatory and political pressures which could reduce the rate of growth of
health care expenditures, competitive actions by other companies, and other
risks referred to in HMSY's registration statements and periodic reports filed
with the Securities and Exchange Commission.
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HEALTH MANAGEMENT SYSTEMS, INC. [HMS LOGO]
401 Park Avenue South
New York, New York 10016
(212) 685-4545
(212) 857-5004 (fax) Nasdaq: HMSY
PRESS RELEASE
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except $ Per Share Amounts)
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THREE MONTHS ENDED TWELVE MONTHS ENDED
OCTOBER 31, OCTOBER 31,
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1996 1995 1996 1995
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(Unaudited)
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REVENUE................................................. $ 23,917 24,681 100,669 89,727
COST OF SERVICES
Compensation.......................................... 11,239 11,798 48,564 43,373
Data processing....................................... 1,864 2,529 10,257 8,144
Occupancy............................................. 2,362 1,682 7,840 6,529
Other................................................. 3,291 3,609 19,660 13,581
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18,756 19,618 86,321 71,627
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OPERATING MARGIN..................................... 5,161 5,063 14,348 18,100
Amortization of intangibles........................... 43 54 204 243
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OPERATING INCOME..................................... 5,118 5,009 14,144 17,857
OTHER INCOME/EXPENSE
Interest income...................................... 322 274 987 983
Merger related costs................................. (5) 0 (494) (1,045)
Equity in (loss) earnings of affiliate............... (138) (11) 50 0
Loss on investment................................... 0 0 (927) 0
Other................................................ 0 5 0 (41)
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INCOME BEFORE INCOME TAX EXPENSE .................... 5,297 5,277 13,760 17,754
Income tax expense...................................... (2,365) (2,312) (5,574) (8,152)
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NET INCOME .......................................... $ 2,932 2,965 8,186 9,602
========= ========= ======== =========
PER COMMON SHARE:
Net income .......................................... $ 0.16 0.17 0.45 0.55
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Weighted average shares outstanding.................. 18,328 17,659 18,289 17,407
========= ========= ======== =========
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CONSOLIDATED CONDENSED BALANCE SHEETS
(In Thousands)
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OCTOBER 31, OCTOBER 31,
1996 1995
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ASSETS
Cash and short-term investments...................... $ 39,455 30,088
Accounts receivable, net............................. 42,418 31,630
Property and equipment, net.......................... 7,774 5,874
Intangible assets, net............................... 5,257 5,461
Investment in affiliates............................. 6,824 7,673
Other................................................ 7,453 6,658
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Total assets...................................... $ 109,181 87,384
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities.................................. $ 30,188 24,403
Other liabilities.................................... 2,407 1,739
Deferred income taxes................................ 57 2,018
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Total liabilities................................. 32,652 28,160
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Shareholders' equity................................. 76,529 59,224
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Total liabilities and shareholders' equity........ $ 109,181 87,384
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