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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
--------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 000-19480
MEDAPHIS CORPORATION
(Exact name of Registrant as specified in its charter)
DELAWARE 58-1651222
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2700 CUMBERLAND PARKWAY, SUITE 300
ATLANTA, GEORGIA 30339
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(Address of principal executive offices) (Zip code)
(770) 444-5300
--------------
(Registrant's telephone number, including area code)
Not Applicable
--------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes (X) No ( )
Indicate the number of shares of stock outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at May 8, 1996
----------------------- --------------------------
Common Stock
$0.01 PAR VALUE 64,953,205 SHARES
Non-voting Common Stock
$0.01 PAR VALUE 0 SHARES
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MEDAPHIS CORPORATION
FORM 10-Q/A
MARCH 31, 1996
<TABLE>
<CAPTION>
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Page
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<S> <C>
Part I: Financial Information
Consolidated Statements of Operations for the three
months ended March 31, 1996 and 1995 ............................................................ 3
Consolidated Balance Sheets as of
March 31, 1996 (as restated) and December 31, 1995 (as restated)................................. 4
Consolidated Statements of Cash Flows for the
three months ended March 31, 1996 and 1995....................................................... 5
Notes to Consolidated Financial Statements....................................................... 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations.............................................................. 12
Part II: Other Information
Exhibits and Reports on Form 8-K................................................................. 20
Index to Exhibits................................................................................ 25
</TABLE>
THIS QUARTERLY REPORT ON FORM 10-Q/A IS BEING FILED AS A RESULT OF THE
COMPANY'S RESTATEMENT OF ITS FINANCIAL STATEMENTS FOR THE THREE MONTHS AND YEAR
ENDED DECEMBER 31, 1995 AND AS OF MARCH 31, 1996 AND JUNE 30, 1996. TO THE
EXTENT THIS AMENDED FILING IS INCONSISTENT WITH THE COMPANY'S QUARTERLY REPORT
ON FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996 (THE "ORIGINAL
FILING"), THE ORIGINAL FILING IS HEREBY SUPERSEDED AND AMENDED. TO THE EXTENT
THE ORIGINAL FILING IS UNAFFECTED BY THE RESTATEMENT, THE ORIGINAL FILING HAS
NOT BEEN UPDATED OR CORRECTED TO REFLECT EVENTS OCCURING SUBSEQUENT TO THE DATE
OF THE ORIGINAL FILING.
This Form 10-Q/A contains statements which may constitute
"forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. Those statements include statements regarding the
intent, belief or current expectations of Medaphis Corporation and members of
its management team. Prospective investors are cautioned that any such
forward-looking statements are not guarantees of future performance and involve
risks and uncertainties, and that actual results may differ materially from
those contemplated by such forward-looking statements. Important factors
currently known to management that could cause actual results to differ
materially from those in forward-looking statements are set forth in the Safe
Harbor Compliance Statement included as Exhibit 99 to the Form 10-Q filed on
November 14, 1996, and are hereby incorporated herein by reference. The
Company undertakes no obligation to update or revise forward-looking statements
to reflect changed assumptions, the occurrence of unanticipated events or
changes to future operating results over time.
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PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MEDAPHIS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three months ended
March 31,
1996 1995
- ----------------------------------------------------------------------------------
<S> <C> <C>
Revenue $136,582 $110,085
Salaries and wages 69,517 59,456
Other operating expenses 34,966 26,320
Depreciation 4,151 2,828
Amortization 3,927 3,324
Interest expense, net 2,117 3,728
Restructuring and other charges 150 31,750
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Total expenses 114,828 127,406
Income (loss) before income taxes 21,754 (17,321)
Income taxes 8,556 (9,119)
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Net income (loss) 13,198 (8,202)
Pro forma adjustments, principally income taxes - (3,679)
-------- --------
Pro forma net income (loss) $ 13,198 $(11,881)
======== ========
Pro forma net income (loss) per common share $ 0.23 $ (0.27)
======== ========
Weighted average shares outstanding 58,142 43,812
======== ========
</TABLE>
See notes to consolidated financial statements.
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MEDAPHIS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PAR VALUE DATA)
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
--------- ------------
(As Restated, See Note 7)
<S> <C> <C>
ASSETS
Current Assets:
Cash $ 3,141 $ 4,140
Restricted cash 16,473 15,340
Accounts receivable, billed 81,149 63,996
Accounts receivable, unbilled 76,834 73,299
Other 17,145 13,744
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Total current assets 194,742 170,519
Property and equipment 114,443 90,957
Intangible assets 461,400 446,640
Other 3,118 4,062
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$773,703 $712,178
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 8,598 $ 16,447
Accrued compensation 27,281 20,907
Accrued expenses 55,392 64,015
Current portion of long-term debt 9,327 9,444
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Total current liabilities 100,598 110,813
Long-term debt 184,867 144,264
Other obligations 17,524 18,901
Deferred income taxes 20,658 12,199
Convertible subordinated debentures - 63,375
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Total liabilities 323,647 349,552
Stockholders' Equity:
Common stock, voting, $.01 par value, 100,000
authorized in 1996 and 1995; issued and
outstanding 55,938 in 1996 and 50,645 in 1995 559 506
Common stock, nonvoting, $.01 par value, 600
authorized; none issued - -
Paid-in capital 432,471 362,109
Retained earnings 17,026 11
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Total stockholders' equity 450,056 362,626
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$773,703 $712,178
======== ========
</TABLE>
See notes to consolidated financial statements.
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MEDAPHIS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Three months ended March 31, 1996 1995
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 13,198 $ (8,202)
Adjustments to reconcile net income (loss) to net cash (used for)
provided by operating activities:
Depreciation and amortization 8,078 6,152
Impairment loss on property and equipment - 5,030
Deferred income taxes 8,556 (9,239)
Changes in assets and liabilities, excluding effects of acquisitions:
Increase in accounts receivable, billed (17,960) (10,786)
Increase in accounts receivable, unbilled (4,008) (1,670)
(Decrease) increase in accounts payable (7,934) 4,016
Increase in accrued compensation 5,843 757
(Decrease) increase in accrued expenses (10,191) 24,160
Other, net (2,001) (4,259)
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Net cash (used for) provided by operating activities (6,419) 5,959
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CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions, net of cash acquired (5,722) (26,822)
Purchases of property and equipment (19,166) (7,078)
Software development costs (12,497) (3,915)
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Net cash used for investing activities (37,385) (37,815)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 7,210 1,274
Proceeds from borrowings 39,141 32,699
Principal payments of long-term debt (7,364) (1,308)
Dividends to shareholders of acquired companies - (1,816)
Other 3,818 -
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Net cash provided by financing activities 42,805 30,849
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CASH:
Net change (999) (1,007)
Balance at beginning of period 4,140 12,417
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Balance at end of period $ 3,141 $ 11,410
======== ========
SUPPLEMENTAL DISCLOSURES:
Cash paid for:
Interest $ 3,423 $ 4,516
Income taxes 612 132
Non-cash investing and financing activities:
Liabilities assumed in acquisitions 2,103 949
Additions to capital lease obligations 9,190 3,295
Common stock issued in conjunction with acquisitions - 459
</TABLE>
See notes to consolidated financial statements.
5
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MEDAPHIS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1996 and 1995
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NOTE 1 - Basis of Presentation
The accompanying unaudited condensed consolidated financial statements
of Medaphis Corporation ("Medaphis" or the "Company") are presented in
accordance with the requirements of Form 10-Q and Rule 10-01 of Regulation S-X.
The Notes to the 1995 Consolidated and Supplemental Consolidated Financial
Statements of the Company which are contained in the Company's Annual Report on
Form 10-K/A for the fiscal year ended December 31, 1995 and the Company's
Current Report on Form 8-K/A dated June 29, 1996, respectively, should be read
in conjunction with these unaudited condensed consolidated financial
statements. See Note 7 for a discussion of the restatement of the Company's
consolidated financial statements for the three months and year ended December
31, 1995 and as of March 31, 1996.
The unaudited condensed financial information has been prepared in
accordance with the Company's customary accounting policies and practices. In
the opinion of management, all adjustments, consisting of normal recurring
adjustments considered necessary for a fair presentation of results for the
interim period, have been included.
NOTE 2 - Legal Matters
The United States Attorney's Office for the Central District of California
is conducting an investigation (the "Federal Investigation") of Medaphis'
billing and collection practices in its offices located in Calabasas and
Cypress, California (the "Designated Offices"). Medaphis first became aware of
the Federal Investigation when it received search warrants and grand jury
subpoenas on June 13, 1995. Although the precise scope of the Federal
Investigation is not known at this time, Medaphis believes that the U.S.
Attorney's Office is investigating allegations of billing fraud and at the
inquiry is focused upon Medaphis' billing and collection practices in the
Designated Offices. Numerous federal and state civil and criminal laws govern
medical billing and collection activities. In general, these laws provide for
various fines, penalties, multiple damages, assessments and sanctions for
violations, including possible exclusion from Medicare, Medicaid and certain
other federal and state healthcare programs. Although the Designated Offices
represent less than 2% of Medaphis' annual revenue, there can be no assurance
that the Federal Investigation will be resolved promptly, that additional
subpoenas or warrants will not be received by Medaphis or that the Federal
Investigation will not have a material adverse effect upon the Company. The
Company recorded a charge of $12 million in 1995 solely for the administrative
fees, costs and expenses it anticipates incurring in connection with the
Federal Investigation and the putative class action lawsuits described below.
The charge is intended to cover only the anticipated administrative expenses of
the Federal Investigation and the lawsuits and does not include any provision
for fines, penalties, damages, assessments, judgments or sanctions that may
arise out of such matters.
Following the announcement of the Federal Investigation, Medaphis, various
of its officers and directors and the lead underwriters associated with
Medaphis' public offering of common stock in
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April 1995 were named as defendants in putative shareholder class action
lawsuits filed in the Federal District Court for the Northern District of
Georgia. In general, these lawsuits allege violations of the federal
securities laws in connection with Medaphis' filings under the federal
securities acts, including the registration statement filed in connection with
Medaphis' public offering of common stock in April 1995. On October 13, 1995,
the named plaintiffs in these lawsuits filed a consolidated class action
complaint (the "Consolidated Complaint"). On January 3,1996, the court denied
defendants' motion to dismiss the Consolidated Complaint which argued that the
complaint failed to state a claim upon which relief may be granted. On April
11, 1996, certain of the named plaintiffs to the Consolidated Complaint
voluntarily dismissed with prejudice all of their claims. As a result of these
dismissals, the Consolidated Complaint no longer contains any claims based on
the Securities Act of 1933, and the Company's underwriters and outside
directors are no longer named as defendants. The Company believes that it has
meritorious defenses to this action and intends to assert them vigorously.
NOTE 3 - Recent Acquisitions and Other Matters
On February 12, 1996, the Company acquired the outstanding capital stock
of Medical Management Computer Services, Inc. ("MMCS"). MMCS provides billing
and accounts receivable management services primarily to emergency room
physicians.
On February 20, 1996, the Company acquired substantially all of the assets
and assumed certain of the liabilities of CBT Financial Services, Inc.
("CBT"). CBT provides collection and billing services primarily to hospitals.
Each of the foregoing acquisitions was recorded using the purchase method
of accounting and, accordingly, the purchase price has been allocated to the
assets acquired and liabilities assumed based on their estimated fair market
value at the date of the acquisition. The operating results of CBT and MMCS
are included in the Company's Consolidated Statement of Income from the
respective dates of acquisition.
On February 29, 1996, the Company exchanged shares of its common stock for
all of the outstanding shares of common stock of Intelligent Visual Computing,
Inc. ("IVC"). IVC provides systems integration and work flow engineering
systems and services to clients in the healthcare and other industries. This
transaction has been accounted for under the pooling-of-interests method of
accounting. However, due to the immateriality of IVC's operations, no
restatement of historical financial statements has been made.
In 1995, the Company acquired the Automation Atwork Companies ("Atwork"),
Healthcare Recoveries, Inc. ("HRI"), Consort Technologies, Inc. ("Consort") and
Medical Management Sciences, Inc. ("MMS") in acquisitions accounted for as
poolings-of-interests. A reconciliation of revenue, pro forma net income and
pro forma net income per common share of the Company, as previously reported
(which includes Atwork), HRI, Consort, MMS and Combined, including the pro
forma provision for "S" Corporation income taxes, is as follows (in thousands,
except per share data):
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<TABLE>
<CAPTION>
Three months
ended
March 31, 1995
--------------
<S> <C>
Revenue:
Medaphis, as previously reported $ 99,356
HRI 4,801
Consort 792
MMS 5,136
---------
Combined $ 110,085
=========
Pro forma net income (loss):
Medaphis, as previously reported $ (13,494)
HRI 602
Consort 222
MMS 1,496
Pro forma provision for "S"
Corporation income taxes (707)
---------
Combined $ (11,881)
=========
Pro forma net loss per common share:
Medaphis, as previously reported $ (0.35)
=========
Combined $ (0.27)
=========
</TABLE>
On April 3, 1996, the Company exchanged approximately 1.1 million shares
of its common stock for all of the outstanding shares of common stock of Rapid
Systems Solutions, Inc. ("Rapid Systems"). Rapid Systems is a client
server/systems integration company whose core competencies include: network
design integration and management; database design and development; graphical
user interface application design, development and implementation; and
strategic systems engineering and computer security. During 1995, Rapid Systems
had revenue of $14.7 million. As a result of the pooling-of-interests
accounting treatment for the Rapid Systems merger, the Company expects to
record a charge of approximately $900,000 in the second quarter of 1996 related
to fees, costs and expenses incurred in connection with the merger.
On April 16, 1996, the Company acquired the outstanding capital stock of
The MEDICO Group, Ltd. ("MEDICO"). MEDICO provides billing and accounts
receivable management services primarily to anesthesiologists. This
transaction will be accounted for using the purchase method of accounting.
On May 6, 1996, the Company exchanged approximately 7.5 million shares of
its common stock for all of the outstanding shares of common stock of BSG
Corporation ("BSG"). In addition, the Company assumed BSG stock options
representing approximately 2.3 million additional shares of the Company's
common stock. BSG provides information technology and change management
services to organizations seeking to transform their operations through the
strategic use of client/server and other advanced technologies. During 1995,
BSG had revenue of $69.7 million. As a result of the pooling-of-
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interests accounting treatment for the BSG merger, the Company expects to
record a charge of approximately $6.5 million in the second quarter of 1996
related to fees, costs and expenses incurred in connection with the merger.
The following unaudited pro forma financial information presents the
results of operations of the Company for the three months ended March 31, 1996
and 1995 as if the acquisitions of Medical Management, Inc. (March 1995),
Medical Billing Services (April 1995), Computers Diversified, Inc. (April
1995), The Receivables Management Division and related consulting services of
MedQuist, Inc. (December 1995), Rapid Systems (April 1996) and BSG (May 1996)
had occurred on January 1, 1995. The acquisitions of Decision Support Group
(January 1995), Medical Office Consultants (May 1995), Billing and Professional
Services, Inc. (October 1995), The Halley Exchange, Inc. (December 1995), CBT
(February 1996), MMCS (February 1996), IVC (February 1996) and MEDICO (April
1996) have been excluded from the unaudited pro forma financial information as
they are not considered material for pro forma presentation purposes.
The pro forma information presented below does not purport to be
indicative of the results that would have been obtained if the operations had
actually been combined for the periods presented and is not necessarily
indicative of operating results to be expected in future periods (in thousands,
except per share data).
<TABLE>
<CAPTION>
Pro Forma
Three months ended
-------------------
March 31 March 31
1996 1995
-------------------
<S> <C> <C>
Revenue $159,473 $138,527
Net income (loss) 12,697 (10,320)
Net income (loss) per share $ 0.18 $ (0.19)
</TABLE>
In February 1996, the Company, through its wholly owned indirect
subsidiary, Imonics GMBH, entered into a joint venture ("JV") with an
indirect subsidiary of Bertelsmann AG, a German corporation. The JV was formed
in order to provide customer-service related work flow applications throughout
Europe. Each partner holds a 50% interest in the JV. During the quarter ended
March 31, 1996, the JV signed an agreement with a German telecommunications
entity to provide systems integration and work flow engineering systems and
services over a multi-year contract. Included in revenue in the accompanying
Consolidated Statement of Operations for the quarter ended March 31, 1996, is
approximately $12.5 million relating to the Company's share of net earnings of
the JV.
NOTE 4 - Financing Transactions
In 1995, the Company gave notice of its intent to redeem its 6 1/2 %
convertible subordinated debentures due January 1, 2000. The debentures were
convertible into shares of the Company's common stock at a conversion price of
$14.00 per share. All of the debenture holders exercised their conversion
right effective January 1, 1996, and as a result, approximately 4.5 million
shares of common stock were issued in the conversion.
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NOTE 5 - Restructuring and Other Charges
Restructuring and other charges for the quarter ended March 31, 1996,
included costs and benefits associated with the merger with IVC, the Company's
ongoing re-engineering and consolidation project and the re-evaluation of
liabilities associated with several pooling-of-interests transactions
consummated in 1995.
In the quarter ended March 31, 1995, management of the Company approved a
restructuring plan relating to the consolidation of the Company's data
processing function in its operating subsidiary, Medaphis Physician Services
Corporation ("MPSC"). Substantially all of MPSC's local business offices at
the commitment date were leased. Business offices will be exited in accordance
with the guidelines established in the Company's restructuring plan. The
Company will negotiate lease buyouts and subleasing arrangements with lessors,
where possible, to mitigate its remaining contractual obligations under lease
agreements. In the quarter ended March 31, 1995, the Company recorded a
reserve for the exit costs associated with the restructuring plan of
approximately $15.0 million.
A description of the type and amount of exit costs incurred in the quarter
ended March 31, 1996 are as follows (in thousands):
<TABLE>
<CAPTION>
Reserve Incurred Reserve
Balance through Balance
12/31/95 3/31/96 3/31/96
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<S> <C> <C> <C>
Lease termination costs $ 5,990 $ (479) $ 5,511
Incremental costs associated
with discontinued client contracts 4,691 (669) 4,022
Other 1,788 (193) 1,595
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$ 12,469 $(1,341) $11,128
======== ======= =======
</TABLE>
In the quarter ended March 31, 1995, MPSC formalized an involuntary
severance benefit plan and the Company recorded a charge of approximately $5.0
million to reflect the expense for employees' rights to involuntary severance
benefits that have accumulated to date. Involuntary severance costs charged
against the liability were approximately $453,000 for the three-month period
ended March 31, 1996.
In January 1995, the Company assessed the recoverability of its long lived
assets and recorded an impairment loss of approximately $5.0 million related to
property and equipment that will be disposed of as a result of the
restructuring plan.
In connection with the Atwork merger, the Company incurred transaction
fees, costs and expenses of approximately $6.0 million. In accordance with the
pooling-of-interests accounting treatment, these costs have been reflected in
the operating results for the three months ended March 31, 1995.
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NOTE 6 - Income Taxes
In 1995, the Company acquired Atwork, Consort and MMS in merger
transactions which were accounted for under the pooling-of-interests method of
accounting. As a result of the Atwork merger, the Company recorded a tax
benefit of approximately $2.9 million related to Atwork's change in tax status
from an "S" Corporation to a "C" Corporation in the first quarter of 1995. Pro
forma net loss and pro forma net loss per common share are presented in the
consolidated statements of income as if Atwork, Consort and MMS had been "C"
Corporations during the quarter ended March 31, 1995.
NOTE 7 - Restatement of 1995 Consolidated Financial Statements and March 31,
1996 Balance Sheet
The Company has restated its consolidated financial statements for the
three months and year ended December 31, 1995. The restatement results
primarily from a software licensing agreement entered into by Imonics in
December 1995 for which the Company recognized associated license fee revenue
in 1995. Subsequent to the issuance of the Company's Quarterly Report on Form
10-Q for the quarterly period ended March 31, 1996, management discovered
unauthorized correspondence which created a contingency for the license fee
payable under this agreement. Such contingency precluded recognition of license
fee revenue in 1995 associated with this agreement. The Company has restated
its balance sheet as of March 31, 1996 contained in its Quarterly Report on
Form 10-Q for the quarterly period ended March 31, 1996 for the effect of the
1995 restatement adjustments. The previously recognized license fee revenue
and certain other adjustments, previously considered immaterial and not
recorded, are included as part of the restatement adjustments to the Company's
previously reported financial position. The significant effects of the
restatement are as follows:
<TABLE>
<CAPTION>
AS PREVIOUSLY
REPORTED AS RESTATED
------------- -----------
<S> <C> <C>
As of December 31, 1995:
Total current assets............................ $175,711 $170,519
Total assets.................................... 718,441 712,178
Total current liabilities....................... 108,536 110,813
Total liabilities............................... 350,691 349,552
Total stockholders' equity...................... 367,750 362,626
As of March 31, 1996 (unaudited):
Total current assets............................ 199,934 194,742
Total assets.................................... 779,966 773,703
Total current liabilities....................... 98,321 100,598
Total liabilities............................... 324,786 323,647
Total stockholders' equity...................... 455,180 450,056
</TABLE>
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PART I:
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Medaphis is a leading provider of business management systems and
services to the healthcare industry. Medaphis' systems and services are
designed to assist its clients with the business management functions
associated with the delivery of healthcare services, thereby permitting
physicians and hospitals to focus on providing quality medical services to
their patients. The Company also provides subrogation and related recovery
services primarily to healthcare payors, scheduling and information management
systems to hospitals and emerging integrated healthcare delivery systems and
systems integration and work flow engineering systems and services. The
Company's scheduling and information systems are designed to improve
efficiency by automating certain scheduling and related management functions
within a healthcare facility and its systems integration and work flow
engineering systems and services are designed to increase flexibility, improve
end-user access to information and increase decision making capabilities
through the strategic use and development of client/server, imaging and other
advanced technologies. The Company currently provides business management
systems and services to approximately 19,700 physicians and over 2,200
hospitals in all 50 states, subrogation and recovery services to healthcare
plans covering in excess of 24 million people throughout the United States and
systems integration and work flow engineering systems and services in the
United States and abroad.
Medaphis' business is impacted by trends in the U.S. healthcare industry.
As healthcare expenditures have grown as a percentage of the U.S. gross
national product, public and private healthcare cost containment measures have
applied pressure to the margins of healthcare providers. Historically, some
payors have willingly paid the prices established by providers while other
payors, notably the government and managed care companies, have paid far less
than established prices (in many cases less than the average cost of providing
the services). As a consequence, prices charged to payors willing to pay
established prices have increased in order to recover the cost of services
purchased by the government and others but not paid by them (i.e., "cost
shifting"). Increasing complexity in the reimbursement system and assumption
of greater payment responsibility by individuals have caused healthcare
providers to experience increased receivables and bad debt levels and higher
business office costs. Providers historically have addressed these pressures
on profitability by increasing their prices, by relying on demographic changes
to support increases in the volume and intensity of medical procedures, and by
cost shifting. Notwithstanding the foregoing, management of the Company
believes that the revenue recognized by the Company's clients continues to be
adversely affected by increased managed care and other industry factors
impacting healthcare providers in the United States. At the same time, the
process of submitting healthcare claims for reimbursement to third party
payors in accordance with applicable industry and regulatory standards
continues to grow in complexity and become more costly. Management of the
Company believes that the decline in revenue experienced by the Company's
clients, the increasing complexity and costs associated with providing billing
and accounts receivable management services to healthcare providers and the
Company's on-going re-engineering and consolidation project have placed
pressure on the rate of revenue growth and margins in the Company's physician
operations which are the subject of such re-engineering and consolidation
project. Due to these revenue and margin pressures, Medaphis Physician
Services Corporation ("MPSC") did not
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significantly contribute to the Company's operating profit for the second half
of 1995. During the first quarter of 1996, the Company's services division
had revenue of $106.1 million and contributed positively to the operating
results of the Company. However, MPSC adversely affected the results of
operations of the services division for the quarter ended March 31, 1996.
Management of the Company does not expect this trend to improve materially
until further progress is made with, among other things, the Company's
re-engineering and consolidation project and overall operations of the
business. The re-engineering and consolidation project was commenced in
earnest in early 1995 and has been designed to reduce costs, increase
consistency and quality of services and enhance operating margins in the
Company's transaction processing services operations through office
consolidation and the strategic use and deployment of scanning, imaging, work
flow engineering and client/server distributed computing technology and
services. The Company has implemented its new technology and best practices
at a large Information Processing Center in Pittsburgh and is in the process
of deploying such technology and services at its Charleston Information
Processing Center. Ultimately, the Company intends to further develop and
refine such technology and practices, and then to deploy such technology and
practices at up to eight additional Information Processing Centers.
Management of the Company currently anticipates that the re-engineering and
consolidation project will be substantially completed during 1997.
To date, the Company has been able to offset the margin and revenue
pressures experienced at MPSC through expanded growth in its systems
integration and information management operations. Much of this growth has
come from the signing of new systems integration contracts which have included
significant initial license fees and through strategic acquisitions. Given
the size and complexity of the large-scale systems integration contracts
entered into by the Company and the license fees associated therewith,
management of the Company believes that the results of operations for the
Company's technology systems division may be subject to significant quarterly
fluctuations based upon the timing of receipt of large-scale re-engineering
contracts. However, management also anticipates that the episodic nature of
the Company's existing systems integration operations should be partially
offset over time by the results of operations of BSG and Rapid Systems, which
historically have had a larger number of smaller systems integration projects
which have not included initial license fees.
The U.S. healthcare industry continues to experience tremendous change as
both federal and state governments, as well as private industry, work to bring
more efficiency and effectiveness to the healthcare system. Medaphis
continues to evaluate governmental and industry reform initiatives in an
effort to position itself to take advantage of the opportunities created
thereby.
RESULTS OF OPERATIONS
The following table shows the percentage of certain items reflected in
the Company's statements of income (loss) to revenue.
13
<PAGE> 14
<TABLE>
<CAPTION>
Three months
ended March 31
1996 1995
-------- --------
<S> <C> <C>
Revenue 100.0% 100.0%
Salaries and wages 50.9 54.0
Other operating expenses 25.6 23.9
Depreciation 3.0 2.6
Amortization 2.9 3.0
Interest expense, net 1.6 3.4
Restructuring and other charges 0.1 28.8
-------- --------
Income (loss) before income taxes 15.9 (15.7)
Income taxes (6.2) 8.2
-------- --------
Net income (loss) 9.6 (7.5)
Pro forma adjustments - (3.3)
-------- --------
Pro forma net income (loss) 9.6 (10.8)
======== ========
</TABLE>
Revenue. Revenue increased 24.1% to $136.6 million in the first quarter
of 1996 as compared with $110.1 million in the first quarter of 1995. Revenue
growth results from: (i) acquisitions; (ii) increases in the number of
business management services clients; and (iii) increases in sales to
information management and systems integration clients. The Company has
consummated 14 business combinations during the period from January 1, 1995,
through March 31, 1996.
Revenue of the Company's services division was $106.1 million and $98.1
million, respectively, for the quarters ended March 31, 1996 and 1995. A
substantial portion of the revenue in the Company's services division is
recurring, representing approximately 70% of consolidated revenue. Revenue of
the Company's technology systems division was $30.9 million and $12.3 million,
respectively, for the quarters ended March 31, 1996 and 1995. The Company's
overall internal revenue growth during the quarter ended March 31, 1996 was
approximately 19.5%.
Salaries and Wages. Salaries and wages decreased to 50.9% of revenue in
the first quarter of 1996 from 54.0% in the first quarter of 1995. The
decrease resulted primarily from the continued growth in the Company's
information management and systems integration businesses which are less
labor-intensive.
Other Operating Expenses. Other operating expenses increased to 25.6% of
revenue in the first quarter of 1996 compared to 23.9% in the first quarter of
1995. Other operating expenses are primarily comprised of postage, facility
and equipment rental, telecommunications, travel, outside consulting services
and office supplies.
Depreciation. Depreciation expense was $4.2 million in the first quarter
of 1996 as compared with $2.8 million in the first quarter of 1995. This
increase reflects the Company's investment in property and equipment to support
growth in its business, including acquisitions.
The Company has commenced a comprehensive re-engineering and consolidation
project in its operating subsidiary, MPSC. As part of this project, management
anticipates consolidating the
14
<PAGE> 15
processing function currently being performed in over 300 local business
offices into approximately ten regional processing centers. In addition, new
computer equipment and proprietary software will be installed in MPSC and
possibly other of the services division's operations. Management anticipates
increases in depreciation expense in 1996 and thereafter as a result of the
project's scheduled completion in 1997.
Amortization. Amortization of intangible assets, which are primarily
associated with the Company's acquisitions and internally developed software,
was $3.9 million in the first quarter of 1996 as compared with $3.3 million in
the first quarter of 1995. The increase is primarily due to increased
amortization of the Company's software products. Management anticipates that
amortization expense in 1996 and thereafter will increase upon the completion
of its re-engineering and consolidation project. The Company intends to
amortize the software developed in connection with this project over its
estimated useful life of seven years.
Interest. Net interest expense was $2.1 million in the first quarter of
1996 as compared with $3.7 million in the first quarter of 1995. The decrease
is primarily due to the conversion of the Company's subordinated debentures
into common stock on January 1, 1996. Management anticipates that future
interest expense will be impacted by interest rate fluctuations, increased
borrowings under the Senior Credit Facility to finance future acquisitions and
continued investment in the Company's re-engineering and consolidation project.
Restructuring and Other Charges. The Company has commenced a
comprehensive re-engineering and consolidation project in MPSC in order to
enhance its ability to provide more effective and efficient business management
services to its clients. This project is designed to further enhance the
Company's long-term operating efficiency and client service capability. MPSC
will consolidate its billing and accounts receivable processing function, which
is currently operated out of approximately 300 local business offices, into
approximately ten regional processing centers. It is currently anticipated
that the project will be substantially completed during 1997. As a result of
this project, the Company recorded restructuring and other charges of
approximately $25 million in the first quarter of 1995, consisting primarily of
exit costs ($15.0 million), involuntary severance benefits ($5.0 million) and
impairment losses associated with the disposition of property and equipment
($5.0 million).
In connection with the Atwork merger, the Company incurred transaction
fees, costs and expenses of approximately $6.0 million. In accordance with the
pooling-of-interests accounting treatment, the costs associated with the Atwork
merger have been reflected in the operating results of the Company in the first
quarter of 1995.
Restructuring and other charges for the quarter ended March 31, 1996,
included costs and benefits associated with the merger with IVC, the Company's
ongoing re-engineering and consolidation project and the re-evaluation of
liabilities associated with several pooling-of-interests transactions
consummated in 1995.
Income (Loss) Before Income Taxes. The Company's income before income
taxes was 15.9% of revenue in the first quarter of 1996 as compared with a loss
of (15.7)% of revenue in the first
15
<PAGE> 16
quarter of 1995. The increase is primarily the result of charges recorded in
the first quarter of 1995 relating to the re-engineering and consolidation
project and the Atwork merger and the results of the Company's technology
systems operations in the quarter ended March 31, 1996. During the first
quarter of 1996, the Company's income before income taxes was positively
impacted by fees derived from the Company's systems integration operations
reflecting the higher margin nature of these operations when compared to the
Company's business management services operations.
Income Taxes. The Company's historical effective income tax rates were
39.3% and a benefit of 52.6% for the quarters ended March 31, 1996 and 1995,
respectively. The decrease in tax rates between quarters results from (i) the
treatment of Atwork, Consort and MMS as "C" Corporations in the current year as
compared with "S" Corporations in the prior year, (ii) the tax benefit
associated with Atwork's change in tax status from "S" Corporation to "C"
Corporation in the quarter ended March 31, 1995 and (iii) the offsetting impact
of non-deductible merger costs incurred in the quarter ended March 31, 1995.
On a pro forma basis, assuming Atwork, Consort and MMS were "C" Corporations
for the quarter ended March 31, 1995, the Company's pro forma effective tax
rate would have been a benefit of 28.5%. The increase in the Company's pro
forma effective tax rate for the quarter ended March 31, 1996 resulted
primarily from the aforementioned non-deductible merger costs in the first
quarter of 1995.
Pro Forma Net Income (Loss). The Company's net income for the quarter
ended March 31, 1996, was $13.2 million as compared with a pro forma net loss
of $11.9 million in the year-earlier period. The increase in pro forma net
income from the year-earlier period is primarily a result of charges recorded
in the first quarter of 1995 relating to the re-engineering and consolidation
project and the Atwork merger and the results of the Company's technology
systems operations in the quarter ended March 31, 1996.
Pro Forma Net Income (Loss) Per Common Share. The weighted average
shares outstanding were 58,142,000 and 43,812,000 for the quarters ended March
31, 1996 and 1995, respectively. Pro forma net income (loss) per common share
was $0.23 and $(0.27) for the quarters ended March 31, 1996 and 1995,
respectively. The increase in the first quarter ended March 31, 1996, as
compared with the prior period is primarily the result of the charges recorded
in the first quarter of 1995 relating to the re-engineering and consolidation
project and the Atwork merger and the results of the Company's technology
systems operations in the quarter ended March 31, 1996.
RECENT ACQUISITIONS AND JOINT VENTURE
On February 12, 1996, the Company acquired the outstanding capital stock
of MMCS. MMCS provides billing and accounts receivable management services
primarily to emergency room physicians.
On February 20, 1996, the Company acquired substantially all of the assets
and assumed certain of the related liabilities of CBT. CBT provides collection
and billing services primarily to hospitals.
Each of the foregoing acquisitions was recorded using the purchase method
of accounting and, accordingly, the purchase price has been allocated to the
assets acquired and liabilities assumed based on their estimated fair market
value at the date of the acquisitions.
16
<PAGE> 17
On February 29, 1996, the Company exchanged shares of its common stock for
all of the outstanding shares of common stock of IVC. IVC provides systems
integration and work flow engineering systems and services to clients in the
healthcare and other industries. This transaction has been accounted for using
the pooling-of-interests method of accounting.
On April 3, 1996, the Company exchanged approximately 1.1 million shares
of its common stock for all of the outstanding shares of common stock of Rapid
Systems. Rapid Systems is a client server/systems integration company whose
core competencies include: network design, integration and management;
database design and development; graphical user interface application design,
development and implementation; and strategic systems engineering and computer
security. During 1995, Rapid Systems had revenue of $14.7 million. As a
result of the pooling-of-interests accounting treatment for the Rapid Systems
merger, the Company expects to record a charge of approximately $900,000 in the
second quarter of 1996 related to fees, costs and expenses incurred in
connection with the merger.
On April 16, 1996, the Company acquired the outstanding capital stock of
MEDICO which provides billing and accounts receivable management services
primarily to anesthesiologists. This transaction will be accounted for using
the purchase method of accounting.
On May 6, 1996, the Company exchanged approximately 7.5 million shares of
its common stock for all of the outstanding shares of common stock of BSG. In
addition, the Company assumed BSG stock options representing approximately 2.3
million additional shares of the Company's common stock. BSG provides
information technology and change management services to organizations seeking
to transform their operations through the strategic use of client/server and
other advanced technologies. During 1995, BSG had revenue of $69.7 million.
As a result of the pooling-of-interests accounting treatment for the BSG
merger, the Company expects to record a charge of approximately $6.5 million in
the second quarter of 1996 related to fees, costs and expenses incurred in
connection with the merger.
In February 1996, the Company, through its wholly owned indirect
subsidiary, Imonics GMBH, entered into a joint venture with an indirect
subsidiary of Bertelsmann AG, a German corporation. The JV was formed in order
to provide customer-service related work flow applications throughout Europe.
Each partner holds a 50% interest in the JV. During the quarter ended March
31, 1996, the JV signed an agreement with a German telecommunications entity
to provide systems integration and work flow engineering systems and services
over a multi-year contract. Included in revenue in the accompanying
Consolidated Statement of Operations for the quarter ended March 31, 1996 is
approximately $12.5 million related to the Company's share of net earnings of
the JV.
LIQUIDITY AND CAPITAL RESOURCES
The Company had working capital of $94.1 million at March 31, 1996,
including $3.1 million of cash.
Management believes additional working capital is not required to meet
its current liquidity needs before acquisitions, internal growth of the
business and investments in the Company's re-engineering and consolidation
project. The Company used $6.4 million in cash for operating
17
<PAGE> 18
activities (excluding the effects of restructuring, merger and other charges,
the Company generated operating cash flow of approximately $4.2 million) in the
quarter ended March 31, 1996. The decrease in the Company's operating cash
flows resulted from the increased levels of working capital committed to the
Company's technology systems operations, expenditures related to
restructuring, merger and other charges, and the ongoing revenue and margin
pressures at MPSC. Management of the Company expects the continued use of
cash to fund restructuring and merger costs, growth of the Company's
technology systems operations and to support operations of MPSC until further
progress is made in the Company's re-engineering and consolidation project and
the improvement of MPSC's overall operations. Management expects to fund such
cash requirements through cash flows from its operations and, to the extent
necessary, through amounts available for borrowing under the Senior Credit
Facility.
At March 31, 1996, approximately $162.2 million of borrowings were
outstanding under the Company's $250 million Senior Credit Facility. Amounts
available for borrowing under the Senior Credit Facility may be used for future
acquisitions, expansion of the Company's business and general corporate
purposes.
In December 1995, the Company gave notice of its intent to redeem its 6
1/2 % convertible subordinated debentures due January 1, 2000. The debentures
were convertible into shares of the Company's common stock at a conversion
price of $14.00 per share. All of the debenture holders exercised their
conversion right effective January 1, 1996, and as a result, approximately 4.5
million shares of common stock were issued in the conversion.
The Company estimates that each one million dollars of internal growth
requires no more than $500,000 of additional capital. If the current rate of
internal growth continues at historical operating margins, the Company
estimates that its cash flow from operations before restructuring, merger and
other changes will be adequate to meet its capital requirements for internal
growth. Internal growth may also be funded by the Company's Senior Credit
Facility. Management estimates that, at historical operating margins, any
borrowings that are incurred for internal growth purposes can be repaid within
two years by operating cash flow. Management also believes the Senior Credit
Facility will be sufficient to meet any seasonal cash requirements.
The Company has commenced a comprehensive re-engineering and
consolidation project. As part of this project, the Company anticipates
consolidating the processing function currently being performed in
approximately 300 local business offices into approximately ten regional
processing centers. The Company anticipates obtaining additional computer
equipment for approximately $16 million by the end of 1997, and incurring
software development costs of approximately $17 million in 1996. Additionally,
the Company anticipates incurring lease buy-out and termination payments,
involuntary severance benefits, and other cash expenditures of approximately
$12 to $17 million by the end of 1997 relating to this project. The remaining
costs related to the project are expected to be financed through the Company's
Senior Credit Facility, future operating cash flows and capital lease
financing. During the three months ended March 31, 1996, the Company
capitalized approximately $12 million of software development costs associated
with the development or enhancement of software to be used in the processing
function of the Company's business management services or otherwise sold
externally by the Company.
18
<PAGE> 19
Substantially all the Company's capital expenditures have related either
to acquisitions of healthcare business management service companies and
technology companies or to the expansion, improvement, or maintenance of
existing facilities. The Company has financed its growth through cash flows
from operations, the issuance of debt and equity securities and borrowings.
Management believes anticipated cash flow from operations and borrowing
capacity under the Senior Credit Facility will provide adequate capital
resources to support the Company's anticipated long-term financing needs.
OTHER MATTERS
The United States Attorney's Office for the Central District of California
is conducting an investigation (the "Federal Investigation") of Medaphis'
billing and collection practices in its offices located in Calabasas and
Cypress, California (the "Designated Offices"). Medaphis first became aware of
the Federal Investigation when it received search warrants and grand jury
subpoenas on June 13, 1995. Although the precise scope of the Federal
Investigation is not known at this time, Medaphis believes that the U.S.
Attorney's Office is investigating allegations of billing fraud and that the
inquiry is focused upon Medaphis' billing and collection practices in the
Designated Offices. Numerous federal and state civil and criminal laws govern
medical billing and collection activities. In general, these laws provide for
various fines, penalties, multiple damages, assessments and sanctions for
violations, including possible exclusion from Medicare, Medicaid and certain
other federal and state healthcare programs. Although the Designated Offices
represent less than 2% of Medaphis' annual revenue, there can be no assurance
the Federal Investigation will be resolved promptly, that additional subpoenas
or warrants will not be received by Medaphis or that the Federal Investigation
will not have a material adverse effect upon Medaphis. The Company recorded a
charge of $12 million in 1995 for the administrative fees, costs and expenses
it anticipates incurring in connection with the Federal Investigation and the
putative class action lawsuits described below. The charge is intended to
cover only the anticipated administrative expenses of the Federal Investigation
and the lawsuits and does not include any provision for fines, penalties,
damages, assessments, judgments or sanctions that may arise out of such
matters.
Following the announcement of the Federal Investigation, Medaphis, various
of its officers and directors and the lead underwriters associated with
Medaphis' public offering of common stock in April 1995 were named as
defendants in putative shareholder class action lawsuits filed in the Federal
District Court for the Northern District of Georgia. In general, these
lawsuits allege violations of the federal securities laws in connection with
Medaphis' filings under the federal securities acts, including the registration
statement filed in connection with Medaphis' public offering of common stock in
April 1995. On October 13, 1995, the named plaintiffs in these lawsuits filed a
consolidated class action complaint (the "Consolidated Complaint"). On January
3, 1996, the court denied defendants' motion to dismiss the Consolidated
Complaint which argued that the Complaint failed to state a claim upon which
relief may be granted. On April 11, 1996, certain of the named plaintiffs to
the Consolidated Complaint voluntarily dismissed with prejudice all of their
claims. As a result of these dismissals, the Consolidated Complaint no longer
contains any claims based on the Securities Act of 1933, and the Company's
underwriters and outside directors are no longer named as defendants. The
Company believes that it has meritorious defenses to this action and intends to
assert them vigorously.
The Company has restated its consolidated financial statements for the
three months and year ended December 31, 1995. The restatement results
primarily from a software licensing agreement entered into by Imonics
Corporation, a wholly owned subsidiary of the Company, in December
1995 for which the Company recognized associated license fee revenue in 1995.
Subsequent to the issuance of the Company's Quarterly Report on Form 10-Q for
the quarterly period ended March 31, 1996, management discovered unauthorized
correspondence which created a contingency for the license fee payable under
this agreement. Such contingency precluded recognition of license fee revenue
in 1995 associated with this agreement. The Company has restated its balance
sheet as of March 31, 1996 contained in its Quarterly Report on Form 10-Q for
the quarterly period ended March 31, 1996 for the effect of the 1995
restatement adjustments. The previously recognized license fee revenue and
certain other adjustments, previously considered immaterial and not recorded,
are included as part of the restatement adjustments to the Company's previously
reported financial position. The significant effects of the restatement are as
follows:
<TABLE>
<CAPTION>
AS PREVIOUSLY
REPORTED AS RESTATED
------------- -----------
<S> <C> <C>
As of December 31, 1995:
Total current assets............... $ 175,711 $ 170,519
Total assets....................... 718,441 712,178
Total current liabilities.......... 108,536 110,813
Total liabilities.................. 350,691 349,552
Total stockholders' equity......... 367,750 362,626
As of March 31, 1996 (unaudited):
Total current assets............... 199,934 194,742
Total assets....................... 779,966 773,703
Total current liabilities.......... 98,321 100,598
Total liabilities.................. 324,786 323,647
Total stockholders' equity......... 455,180 450,056
</TABLE>
For additional information, the reader may wish to refer to the
Company's Current Report on Form 8-K/A dated June 29, 1996 filed on November
14, 1996, the Company's Current Report on Form 8-K/A-2 dated June 29, 1996
filed on January 10, 1997, the Company's Quarterly Report on Form 10-Q for the
quarterly period ended September 30, 1996 filed on November 14, 1996, the
Company's Current Report on Form 8-K/A dated February 8, 1996 filed on
January 10, 1997, the Company's Current Report on Form 8-K/A dated March 13,
1996 filed on January 10, 1997, the Company's Current Report on Form 8-K/A
dated April 3, 1996 filed on January 10, 1997, the Company's Current Report on
Form 8-K/A dated May 6, 1996 filed on January 10, 1997, the Company's Current
Report on Form 8-K/A dated May 29, 1996 filed on January 10, 1997, the Company's
Current Report on Form 8-K/A dated June 29, 1996 filed on January 10, 1997, the
Company's Quarterly Report on Form 10-Q/A for the quarterly period ended June
30, 1996 filed on January 10, 1997 and the Company's Annual Report on Form
10-K/A for the fiscal year ended December 31, 1995 filed on January 10, 1997.
19
<PAGE> 20
PART II: OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
2.1 Merger Agreement, dated as of March 15,
1996, by and among Registrant, BSGSub, Inc. and
BSG Corporation (incorporated by reference to
Exhibit 2.1 to Registration Statement on Form S-4,
file No. 333-2506).
2.2 Merger Agreement, dated as of March 12,
1996, by and among Registrant, Rapid Systems
Solutions, Inc. and RipSub, Inc. (incorporated by
reference to Exhibit 2.19 to Annual Report on Form
10-K for the year ended December 31, 1995, File
No. 000-19480).
20
<PAGE> 21
3.1 Amended and Restated Certificate of
Incorporation of Registrant (incorporated by
reference to Exhibit 3.1 of Registrant's
Registration Statement on Form S-1, File No.
33-42216).
3.2 Certificate of Amendment of Certificate of
Incorporation of Registrant (incorporated by
reference to Exhibit 3 to the Registrant's Quarterly
Report on Form 10-Q for the Quarterly Period Ended
March 31, 1993).
3.3 Certificate of Amendment of Certificate of
Incorporation of Registrant (incorporated by
reference to Exhibit 3.3 to the Registrant's
Registration Statement on Form 8-A/A, filed on
March 28, 1995).
3.4 Certificate of Amendment of Amended and
Restated Certificate of Incorporation of
Registrant (incorporated by reference to Exhibit 4.4
to the Registration Statement on Form S-8, File No.
333-03213).
3.5 Amended and Restated By-Laws of Registrant
(incorporated by reference to Exhibit 3.2 of
Registrant's 1992 Form 10-K, File No. 000-19480).
10.1 Form of Medaphis Corporation Employee Stock
Purchase Plan (incorporated by reference to Exhibit
10.19 of the Annual Report on Form 10-K for the year
ended December 31, 1995, File No. 000-19480).
10.2 Fourth Modification of Amended and Restated
Credit Agreement among the Registrant and the Lenders
named therein, dated January 31, 1996 (incorporated
by reference to Exhibit 10.34 of the Annual Report
on Form 10-K for the year ended December 31, 1995,
File No. 000-19480).
10.3 Equipment Lease, dated January 31, 1996, by
and between Nationsbanc Leasing Corporation of
North Carolina and Registrant (incorporated by
reference to Exhibit 10.61 of the Annual Report
on Form 10-K for the year ended December 31, 1995,
File No. 000-19480).
10.4 Equipment Lease dated February 29, 1996, by
and between Nationsbanc Leasing Corporation of
North Carolina and Registrant (incorporated by
reference to Exhibit 10.62 of the Annual Report
on Form 10-K for the year ended December
31, 1995, File No. 000-19480).
21
<PAGE> 22
10.5 Medaphis Corporation Re-engineering,
Consolidation and Business Improvement Cash
Incentive Plan, dated February 21, 1996
(incorporated by reference to Exhibit 10.1 to
Registration Statement on Form S-4, File No.
333-2506).
10.6 Limited Partnership Agreement of Bertelsmann --
Imonics GMBH & Co. KG, dated March 13, 1996
(incorporated by reference to Exhibit 10.65 of the
Annual Report on Form 10-K for the year ended
December 31, 1995, File No. 000-19480).
10.7* Agreement for Collection Services between
AssetCare, Inc. and Galen Health Care, Inc., dated
March 28, 1996.
10.8* Amendment No. 1 to the Master Equipment Lease
Agreement Intended for Security with Nationsbanc
Leasing Corporation of North Carolina, dated March
29, 1996.
11 Statement regarding Computation of Earnings Per
Share.
27 Financial Data Schedule (for SEC use only)
- ---------------------------
* Previously filed with the Registrant's Quarterly Report on Form 10-Q for the
quarterly period ended March 31, 1996.
22
<PAGE> 23
(b) Reports on Form 8-K
The following reports on Form 8-K and 8-K/A have been filed by the Company
during the quarter ended March 31, 1996:
<TABLE>
<CAPTION>
Financial
Statements Date of File
Item Reported Filed Report Date
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Acquisitions of MMS and the Receivables Yes (1) December 29, 1995 January 19, 1996
Management Division of Medquist, Inc.
and update of the status of outstanding
putative shareholder suits.
Restatement of quarterly consolidated Yes (2) February 8, 1996 February 12, 1996
statements of income of the Company to
give effect for the mergers with MMS
and Consort
Restatement of Supplemental Consolidated Yes (3) February 29, 1996 February 29, 1996
Financial Statements of the Company to
give effect for the merger with MMS
</TABLE>
(1) Financial Statements of MMS for the years ended December 31, 1994, 1993,
and 1992 (audited) and the Receivables Management Division of MedQuist,
Inc. for the year ended December 31, 1994 (audited) and the nine months
ended September 30, 1995 (unaudited) were filed.
(2) Supplemental Quarterly Consolidated Statements of Income of the Company
(unaudited) for each of the four quarters in the year ended December 31,
1995 were filed (as amended by the Company's Current Report on Form 8-K/A
filed on January 10, 1997).
(3) Supplemental Consolidated Financial Statements of the Company (audited)
for the years ended December 31, 1994, 1993, and 1992 were filed.
- ---------------------------------------------
23
<PAGE> 24
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
<TABLE>
<S> <C>
MEDAPHIS CORPORATION
Date: January 10, 1997 By: /s/ Michael R. Cote
---------------- ----------------------------
Michael R. Cote
Senior Vice President - Finance,
Chief Financial Officer and
Assistant
Secretary
</TABLE>
24
<PAGE> 25
Index to Exhibits
- --------------------------------------------------------------------------------
Exhibit Page No.
------- --------
2.1 Merger Agreement, dated as of March 15,
1996, by and among Registrant, BSGSub, Inc. and
BSG Corporation (incorporated by reference to
Exhibit 2.1 to Registration Statement on Form
S-4, file No. 333-2506).
2.2 Merger Agreement, dated as of March 12,
1996, by and among Registrant, Rapid Systems
Solutions, Inc. and RipSub, Inc. (incorporated by
reference to Exhibit 2.19 to Annual Report on
Form 10-K for the year ended December 31, 1995,
File No. 000-19480).
3.1 Amended and Restated Certificate of
Incorporation of Registrant (incorporated by
reference to Exhibit 3.1 of Registrant's
Registration Statement on Form S-1, File No.
33-42216).
3.2 Certificate of Amendment of Certificate of
Incorporation of Registrant (incorporated by
reference to Exhibit 3 of Registrant's Quarterly
Report on Form 10-Q for the Quarterly Period
Ended March 31, 1993).
3.3 Certificate of Amendment of Certificate of
Incorporation of Registrant (incorporated by
reference to Exhibit 3.3 to the Registrant's
Registration Statement on Form 8-A/A, filed on
March 28, 1995).
3.4 Certificate of Amendment of Amended and
Restated Certificate of Incorporation of Registrant
(incorporated by reference to Exhibit 4.4 to the
Registration Statement on Form S-8, File No.
333-03213).
3.5 Amended and Restated By-Laws of Registrant
(incorporated by reference to Exhibit 3.2 of
Registrant's 1992 Form 10-K, File No. 000-19480).
10.1 Form of Medaphis Corporation Employee Stock
Purchase Plan (incorporated by reference to
Exhibit 10.19 of the Annual Report on Form
10-K for the year ended December 31, 1995, File
No. 000-19480).
25
<PAGE> 26
10.2 Fourth Modification of Amended and Restated
Credit Agreement among the Registrant and the Lenders
named therein, dated January 31, 1996
(incorporated by reference to Exhibit 10.34 of the
Annual Report on Form 10-K for the year
ended December 31, 1995, File No. 000-19480).
10.3 Equipment Lease, dated January 31, 1996, by
and between Nationsbanc Leasing Corporation of
North Carolina and Registrant (incorporated by
reference to Exhibit 10.61 of the Annual Report
on Form 10-K for the year ended December
31, 1995, File No. 000-19480).
10.4 Equipment Lease dated February 29, 1996, by
and between Nationsbanc Leasing Corporation of
North Carolina and Registrant (incorporated by
reference to Exhibit 10.62 of the Annual Report
on Form 10-K for the year ended December
31, 1995, File No. 000-19480).
10.5 Medaphis Corporation Re-engineering,
Consolidation and Business Improvement Cash
Incentive Plan, dated February 21, 1996
(incorporated by reference to Exhibit 10.1 to
Registration Statement on Form S-4, File No.
333-2506).
10.6 Limited Partnership Agreement of Bertelsmann
-- Imonics GMBH & Co. KG, dated March 13, 1996
(incorporated by reference to Exhibit 10.65 of the
Annual Report on Form 10-K for the year
ended December 31, 1995, File No. 000-19480).
10.7* Agreement for Collection Services between
AssetCare, Inc. and Galen Health Care, Inc., dated
March 28, 1996.
10.8* Amendment No. 1 to the Master Equipment Lease
Agreement Intended for Security with Nationsbanc
Leasing Corporation of North Carolina, dated March
29, 1996.
11 Statement regarding Computation of Earnings Per
Share.
27 Financial Data Schedule (for SEC use only)
- ---------------------------
* Previously filed with Registrant's Quarterly Report on Form 10-Q for the
quarterly period ended March 31, 1996.
26
<PAGE> 1
EXHIBIT 11
MEDAPHIS CORPORATION
COMPUTATION OF PRIMARY AND FULLY DILUTED PRO FORMA EARNINGS PER SHARE
THREE MONTHS ENDED MARCH 31, 1996
(in thousands, except per share data)
<TABLE>
<CAPTION>
PRIMARY THREE MONTHS ENDED
MARCH 31,
DESCRIPTION 1996 1995
- ---------------------------------------- ------- --------
<S> <C> <C>
Weighted average shares outstanding
during the period 55,635 43,812
Shares issuable upon assumed exercise
of stock options, less amounts assumed
repurchased under the treasury stock
method 2,507 -
------- --------
Total weighted average common stock
and common stock equivalents outstanding
during the period 58,142 43,812
======= ========
Pro forma net income (loss) $13,198 $(11,881)
======= ========
Pro forma net income (loss) per common share $ 0.23 $ (0.27)
======= ========
</TABLE>
<TABLE>
<CAPTION>
FULLY DILUTED THREE MONTHS ENDED
MARCH 31,
DESCRIPTION 1996 1995
- -------------------------------------------- ------- --------
<S> <C> <C>
Weighted average shares outstanding
during the period 55,635 43,812
Shares issuable upon assumed exercise
of stock options, less amounts assumed
repurchased under the treasury stock
method 2,809 -
------- --------
Total weighted average common stock
and common stock equivalents outstanding
during the period 58,444 43,812
======= ========
Pro forma net income (loss) $13,198 $(11,881)
======= ========
Pro forma net income (loss) per common share $ 0.23 $ (0.27)
======= ========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF MEDAPHIS CORPORATION FOR THE THREE MONTHS ENDED MARCH
31, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 3,141
<SECURITIES> 0
<RECEIVABLES> 157,983<F1>
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 194,742
<PP&E> 114,443<F1>
<DEPRECIATION> 0
<TOTAL-ASSETS> 773,703
<CURRENT-LIABILITIES> 100,598
<BONDS> 0
0
0
<COMMON> 559
<OTHER-SE> 449,497
<TOTAL-LIABILITY-AND-EQUITY> 773,703
<SALES> 136,582
<TOTAL-REVENUES> 136,582
<CGS> 0<F2>
<TOTAL-COSTS> 0<F2>
<OTHER-EXPENSES> 112,711<F3>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,117
<INCOME-PRETAX> 21,754
<INCOME-TAX> 8,556
<INCOME-CONTINUING> 13,198
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,198
<EPS-PRIMARY> 0.23
<EPS-DILUTED> 0.23
<FN>
<F1>Receivables and PP&E are shown net of allowances for doubtful accounts and
accumulated depreciation, respectively.
<F2>The Company presents a one-step income statement and cost of revenues is not
separately determinable from the historical financial statements.
<F3>Includes salaries and wages, other operating expenses, depreciation and
amortization and restructing and other charges.
</FN>
</TABLE>
