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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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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): October 22, 1998
Medaphis Corporation
(Exact name of registrant as specified in its charter)
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DELAWARE 000 -19480 58-1651222
(State or other jurisdiction of incorporation) Commission File Number (IRS Employer Identification Number)
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2700 CUMBERLAND PARKWAY
SUITE 300
ATLANTA, GEORGIA 30339
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (770) 444-5300
NOT APPLICABLE
(Former Name or Former Address, if Changed Since Last Report)
Exhibit Index Located on Page: 4
Total Number of Pages: 13
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Item 5. Other Events.
On October 22, 1998, the Registrant released earnings for the quarter
and nine months ended September 30, 1998. Results for the quarter included a
$390.6 million charge relating to the reduction of the carrying value of certain
intangible assets, primarily goodwill, associated with acquisitions completed
prior to 1996 in the Registrant's Physician Services division.
As has been disclosed previously by the Registrant, management monitors
events and circumstances internally and within the healthcare industry that
could warrant revisions to the Registrant's estimated useful life of goodwill or
reduction in the carrying value of its intangible assets. During 1996 and 1997,
events and changes in circumstances warranted, in management's opinion, an
assessment as to whether the carrying value of the intangible assets for the
Physician Services segment was still recoverable. These events included: (i)
operating losses reported for two consecutive years, (ii) significant
restructuring charges within the Physician Services segment and (iii) absence of
revenue growth within the Physician Services segment. In accordance with
applicable accounting rules, in late 1997 management prepared an analysis based
on assumptions reflecting management's then current outlook for the business to
determine if the Physician Services intangible assets were still recoverable.
Based on those assumptions, as set forth in the Registrant's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1998, no revision to the carrying value
of the Physician Services intangible assets was appropriate.
The Physician Services business showed revenue and margin declines at
an accelerated rate in the third quarter of 1998 ended September 30. Four
factors which became evident in the third quarter required management to
re-examine the assumptions underlying the analysis of the carrying value of
Physician Services' intangibles and to re-assess the recoverability of those
assets. These factors were: (i) the impact of the government investigations
(settled earlier this month), (ii) significant customer losses, (iii) recent
performance issues at Gottlieb's Financial Services and (iv) overall changes in
healthcare market dynamics. Based on the state of the business and the industry
and the trends evidenced in the third quarter, management concluded that the
growth rates and profitability margins for the acquired Physician Services
businesses were not sustainable at the levels anticipated earlier. On October
21, 1998, management of the Registrant presented its analysis to the Audit
Committee of the Board of Directors of the Registrant. The Audit Committee
approved the reduction in value of intangible assets and recommended such action
to the full Board of Directors of the Registrant, which approved the write-down
as recommended by the Audit Committee. As a result, in accordance with
applicable accounting rules, the Registrant reduced the value of certain
Physician Services' assets, primarily goodwill, by $390.6 million.
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The Registrant issued a press release on October 22, 1998, a copy of
which is filed as Exhibit 99.1 to this Current Report on Form 8-K. The press
release relates to the Registrant's third quarter results, including the
write-down of the Physician Services' intangible assets.
Item 7. Financial Statements and Exhibits.
(c) Exhibits
99.1 Press Release issued by the Registrant on October 22, 1998.............
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this Current Report on Form 8-K to be
signed on its behalf by the undersigned thereunto duly authorized.
Date: October 23, 1998
MEDAPHIS CORPORATION
By:/s/ Allen W. Ritchie
-----------------------------
Allen W. Ritchie
President and Chief Executive
Officer
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INDEX TO EXHIBITS
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EXHIBIT NUMBER PAGE NO.
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Exhibit 99.1 Press Release issued by Registrant
on October 22, 1998.....................................5
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EXHIBIT 99.1
MEDAPHIS(R) NEWS
MEDAPHIS CORPORATION
2700 Cumberland Parkway
Suite 300
Atlanta, Georgia 30339
(770) 444-5300
FOR IMMEDIATE RELEASE
INVESTOR CONTACT:
Caryn Dickerson
Medaphis Corporation
(770) 444-5348
[email protected]
MEDAPHIS ANNOUNCES THIRD QUARTER RESULTS
--Results include $481.5 million in intangible impairment, government
investigation settlements, tax reserves, and restructuring and other unusual
charges--
ATLANTA - (October 22, 1998) - Medaphis Corporation [NASDAQ: MEDA] Medaphis
today reported results for the third quarter which included charges totaling
$481.5 million consisting of (i) $390.6 million related to the reduction of the
carrying value of certain intangible assets, primarily goodwill, associated with
acquisitions completed prior to 1996 in the Physician Services division; (ii)
$19.5 million resulting from the settlement of government investigations into
billing practices at certain of the Company's Physician Services operations,
previously announced on October 16, 1998; (iii) a $67.6 million reserve of the
Company's deferred tax asset that may not be realizable due to the expiration of
net operating loss carryforwards; and (iv) $3.8 million in restructuring and
other charges principally related to severance and other expenses related to
recent actions undertaken to improve the Company's profitability.
The detailed comparisons included herein exclude the results of the Company's
Hospital Services division which is under contract to be sold to NCO Group, Inc.
[NASDAQ: NCOG] for up to $117.5 million. Accordingly, this division's results
are classified as discontinued operations for reporting purposes. In addition,
year-to-date comparisons exclude the results of Healthcare Recoveries, Inc.
which was sold in May 1997.
--MORE--
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MEDAPHIS NEWS RELEASE
Page 2 of 9
INTANGIBLE ASSETS
Physician Services experienced operating losses, restructuring charges and an
absence of net revenue growth during the third quarter of 1998. Recent
performance issues at Gottlieb's Financial Services, the Company's emergency
medicine billing business, and other industry factors have resulted in
significant client losses and have negatively impacted profitability. All of
these factors culminated in management's reassessment of the growth rates and
profitability margins applicable to the Physicians Services operation.
Accordingly, the Company reduced the value of certain intangible assets,
primarily goodwill, by $390.6 million in the third quarter.
"The third quarter operating performance for the Physician Services division is
the result of several culminating factors including the impact of the government
investigations (settled earlier this month), significant customer losses and the
overall healthcare market dynamics," Allen W. Ritchie, President and Chief
Executive Officer said. "In light of these factors and their ongoing effect, we
determined that certain intangible assets have been impaired and a non-cash
charge of $390.6 million was recorded at the close of the third quarter."
THIRD QUARTER RESULTS
Medaphis reported $101.3 million revenue for the third quarter 1998 and negative
EBITDA, defined as earnings before interest, taxes, depreciation, amortization
and restructuring and other charges (including intangible impairment and
government investigation settlements), of $18.1 million from continuing
operations, a decrease from $109.4 million and $9.1 million, respectively,
reported for the second quarter this year. Third quarter 1998 results were below
the results for the comparable 1997 period in which revenue and negative EBITDA
from continuing operations were $111.2 million and $10.9 million, respectively.
In addition to the $481.5 million in charges described above, the Company
reported that it has increased the allowance for doubtful accounts for
continuing operations by $11.6 million. This amount includes receivables due
from Allegheny Health, Education and Research Foundation, a customer that filed
for bankruptcy protection in July, and certain GFS and patient scheduling
software customers.
--MORE--
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MEDAPHIS NEWS RELEASE
Page 3 of 9
The Company said it has taken a $67.6 million charge in the third quarter
related to reserves established for its deferred tax asset that may not be
realized prior to the expiration of net operating loss carryforwards.
For the quarter, Medaphis reported a net loss of $516.0 million, or $(6.56) per
share, compared to a net loss of $29.8 million, or $(0.39), in the second
quarter of 1998. The net loss for the third quarter of 1997 was $81.2 million,
or $(1.11).
YEAR TO DATE RESULTS
For the nine months ended September 30, 1998, revenue from continuing operations
was $328.4 million and EBITDA from continuing operations was $0.5 million.
Revenue and EBITDA from continuing operations for the comparable 1997 period
were $353.7 million and $10.7 million, respectively.
Excluding an extraordinary loss of $5.6 million, net of tax, related to the
Company's refinancing, Medaphis reported a loss for the nine months ended
September 30, 1998 of $550.9 million, or $(7.21), compared to a loss before
extraordinary items of $87.9 million, or $(1.21), for the comparable prior year
period. Medaphis' net loss for the nine months ending September 30, 1998,
including the extraordinary loss, was $556.5 million, or $(7.28) per share.
Medaphis also announced that it has obtained a waiver through December 15, 1998
from the requisite lenders under its $100.0 million revolving credit facility
with respect to the financial covenants for the third quarter 1998. Medaphis had
approximately $47.0 million outstanding under this facility at September 30,
1998.
OPERATING PERFORMANCE
Wayne A. Tanner, Executive Vice President and Chief Financial Officer, said that
the decline in revenue and EBITDA from the second quarter is primarily related
to three issues: (i) the effect of problems experienced at GFS; (ii) continued
softness in sales of patient scheduling products in Per-Se Technologies; and
(iii) an increase in allowance for doubtful accounts for accounts receivable,
including accounts receivable due from AHERF.
--MORE--
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MEDAPHIS NEWS RELEASE
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Physician Services
The Company said that the processing inefficiencies, production backlog and
customer discontinuances at GFS continued to be the primary factor in the
decrease in revenue and EBITDA at its Physician Services division from the
second quarter this year.
Ritchie said, "During the third quarter an action plan was implemented to
address the issues at GFS. Recent management changes have been successful in
helping to stabilize the environment. While we expect to demonstrate improved
results in the fourth quarter, we do not expect to see operating margins at GFS
fully recover this year."
Per-Se Technologies
Commenting on third quarter Per-Se Technologies results, the Company indicated
that software license sales continued to be affected by performance issues in an
earlier release of its patient scheduling software product. The Company believes
that the market for this product remains strong and potential customers remain
committed to purchase the product, but they continue to defer purchase decisions
until the Company's reference base is larger.
Ritchie indicated "We remain committed to our Per-Se Technologies division, and
we are aggressively executing a strategy which will broaden our product offering
by providing products and services which leverage our market position at Per-Se,
our current base of business and existing capabilities. We expect to increase
our market position in scheduling products through the recently announced
relationship with PeopleSoft, cross sell to our large Physician Services client
base by providing practice management solutions, radiology management systems
and credentialing management products, and improve the predictability of
earnings through the recurring revenue stream provided by our electronic
commerce initiatives. In addition to broadening product offerings to increase
revenue, we have implemented a strategy to reduce our cost structure to improve
margins based on current sales volumes."
--MORE--
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MEDAPHIS NEWS RELEASE
Page 5 of 9
Impact Innovations Group
"The Company's consulting division continues to be affected by difficulties in
hiring and retaining employees in an extremely competitive market place.
Attrition rates for the last two months of the quarter, however, were only
slightly behind industry averages for the first time in several years," Ritchie
said. "Utilization rates were in line with expectations and operating margins
continue to improve. In fact, several of the operations within this division
have met 1998 operating targets on a year-to-date basis."
HOSPITAL DIVISION SALE
As reported last week, Medaphis entered into a definitive agreement to sell its
Hospital Services Division, which provides business management services and bad
debt collections to approximately 1,200 hospital clients, to NCO Group, Inc. for
up to $117.5 million. The Hospital Services division generated revenue of $96.5
million and $78.1 million, respectively for the year ended December 31, 1997 and
the nine months ended September 30, 1998. In accordance with the agreement,
$107.5 million is payable at closing and an additional purchase price adjustment
of up to $10.0 million is payable subject to the achievement of various
operational targets in 1999. Due to the pending sale, the results for this
division are classified as discontinued operations. The sale is subject to
regulatory approval, but it is expected to be consummated before year-end.
GOVERNMENT SETTLEMENT AGREEMENTS
As announced on October 16, 1998, Medaphis successfully negotiated agreements to
resolve the investigations of the Company's billing and collection practices in
California and at its wholly owned subsidiary, GFS. In accordance with the terms
of these agreements, Medaphis will pay approximately $12.5 million in 1998 and
an additional $7.0 million in two equal payments of $3.5 million in 1999 and
2000. In addition to these settlements, the Company has entered into a
definitive Corporate Integrity Agreement with the Department of Health and Human
Services. This agreement, which enables Medaphis and its subsidiaries to
continue to participate in all government healthcare programs, provides for the
continuation of the Company's existing compliance program supplemented by an
annual third party review and additional reporting requirements.
--MORE--
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MEDAPHIS NEWS RELEASE
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ABOUT MEDAPHIS CORPORATION
Medaphis is a leader in delivering healthcare information, products and
services, together with enabling technologies in selected industries. Based in
Atlanta, Georgia, Medaphis currently services approximately 20,000 physicians
and 2,700 hospitals across the nation and more than 100 systems integration
customers in service industries such as communications, energy, high tech and
government.
The Waiver and First Amendment to the Credit Agreement with the Company's senior
lenders will be filed with the Securities and Exchange Commission. This Press
Release contains statements that constitute "forward-looking statements" within
the meaning of the Securities Act of 1933 and the Securities Exchange Act of
1934, as amended by the Private Securities Litigation Reform Act of 1995.
"Forward-looking" statements contained in this Press Release include the intent,
belief or current expectations of the Company and members of its senior
management team with respect to the Company's future business operations as well
as the assumptions upon which such statements are based. 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 contemplated by the
forward-looking statements in this Press Release include, but are not limited
to, failure to complete the sale of the Hospital Services division, failure to
receive final governmental and court approvals with respect to certain
settlements, failure to reach agreement on definitive documentation with respect
to certain settlements, and adverse developments with respect to the operation
of the Company's business units. Additional factors that would cause actual
results to differ materially from those contemplated within this Press Release
can also be found in the Company's Safe Harbor Compliance Statement filed as
Exhibit 99.1 to the Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1998.
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MEDAPHIS NEWS RELEASE
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MEDAPHIS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands except per share data)
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THREE MONTHS ENDED NINE MONTHS ENDED
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SEPT. 30, SEPT. 30, SEPT. 30, SEPT. 30,
1998 1997 1998 1997
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Revenue $ 101,309 $ 111,209 $ 328,410 $ 368,401
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Salaries and wages 77,294 80,369 222,365 237,799
Other operating expenses 42,100 41,747 105,563 115,807
Depreciation 6,291 6,625 19,867 19,335
Amortization 5,245 5,297 16,471 16,493
Interest expense, net 6,196 7,241 18,410 19,411
Intangible asset impairment 390,641 - 390,641 -
Litigation settlements 19,500 52,500 41,375 52,500
Restructuring and other charges 3,784 13,837 5,780 16,661
---------- ----------- ----------- ----------
Total expenses 551,051 207,616 820,472 478,006
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Loss before income taxes (449,742) (96,407) (492,062) (109,605)
Income tax expense (benefit) 67,619 (14,721) 62,595 (19,766)
---------- ----------- ----------- ----------
Loss from continuing operations (517,361) (81,686) (554,657) (89,839)
Income from discontinued operations, net of tax 1,356 477 3,687 4,306
Extraordinary items, net of tax - - (5,557) 76,391
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Net loss $ (516,005) $ (81,209) $ (556,527) $ (9,142)
========== ========== =========== ==========
Basic net income (loss) per common share:
Loss from continuing operations $ (6.58) $ (1.12) $ (7.26) $ (1.24)
Income from discontinued operations, net of tax 0.02 0.01 0.05 0.06
Extraordinary items, net of tax - - (0.07) 1.05
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Net loss $ (6.56) $ (1.11) $ (7.28) $ (0.13)
========== ========== =========== ==========
Weighted average shares outstanding 78,655 72,942 76,442 72,542
========== ========== =========== ==========
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MEDAPHIS NEWS RELEASE
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MEDAPHIS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands)
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THREE MONTHS ENDED NINE MONTHS ENDED
-------------------------------- --------------------------------
SEPT. 30, SEPT. 30, SEPT. 30, SEPT. 30,
1998 1997 1998 1997
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REVENUE
Physician Services $ 62,534 $ 59,419 $ 202,235 $ 205,791
Per-Se Technologies 19,447 24,479 64,454 69,002
Impact Innovations 19,375 27,346 62,078 78,993
Eliminations (47) (35) (357) (105)
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Total Excluding HRI 101,309 111,209 328,410 353,681
HRI - - - 14,720
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Consolidated $ 101,309 $ 111,209 $ 328,410 $ 368,401
============ ============== ============== =============
EBITDA
Physician Services $ (2,501) $ (3,375) $ 18,110 $ 20,272
Per-Se Technologies (6,827) 3,276 704 17,343
Impact Innovations (1,286) (2,761) 2,771 (1,078)
Corporate (7,471) (8,047) (21,103) (25,828)
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Total Excluding HRI (18,085) (10,907) 482 10,709
HRI - - - 4,086
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Consolidated $ (18,085) $ (10,907) $ 482 $ 14,795
============ ============== ============== =============
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MEDAPHIS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited, in thousands)
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SEPT. 30, December 31,
1998 1997
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ASSETS
Cash $ 10,989 $ 17,559
Accounts receivable 128,371 148,059
Other current assets 8,315 11,716
Property and equipment 58,360 59,694
Deferred income taxes - 60,857
Intangible assets 49,851 462,510
Other 102,355 100,816
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$ 358,241 $ 861,211
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LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities $ 84,866 $ 106,315
Long-term debt and capital lease obligations 222,068 189,259
Accrued litigation settlements 41,375 52,500
Other long-term obligations 3,983 11,356
Stockholders' equity 5,949 501,781
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$ 358,241 $ 861,211
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MEDAPHIS NEWS RELEASE
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# # #
EDITOR'S NOTE:
Further information on Medaphis is available on the World Wide Web at
www.Medaphis.com.
Further information on Per-Se Technologies is available at
www.per-se.com
Further information on Impact Innovations Group is available on
the World Wide Web at www.iiginc.com
Medaphis is a registered trademark of Medaphis Corporation. All other trademarks
are the property of their respective owner. Per-Se Technologies is a trademark
of Medaphis Healthcare Information Technology Company. Impact Innovations Group
and Deliver to Order are service marks of Impact Innovations Group, Inc.
