<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
Commission File Number: 0-25062
ENVOY CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
TENNESSEE
(State or Other Jurisdiction of Incorporation or Organization)
62-1575729
(I.R.S. Employer Identification Number)
TWO LAKEVIEW PLACE, 15 CENTURY BLVD.
SUITE 600, NASHVILLE, TN 37214
(Address of Principal Executive Offices)
(615) 885-3700
(Registrant's Telephone Number, Including Area Code)
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 requirement for the past 90 days. Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's common stock,
as of the latest practible date.
SHARES OUTSTANDING AS OF MAY 9, 1996:
11,718,771
CLASS:
COMMON STOCK, NO PAR VALUE PER SHARE
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PART 1-FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ENVOY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
========== ============
<S> <C> <C>
ASSETS:
CURRENT ASSETS:
CASH AND CASH EQUIVALENTS $ 2,968 $ 222
SHORT TERM INVESTMENTS 1,571 5,103
ACCOUNTS RECEIVABLE-NET 14,802 7,610
INVENTORIES 1,949 2,092
DEFERRED INCOME TAXES 300 300
OTHER CURRENT ASSETS 660 465
-------- -------
TOTAL CURRENT ASSETS 22,250 15,792
PROPERTY AND EQUIPMENT, NET 15,808 12,768
OTHER ASSETS 69,873 1,590
-------- -------
TOTAL ASSETS $107,931 $30,150
======== =======
LIABILITIES AND SHAREHOLDERS' EQUITY:
CURRENT LIABILITIES:
ACCOUNTS PAYABLE $ 4,952 $ 388
ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES 10,572 4,127
OTHER 2,169 -
REDEEMABLE PREFERRED STOCK 2,200
CURRENT PORTION OF LONG TERM DEBT 2,174 -
-------- -------
TOTAL CURRENT LIABILITIES 22,067 4,515
LONG TERM DEBT, LESS CURRENT PORTION 43,581 10,000
OTHER LONG TERM LIABILITIES 86 -
DEFERRED INCOME TAXES 2,746 300
SHAREHOLDERS' EQUITY:
PREFERRED STOCK-NO PAR VALUE;
AUTHORIZED, 12,000,000 SHARES;
ISSUED, 3,730,233 IN 1996 40,100 -
COMMON STOCK-NO PAR VALUE; AUTHORIZED,
48,000,000 SHARES; ISSUED, 11,705,071 AND 11,289,421
IN 1996 AND 1995, RESPECTIVELY 17,813 11,289
ADDITIONAL PAID-IN CAPITAL 7,155 7,155
ACCUMULATED DEFICIT (25,617) (3,109)
-------- -------
TOTAL SHAREHOLDERS' EQUITY 39,451 15,335
-------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $107,931 $30,150
======== =======
</TABLE>
SEE ACCOMPANYING NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
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ENVOY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------------
1996 1995
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<S> <C> <C>
REVENUES $ 10,330 $ 6,923
OPERATING COSTS AND EXPENSES:
COST OF REVENUES 5,308 4,269
SELLING, GENERAL AND ADMINISTRATIVE 2,992 2,123
DEPRECIATION AND AMORTIZATION 2,319 560
MERGER AND FACILITY INTEGRATION COSTS 32,584 -
-------- -------
OPERATING LOSS (32,873) (29)
OTHER INCOME (EXPENSE):
INTEREST INCOME 98 10
INTEREST EXPENSE (504) -
-------- -------
(406) 10
-------- -------
LOSS FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES AND LOSS IN INVESTEE (33,279) (19)
INCOME TAX BENEFIT (PROVISION) 11,206 (30)
LOSS IN INVESTEE (435) (218)
-------- -------
LOSS FROM CONTINUING OPERATIONS (22,508) (267)
-------- -------
DISCONTINUED OPERATIONS:
INCOME FROM DISCONTINUED OPERATIONS,
NET OF INCOME TAXES - 169
-------- -------
INCOME FROM DISCONTINUED OPERATIONS - 169
-------- -------
NET LOSS $(22,508) $ (98)
======== ========
NET INCOME (LOSS) PER COMMON SHARE:
CONTINUING OPERATIONS ($1.97) ($0.02)
DISCONTINUED OPERATIONS - 0.01
-------- -------
NET LOSS PER COMMON SHARE ($1.97) ($0.01)
======== ========
WEIGHTED AVERAGE SHARES OUTSTANDING 11,416 11,603
======== ========
</TABLE>
SEE ACCOMPANYING NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
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ENVOY Corporation
Condensed Consolidated Statements of Cash Flow
(Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------
1996 1995
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<S> <C> <C>
Net cash provided by operating activities $ 2,375 $ 691
Investing activities:
Net (increase) decrease in investments 6,271 (218)
Purchases of property and equipment (1,467) (1,846)
Payments received on notes receivable 308 1,992
(Decrease) in other assets (919) (1,091)
Investment in investee -- 218
Payments for businesses acquired, net of $4,784 cash acquired
and including other cash payments associated with the acquistions (83,147) --
------- ------
Net cash used in investing activities (78,954) (945)
Financing Activities:
Proceeds from issuance of preferred stock 40,100 --
Proceeds from issuance of common stock 5,025 8
Proceeds from debt 43,400
Payments of debt (8,000) (105)
Payment of deferred financing costs (1,200) --
------- -------
Net cash provided by (used in) financing activities 79,325 (97)
------- -------
Net increase (decrease) in cash and equivalents 2,746 (351)
Cash and cash equivalents at the beginning of the year 222 4,270
------- -------
Cash and cash equivalents at the end of the period $ 2,968 $ 3,919
======= =======
</TABLE>
See accompanying notes to unaudited condensed consolidated financial
statements.
4
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ENVOY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 1996
A. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
of ENVOY Corporation (the "Company" or "ENVOY") have been prepared in
accordance with generally accepted accounting principles for interim financial
information and the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments consisting of normal recurring
accruals considered necessary for a fair presentation have been included (See
Note C). Operating results for the three-month period ended March 31, 1996 are
not necessarily indicative of the results that may be expected for the year
ended December 31, 1996.
These financial statements, footnote disclosures and other information
should be read in conjunction with the audited financial statements and the
accompanying notes thereto in the Company's Annual Report on Form 10-K for the
year ended December 31, 1995.
Certain reclassifications have been made in the 1995 financial statements
to conform to the classifications in 1996.
B. NET INCOME (LOSS) PER COMMON SHARE
Net income (loss) per common share has been computed by dividing net
income (loss) by the number of weighted average number of shares of common
stock and common stock equivalents, when dilutive, using the treasury stock and
modified treasury stock methods, as appropriate.
C. ACQUISITIONS
NATIONAL ELECTRONIC INFORMATION CORPORATION ("NEIC")
On March 6, 1996, the Company's shareholders approved the acquisition of
NEIC for an aggregate purchase price of approximately $94,301,000, consisting
of (i) $86,154,000 paid to the NEIC stockholders, (ii) $2,200,000 to be paid to
certain NEIC stockholders on or after August 1, 1996 and (iii) certain other
transaction and acquisition costs of $5,947,000. The NEIC business combination
was accounted for under the purchase method of accounting, applying the
provisions of Accounting Principles Board Opinion No. 16 ("APB 16") and, as a
result, the Company recorded the assets and liabilities of NEIC at their
estimated fair values with the excess of the purchase price over these amounts
being recorded as goodwill. Based upon management's preliminary estimates, the
Company recorded $46,728,000 in goodwill and $19,600,000 of identifiable
intangible assets related to the NEIC acquisition. The actual allocations will
be based on further studies and may change during the allocation period. The
operations of NEIC are included in the statement of operations from the date of
acquisition.
In connection with the NEIC acquisition, the Company also incurred a one
time write-off of acquired in-process technology of $30,000,000 and related
deferred income taxes of $11,400,000, and
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such amounts were charged to expense in the three months ended March 31, 1996,
because these amounts relate to research and development that has not reached
technological feasibility and for which there is no alternative future use. The
$30,000,000 is classified as merger and facility integration costs in the
statement of operations.
The NEIC acquisition was financed through equity and debt financing. An
aggregate of 3,730,233 shares of the Company's Series B Convertible Preferred
Stock were issued to three investors for an aggregate purchase price of
$40,100,000. Additionally, the Company issued 333,333 shares of the Company's
Common Stock to various investors for an aggregate purchase price of
$5,000,000. The Company also entered into a credit agreement with two
lenders, whereby the Company obtained $50,000,000 in bank financing in the form
of a $25,000,000 revolving credit facility and a $25,000,000 term loan. An
additional 840 shares of NEIC cumulative redeemable preferred stock, $10.00 par
value per share, remain outstanding. The NEIC preferred stock may be redeemed
by or put back to the Company at any time on or after August 1, 1996 at a
redemption price of approximately $2,200,000.
TELECLAIMS, INC. ("TELECLAIMS")
On March 1, 1996, the Company acquired all the issued and outstanding
Capital stock of Teleclaims in exchange for 73,242 shares of the
Company's Common Stock for a purchase price of approximately $1,500,000. The
Teleclaims business combination was accounted for under the purchase method of
accounting applying the provisions of APB 16 and, as a result, the Company
recorded the assets and liabilities at their estimated fair values with the
excess of the purchase price over these amounts being recorded as goodwill.
Goodwill in the amount of $544,000 was recorded in connection with the
acquisition of Teleclaims. Also recorded as part of the Teleclaims acquisition
was a one time write-off of acquired in-process technology of $700,000 and
related deferred income taxes of $266,000, and such amounts were charged to
expense in the three months ended March 31, 1996, because these amounts relate
to research and development that has not reached technological feasibility and
for which there is no alternative future use. The $700,000 is classified as
merger and facility integration costs in the statement of operations. The
allocation is based on management's preliminary estimates. The actual
allocations will be based upon further studies and may change during the
allocation period. The operations of Teleclaims are included in the statement
of operations from the date of acquisition.
The excess cost over fair value of net assets acquired in the NEIC and
Teleclaims acquisitions is being amortized on a straight-line basis over three
years. Identifiable assets acquired in the NEIC and Teleclaims acquisitions
will be depreciated on a straight-line basis over a period of two to nine years
depending upon the estimated remaining useful life of such assets.
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The following presents unaudited pro forma results of operations
(including the one-time write-off of acquired in-process technology and related
deferred income taxes) for the three months ended 1996 and 1995 assuming the
NEIC and Teleclaims acquisitions had been consummated at the beginning of the
period presented (in thousands, except per share data):
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1996 1995
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<S> <C> <C>
Revenues $18,517 $15,695
Loss from continuing operations (24,899) (26,675)
Net loss (24,899) (26,406)
Loss per common share:
Continuing operations $ (2.13) $ (2.21)
Discontinued operations .00 .01
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Net loss $ (2.13) $ (2.20)
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</TABLE>
D. MERGER AND FACILITY INTEGRATION COSTS
As a result of the acquisitions of NEIC and Teleclaims in March 1996, the
Company approved a plan that reorganized certain of its operations, personnel
and facilities to gain the effects of potential cost savings and operating
synergies. The cost of this plan to integrate the acquired companies is being
recognized as incurred in accordance with the guidance set forth in Emerging
Issues Task Force Issue 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring)" and are not part of the purchase price
allocation. The costs incurred in the three months ended March 31, 1996
associated with this plan of $1,884,000 represents exit costs associated
with lease terminations, personnel costs, writedowns of impaired assets and
other related costs that will be incurred as a direct result of the plan and
are classified as merger and facility integration costs in the statement of
operations. The Company estimates that future costs to be charged to expense
as incurred during fiscal year 1996 to approximate $1,000,000 to $2,000,000.
Merger and facility integration costs consists of the following (in
thousands):
Acquired in process technology charge-off $30,700
Facility integration costs 1,884
-------
Total merger and facility integration costs $32,584
=======
E. LOSS IN INVESTEE
On January 28, 1995, the Company purchased 17.5% of the common stock of
EMC*Express, Inc. ("EMC"), a corporation that transmits billing information
from hospitals and doctors to third party payors. The remaining stock in EMC
is held by StellarNet, Inc., a California corporation ("StellarNet"), an
unrelated party, which previously owned all of the business of EMC directly.
The total purchase price for the 17.5% interest in EMC was $570,000.
In connection with the closing, the Company paid $250,000 for an option to
purchase the remainder of the capital stock of EMC for $2,680,000, subject to
increase upon the achievement of certain performance objectives, and also
entered into a management agreement to provide management services
to EMC (the "Management Agreement"). Under the terms of the Management
Agreement, the Company agreed to fund certain operating costs of EMC in the
form of advances. The Management Agreement could be terminated by the Company
at any time on 60 days written notice, at which time the option would be
terminated. The Company gave notice to terminate the Management Agreement on
January 31, 1996. The Company was committed through March 31, 1996 to continue
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to fund certain operating costs of EMC. The loss in EMC for the three months
ended March 31, 1996 and 1995 was $435,000 and $218,000, respectively.
In March 1996, StellarNet filed a lawsuit in the Superior Court of the
State of California for the City and County of San Francisco against the
Company. This lawsuit asserts claims for breach of contract and negligent
conduct. StellarNet seeks unspecified compensatory damages, plus attorneys
fees and court costs. The Company has denied each of StellarNet's claims and
has filed counterclaims for fraudulent inducement and misrepresentation
against StellarNet. The Company believes these claims of StellarNet are
without merit and intends to vigorously defend itself.
F. DISCONTINUED OPERATIONS
On June 6, 1995, the Company completed the merger between the Company and
First Data Corporation ("First Data"). Pursuant to a management services
agreement entered into in connection with the merger, the Company is receiving
a fee from FDC of $1,500,000 per annum, payable in quarterly installments of
$375,000, during the first two years following the merger, after which period
such fees are anticipated to end. Management fees of $375,000 for the three
months ended March 31, 1996 are classified in the revenue caption in the
statement of operations.
The net assets of the financial services electronic transaction processing
business was merged with and into FDC under the terms of the merger agreement
and were accounted for as discontinued operations. Certain reclassifications
were made to the statement of operations for the three months ended March 31,
1995 to reflect such operations as discontinued operations.
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Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
ENVOY provides electronic processing services primarily for the health
care market. This includes submission for adjudication of insurance and other
third-party reimbursement claims for pharmacies, physicians, hospitals, and
dentists, and, since 1994, providing clearinghouse services for batch
processing of medical and dental reimbursement claims.
On June 6, 1995, the Company completed the sale through a merger of
its financial transaction processing business to First Data. For accounting
purposes, the health care transaction processing business is treated as
continuing operations, while the financial transaction processing business is
treated as discontinued operations.
In March 1996, the Company acquired Teleclaims, Inc. and National
Electronic Information Corporation ("NEIC") (the "Acquired Businesses"). Both
of these acquisitions were accounted for under the purchase method of
accounting and, as a result, the Company has recorded the assets and
liabilities of both companies at their estimated fair values with the excess of
the purchase price over these amounts being recorded as goodwill. The financial
statements presented herein reflect the operations of the Acquired Businesses
for the period after their respective dates of acquistion.
Revenues are principally derived from (i) transaction processing
services to the health care market which are generally paid for by the health
care providers and (ii) commercial claim processing services provided to
third-party payors which are usually paid for by the payors. Revenues are
generally earned on a per transaction basis and are based upon the number of
transactions processed rather than the transaction volume per customer. A
small portion of ENVOY's revenues are derived from the sale and lease of
point-of-sale (POS) devices, customer support, on-site training and
installation, and annual participation fees.
The table below shows transactions processed by ENVOY for the periods
represented.
<TABLE>
<CAPTION>
March 31, 1996 March 31, 1995
-------------- --------------
(in thousands)
<S> <C> <C>
Transactions 120,754 92,091
</TABLE>
The total transactions reflected above include the transactions of the
Acquired Businesses from the date of the acquisitions through the end of the
first quarter of 1996. Had the acquisitions of the Acquired Businesses occurred
as of the first day of the quarter ended March 31, 1996, total transactions in
the first quarter of 1996 would have been 140,808,000, of which 27,894,000
transactions would be attributable to the Acquired Businesses.
RESULTS OF OPERATIONS
Revenues. Revenues for the quarter ended March 31, 1996 were $10,330,000, an
increase of 49.2%, or $3,407,000 over the first quarter of 1995. The increase
is primarily attributable to revenues from the Acquired
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Businesses, which contributed $3,314,000 to revenues following their respective
acquisitions. Additional factors contributing to the revenue growth in the
first quarter were a 10.3% increase in ENVOY's pre-acquisition processing
service revenue over the first quarter of 1995 and the First Data management
fee of $375,000. Hardware sales were $178,000 in the first quarter of 1996
compared with $987,000 in the first quarter of 1995. The decrease is
attributable to a large one-time hardware sale in the earlier period. The net
result of these items was an increase in the Company's pre-acquisition total
revenues of 2.6%.
Cost of Revenues. Cost of revenues includes the cost of communications,
computer operations, product development and customer support as well as the
cost of hardware sales. In addition, the Acquired Businesses' cost of revenues
includes payments to third parties for transaction processing volume. Cost of
revenues in the first quarter of 1996 was $5,308,000 compared to $4,269,000 in
the first quarter of 1995, an increase of 24.3%. The dollar increase is
attributable to the inclusion of the Acquired Businesses' results coupled with
increased transaction volume in the Company's pre-acquisition business. As a
percent of revenues, cost of revenues was 51.4% in the first quarter of 1996
compared to 61.7% in the same period last year. The improvement is almost
exclusively attributable to the inclusion of the Acquired Businesses' results
which historically have experienced higher profit margins than those of ENVOY's
pre-acquisition business.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses include marketing, finance, accounting and
administrative costs. Selling, general and administrative expenses for the first
quarter of 1996 were $2,992,000 compared to $2,123,000 in the first quarter of
1995, an increase of 40.9%. Selling, general and administrative expenses
increased due to the inclusion of the Acquired Businesses and the additional
costs incurred by ENVOY during the quarter in anticipation of the acquisitions.
As a percentage of total revenues, selling, general and administrative expenses
were 29.0% in the first quarter of 1996 compared to 30.6% in the first quarter
of 1995.
Depreciation and Amortization. Depreciation and amortization expense relates
primarily to host computers, communications equipment, goodwill and other
identifiable intangible assets. Depreciation and amortization expense for the
first quarter of 1996 was $2,319,000 compared to $560,000 for the same period
in 1995. The increase is primarily the result of the amortization of goodwill
and other intangibles of $1,388,000 related to the inclusion of the Acquired
Businesses. Depreciation and amortization increased further as the result of
the addition of host computer systems in connection with the expansion of the
Company's transaction processing capabilities. The Company will amortize
goodwill of $47.3 million associated with the Acquired Businesses over the
three year period following the acquisition. In addition, ENVOY will amortize
identified intangibles of $19.9 million over two to nine year time periods, as
applicable. As a result of these items, the Company expects depreciation and
amortization expense to increase in future periods.
Merger and Facility Integration Costs. The Company recognized merger and
facility integration costs in the first quarter of 1996 of $32,584,000.
This represents a one-time charge of acquired
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in process technology of $30,700,000 and facility integration costs of
$1,884,000. The Company anticipates it will incur additional facility
integration costs of up to $2,000,000 over the remaining
three quarters of 1996.
Net Interest Expense. ENVOY recorded net interest expense for the quarter ended
March 31, 1996 of $406,000 compared to $10,000 of net interest income for the
first quarter of 1995. The increase in interest expense is the result of
increased borrowings under the Credit Facilities used to finance the purchase
of the Acquired Businesses as well as interest associated with the 9%
$10,000,000 principal amount of convertible subordinated notes issued in June
1995 (the "Convertible Notes").
Loss in Investee. The Company acquired 17.5% of the common stock of EMC*
Express, Inc. ("EMC") in January 1995. In conjunction with the purchase of the
stock of EMC, the Company entered into a management agreement which required
ENVOY to fund certain operating costs of EMC. Notice was given to terminate
this management agreement on January 31, 1996. During the first quarter of
1996, the Company recognized losses of $435,000 for funding certain of EMC
operations through the termination date of March 31, 1996. The loss in
investee in the first quarter of 1995 was $218,000. See Note E to the March
31, 1996 Unaudited Condensed Consolidated Financial Statements.
Income tax benefit. The Company's income tax benefit in the first quarter of
1996 was $11,206,000 compared to an income tax expense of $30,000 in the same
period last year. The tax benefit recorded in the first quarter principally
reflects a deferred income tax benefit associated with the $30,700,000 charge
for the write off of acquired in process technology related to the Acquired
Businesses.
LIQUIDITY AND CAPITAL RESOURCES
ENVOY has incurred operating losses in each year of its operations.
The operating losses have resulted from ENVOY's substantial investment in its
health care transaction processing business coupled with a disproportionate
amount of overhead and fixed costs. Historically, health care losses have been
funded by earnings from the Company's more mature financial business, which had
a substantially higher transaction volume and revenue base. The viability of
ENVOY requires continued expansion of the number of transactions processed to
generate greater revenue. While ENVOY believes that it is beginning to
generate sufficient revenues to cover operating expenses and the costs of
planned expansion, there can be no assurance that sufficient income will be
generated from operations to cover such costs and expenses. ENVOY believes
that the additional transaction volume from the Acquired Business, coupled with
potential cost savings and operating synergies that ENVOY believes it may
realize from the integration of the Acquired Businesses, will result in
improved operating results; however there are no assurances that such cost
savings or synergies will be realized or that profitability can be obtained or
maintained.
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In June 1995, the Company issued the $10,000,000 Convertible Notes
to First Data. The entire $10,000,000 principal amount of the Convertible
Notes remains outstanding and is due in June 2000. The Convertible Notes are
convertible at the election of the holders into shares of Common Stock. The
current conversion price is equal to $10.52 per share.
In March 1996, the Company completed the purchase of the Acquired
Businesses. Teleclaims was acquired by the Company on March 1, 1996, for
73,242 Shares of Common Stock. On March 6, 1996 ENVOY acquired NEIC for
$94,301,000 consisting of $86,154,000 that was paid at closing to the
stockholders of NEIC, $2,200,000 to be paid to certain stockholders of NEIC on
or after August 1, 1996 and certain other transaction and acquisition expenses
of $5,947,000. The NEIC acquisition was financed through equity issuances of
333,333 shares of Common Stock for $5,000,000, 3,730,233 shares of Series B
Preferred Stock for $40,100,000 and a new credit facility of $50,000,000. The
new credit facility provides financing through a $25,000,000 term loan and a
$25,000,000 revolving line of credit. In addition to funding the merger
consideration, the proceeds of the credit facilities were used to fund capital
expenditures, merger expenses and working capital requirements.
Loans made pursuant to the credit facilities bear interest at varying
rates based on an index to the lender's prime rate or the 30, 60 or 90 day
LIBOR. The credit facilities is subject to a one-time facility fee of $1.0
million and an annual administrative fee of $20,000. The revolving credit
facility requires an annualized commitment fee of 0.375% of its average daily
unused portion. The term loan is payable in quarterly installments varying in
amount from $1,000,000 to $2,250,000. The term loan is required to be prepaid
with 100% of the net proceeds from any sales of assets in excess of $500,000
per year and 50% of the net proceeds of the issuance of any equity securities.
The total amount outstanding under the Credit Facilities is due and payable in
full on March 31, 2000. The credit facilities contain financial covenants
applicable to ENVOY and its subsidiaries including the debt/cash flow ratio,
ratios of debt to capital and cash flow to interest expense and certain
restrictions on capital expenditures.
The credit facilities are secured by guarantees from all existing and
future ENVOY subsidiaries and by security interests in all of the stock,
promissory notes and other assets of ENVOY. ENVOY and its subsidiaries are
subject to certain restrictions relating to payment of dividends and other
distributions, asset acquisitions, incurrence of debt, investments,
consolidations and mergers and other restrictive provisions. On March 31, 1996
the Company had a balance of $25,000,000 outstanding under the term loan and
$10,400,000 outstanding under the revolving line of credit.
ENVOY purchases additional computer hardware and software products
from time to time as required by the growth of its customer base. ENVOY
incurred capital expenditures of approximately $1,500,000 in the first
quarter of 1996, primarily for computer hardware and software products used for
the expansion of the medical transaction processing function. The Company
anticipates that its total capital expenditures for 1996, including amounts
expended in the first quarter, will be approximately $5,000,000 to $6,000,000.
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Management believes that the proceeds of the equity issuances and debt
financing combined with existing cash and cash equivalents, cash obtained in
acquisition of the Acquired Business and cash provided by operations will be
sufficient to meet ENVOY's operating and capital needs for the next 12 months.
IMPACT OF INFLATION
Inflation has not had a significant impact on ENVOY's results of
operation to date.
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PART II- OTHER INFORMATION
Item 1. Legal Proceedings.- In March 1996, StellarNet, Inc. filed a lawsuit
in the Superior Court of the State of California for the City and
County of San Francisco against the Company. This lawsuit asserts
claims for breach of contract and negligent conduct. StellarNet seeks
unspecified compensatory damages, plus attorneys fees and court costs
The Company has denied each of StellarNet's claims and has filed
counterclaims for fraudulent inducement and misrepresentation against
StellarNet. The Company believes these claims of StellarNet are
without merit and intends to vigorously defend itself.
Item 2. Changes in Securities.- Not Applicable
Item 3. Defaults Upon Senior Securities.- Not Applicable
Item 4. Submission of Matter to a Vote of Security-Holders.
On March 6, 1996, a special meeting of shareholders of ENVOY Corporation, was
held for the following purposes:
1. To consider and vote upon a proposal to approve and adopt:
(a) the Agreement and Plan of Merger dated November 30, 1995 (the "Merger
Agreement"), by and among National Electronic
Information Corporation ("NEIC"),ENVOY and Envoy Acquisition
Corporation "Sub"), pursuant to which:
(i) Sub will merge with and into NEIC (the "Merger"); and
(ii) each outstanding share of NEIC common stock will be converted
into the right to receive the cash consideration set forth
in the Merger Agreement;
(b) the issuance of $40,100,000 of Series B Convertible Preferred Stock
and $4,999,995 of ENVOY common stock (the "Equity Issuances");and
(c) the borrowing of up to $50,000,000 pursuant to a revolving credit
facility and term loan (the "Debt Financing")
necessary to provide the cash consideration payable in the
Merger and to provide additional funds for capital
expenditures, working capital and general corporate purposes.
The proposed Merger, Equity Issuances and the Debt Financing
are referred to herein collectively as the "Transactions."
2. To consider and act upon a proposal to amend ENVOY's 1995 Employee Stock
Incentive Plan to increase the number of shares issuable thereunder;
14
<PAGE> 15
The following table sets forth the number of votes cast for, against
abstained, and broker non-votes with respect to each of the above-referenced
matters:
For Against Abstained
--- ------- ---------
Item (1) 7,003,599 10,287 54,043
Item (2) 4,290,689 2,712,136 65,104
Item 5. Other Information.- Not Applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits required by Item 601 of Regulation S-K.
27. Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K.
(i) Current Report on Form 8-K filed on March 18, 1996, relating
to the acquisition of all of the outstanding capital stock of
Teleclaims, Inc.
(ii) Current Report on Form 8-K filed on March 21, 1996, relating
to the acquisition of all of the outstanding capital stock
of National Electronic Information Corporation.
15
<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused the amendment to this report to be signed on its
behalf by the undersigned thereunto duly authorized.
ENVOY Corporation
Date: May 24, 1996 By: /s/ Fred C. Goad, Jr.
----------------------------
Fred C. Goad, Jr.
President and Co-Chief
Executive Officer
Date: May 24, 1996 By: /s/ Kevin M. McNamara
---------------------------
Kevin M. McNamara
Vice President and
Chief Financial Officer
16
<PAGE> 17
EXHIBIT INDEX
Exhibit Number Description of Exhibit
- -------------- ----------------------
27 Financial Data Schedule (for SEC use only)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 2,968
<SECURITIES> 1,571
<RECEIVABLES> 15,812
<ALLOWANCES> 1,010
<INVENTORY> 1,949
<CURRENT-ASSETS> 22,250
<PP&E> 26,935
<DEPRECIATION> 11,127
<TOTAL-ASSETS> 107,931
<CURRENT-LIABILITIES> 22,067
<BONDS> 43,581
0
40,100
<COMMON> 17,813
<OTHER-SE> (18,462)
<TOTAL-LIABILITY-AND-EQUITY> 107,931
<SALES> 0
<TOTAL-REVENUES> 10,330
<CGS> 0
<TOTAL-COSTS> 5,308
<OTHER-EXPENSES> 37,895
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 504
<INCOME-PRETAX> (33,279)
<INCOME-TAX> (11,206)
<INCOME-CONTINUING> (22,508)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (22,508)
<EPS-PRIMARY> (1.97)
<EPS-DILUTED> (1.97)
</TABLE>
