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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): August 7, 1997
ENVOY CORPORATION
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
Tennessee 0-25062 62-1575729
(State or other jurisdiction of incorporation) (Commission File Number) (I.R.S. Employer
Identification No.)
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15 Century Boulevard, Suite 600, Nashville, TN 37214
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (615) 885-3700
Not Applicable
(Former name or former address, if changed since last report)
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Item 2. Acquisition or Disposition of Assets
On August 7, 1997, ENVOY Corporation ("ENVOY") completed the acquisition
of all of the outstanding capital stock of Healthcare Data Interchange
Corporation ("HDIC") pursuant to that certain Stock Purchase Agreement, dated
June 14, 1997 (the "Purchase Agreement"), by and between ENVOY and Advent
Investments, Inc. ("Advent"), a wholly controlled subsidiary of Aetna U.S.
Healthcare Inc. ("AUSHC"). HDIC was the electronic data interchange ("EDI")
health care provider subsidiary of AUSHC and currently manages all healthcare
EDI processing between AUSHC and its participating network physicians, dentists
and hospitals. The purchase price for the shares of HDIC, which was
approximately $36.4 million, was funded through the Company's available cash. In
connection with the acquisition, AUSHC guaranteed the obligations of Advent. In
addition, ENVOY and AUSHC simultaneously entered into a long-term services
agreement under which AUSHC agreed to use ENVOY as its single source
clearinghouse and EDI network for all AUSHC health care EDI transactions. A copy
of the joint press release, dated August 7, 1997, announcing the completion of
the transaction is included as Exhibit 99.1 to this report.
The terms and conditions of the acquisition are more fully described in
the Purchase Agreement, a copy of which is included as Exhibit 2.1 to this
report and is incorporated by reference herein in its entirety.
2
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Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
(a) Financial Statements of Business Acquired
The following financial statements of HDIC are contained on pages 4 to 10
of this report:
Report of Independent Auditors
Combined Balance Sheets as of December
31, 1996 and 1995
Combined Statements of Operations for the
years ended December 31, 1996, 1995 and
1994
Combined Statements of Shareholders'
Deficit at December 31, 1996, 1995, 1994
and 1993
Combined Statements of Cash Flows for
the years ended December 31, 1996, 1995
and 1994
Notes to Combined Financial Statements
(b) The pro forma financial information required by Item 7(b) is not being
filed at this time. ENVOY anticipates filing this information in an amendment to
this Form 8-K as soon as practicable, but in no event later than 60 days from
the date hereof.
(c) Exhibits:
2.1 Stock Purchase Agreement, dated June 14, 1997, by and between ENVOY
Corporation, and Advent Investments, Inc. (incorporated by reference
to Exhibit 2.1 of the Company's Current Report on Form 8-K filed
June 23, 1997)
99.1 Joint Press Release, August 7, 1997, issued by ENVOY Corporation and
Aetna U.S. Healthcare Inc.
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Report of Independent Auditors
Board of Directors and Shareholder
of Healthcare Data Interchange Corporation
We have audited the accompanying combined balance sheets of Healthcare Data
Interchange Corporation and Aetna Data Interchange (the electronic interchange
business of Aetna Inc.) as of December 31, 1996 and 1995, as described in Note
1, and the related combined statements of operations, shareholder's deficit, and
cash flows for the three years in the period ended December 31, 1996. These
financial statements are the responsibility of management. Our responsibility is
to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the combined financial position of Healthcare Data
Interchange Corporation and Aetna Data Interchange at December 31, 1996 and 1995
and the combined results of their operations and their cash flows for the three
years in the period ended December 31, 1996 in conformity with
generally accepted accounting principles.
/s/ Ernst & Young LLP
July 31, 1997
Philadelphia, Pennsylvania
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Healthcare Data Interchange Corporation
Combined Balance Sheets
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DECEMBER 31
1996 1995
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ASSETS
Current assets:
Cash $ 11,492 $ 12,125
Short-term investments -- 535,250
Other 75,000 7,412
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Total current assets 86,492 554,787
Equipment 169,000 94,000
Less accumulated depreciation 66,498 22,666
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102,502 71,334
Other -- 201,457
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Total assets $ 188,994 $ 827,578
=============================
LIABILITIES AND SHAREHOLDER'S DEFICIT
Current liabilities:
Intercompany payable $ 22,377,182 $ 10,898,840
-----------------------------
Total current liabilities 22,377,182 10,898,840
Shareholder's deficit:
Common stock 3 3
Class B common stock 1 1
Additional paid-in capital 222,496 222,496
Retained deficit (22,410,688) (10,293,762)
-----------------------------
Total shareholder's deficit (22,188,188) (10,071,262)
-----------------------------
Total liabilities and shareholder's deficit $ 188,994 $ 827,578
=============================
</TABLE>
See accompanying notes.
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Healthcare Data Interchange Corporation
Combined Statements of Operations
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<CAPTION>
YEAR ENDED DECEMBER 31
1996 1995 1994
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Revenues (Note 1) $ -- $ -- $ --
Operating costs and expenses:
Personnel costs 4,835,681 5,837,557 2,753,751
Vendor fees 11,818,465 1,768,866 381,719
Depreciation 43,832 18,832 3,834
General and administrative 1,228,991 1,542,541 40,549
----------------------------------------------
Operating loss (17,926,969) (9,167,796) (3,179,853)
Other income (expense):
Interest income 14,546 23,299 43,261
Intercompany interest
expense (630,000) (345,000) (135,000)
Other (99,503) 776 1,299
----------------------------------------------
(714,957) (320,925) (90,440)
Loss before income taxes (18,641,926) (9,488,721) (3,270,293)
Benefit for income taxes 6,525,000 3,321,000 1,145,000
----------------------------------------------
Net loss $(12,116,926) $ (6,167,721) $ (2,125,293)
==============================================
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See accompanying notes.
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Healthcare Data Interchange Corporation
Combined Statements of Shareholder's Deficit
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<CAPTION>
ADDITIONAL TOTAL
COMMON STOCK CLASS B COMMON STOCK PAID-IN RETAINED SHAREHOLDER'S
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT DEFICIT
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<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993 300 $ 3 100 $ 1 $222,496 $ (2,000,748) $ (1,778,248)
Net loss -- -- -- -- -- (2,125,293) (2,125,293)
-------------------------------------------------------------------------------------------
Balance at December 31, 1994 300 3 100 1 222,496 (4,126,041) (3,903,541)
Net loss -- -- -- -- -- (6,167,721) (6,167,721)
-------------------------------------------------------------------------------------------
Balance at December 31, 1995 300 3 100 1 222,496 (10,293,762) (10,071,262)
Net loss -- -- -- -- -- (12,116,926) (12,116,926)
-------------------------------------------------------------------------------------------
Balance at December 31, 1996 300 $ 3 100 $ 1 $222,496 $(22,410,688) $(22,188,188)
===========================================================================================
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See accompanying notes.
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Healthcare Data Interchange Corporation
Combined Statements of Cash Flows
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<CAPTION>
YEAR ENDED DECEMBER 31
1996 1995 1994
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<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(12,116,926) $ (6,167,721) $ (2,125,293)
Adjustments to reconcile net loss to net
cash (used in) provided by operating
activities:
Depreciation 43,832 18,832 3,834
Change in assets and liabilities:
Increase in intercompany
payable 11,478,342 6,227,973 2,457,729
Other 133,869 (338) (2,705)
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Net cash (used in) provided by operating
activities (460,883) 78,746 333,565
INVESTMENT ACTIVITIES
Net decrease (increase) in short-term
investments 535,250 (4,554) (314,132)
Purchase of equipment (75,000) (75,000) (19,000)
----------------------------------------------
Net cash provided by (used in) investing
activities 460,250 (79,554) (333,132)
----------------------------------------------
Net (decrease) increase in cash (633) (808) 433
Cash at beginning of year 12,125 12,933 12,500
==============================================
Cash at end of year $ 11,492 $ 12,125 $ 12,933
==============================================
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See accompanying notes.
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Healthcare Data Interchange Corporation
Combined Notes to Financial Statements
Years ended December 31, 1996 and 1995
1. ORGANIZATION AND BASIS OF PRESENTATION
These combined financial statements include the accounts of Healthcare Data
Interchange Corporation ("HDIC") and Aetna Data Interchange ("ADI") as
defined below. U.S. Healthcare, Inc. and Aetna Life and Casualty Company,
Inc. merged as of July 19, 1996, forming Aetna Inc., a new parent company.
HDIC was incorporated in 1992 as a wholly-owned subsidiary of U.S.
Healthcare, Inc. During 1995 Aetna Life and Casualty Company, Inc. began an
electronic data interchange division, Aetna Data Interchange (ADI). The
principal activity of HDIC and ADI is to provide electronic data interchange
services to their parent companies.
The accompanying financial statements include the direct expenses of HDIC and
ADI required to provide electronic data interchange services to U.S. Healthcare,
Inc. and Aetna Life and Casualty Company, Inc., respectively. The operations of
the combined business have been accounted for as a cost center; accordingly, the
accompanying financials do not include any revenue for the electronic services
provided.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
SHORT-TERM INVESTMENTS
Short-term investments include investments in United States Treasury Securities
and certificates of deposit. Carrying value of the investments approximated fair
value.
EQUIPMENT
Equipment is recorded at cost. Depreciation is provided over the estimated lives
of the respective assets on the straight-line basis principally over five years.
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
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Healthcare Data Interchange Corporation
Combined Notes to Financial Statements (continued)
3. INTERCOMPANY PAYABLE
Intercompany payable amounts are owed to parent entities for amounts paid on
behalf of the subsidiaries and expenses allocated to the subsidiaries for
services rendered, principally salaries and overhead. Intercompany interest is
computed based upon U.S. Healthcare, Inc.'s average overnight repo return.
4. INCOME TAXES
HDIC and ADI are included in the consolidated federal income tax return of their
respective parents. Individual current federal income tax provisions are
generally computed as if the subsidiaries were filing separate federal tax
returns; current income tax benefits, including those resulting from carrybacks,
are recognized to the extent realized in the consolidated return. Amounts so
computed are included in intercompany payable.
5. SUBSEQUENT EVENT
As of January 1, 1997, ADI was combined with U.S. Healthcare's HDIC subsidiary.
On June 14, 1997, U.S. Healthcare entered into an agreement to sell HDIC to
ENVOY Corporation for approximately $36.4 million. The agreement includes an
exclusive contract for ENVOY Corporation to provide electronic data interchange
services to Aetna Inc.'s health maintenance organizations for up to 10 years.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
ENVOY CORPORATION
Date: August 22, 1997 By: /s/ Kevin M. McNamara
-----------------------
Kevin M. McNamara
Senior Vice President and Chief
Financial Officer
11
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EXHIBIT INDEX
Sequential
No. Exhibit Page
- ------- -------------------------------------------------------- ----------
2.1 Stock Purchase Agreement, dated as June 14, 1997, by and --
between ENVOY Corporation, and Advent Investments,
Inc. (incorporated by reference to Exhibit 2.1 of the
Company's Current Report on Form 8-K filed June 23,
1997)
99.1 Joint Press Release, dated August 7, 1997, issued by 13
ENVOY Corporation and Aetna U.S. Healthcare Inc.
12
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Exhibit 99.1
August 7, 1997
AETNA U.S. HEALTHCARE COMPLETES SALE OF HEALTHCARE DATA INTERCHANGE
CORPORATION TO ENVOY CORPORATION
NASHVILLE, Tennessee and BLUE BELL, Pennsylvania (August 7, 1997)-ENVOY
Corporation(Nasdaq/NM:ENVOY), a leading provider of health care electronic data
interchange (EDI) services, and Aetna U.S. Healthcare, the health business unit
of Aetna Inc. (NYSE:AET), announced today that they have completed the
previously announced sale of Aetna U.S. Healthcare's health care EDI subsidiary,
Healthcare Data Interchange Corporation (HDIC), to ENVOY. The purchase price was
approximately $36.4 million.
In connection with this acquisition, the parties will enter into a
long-term agreement under which Aetna U.S. Healthcare has agreed to use ENVOY as
its single source clearinghouse and EDI network for all Aetna U.S. Healthcare
electronic health care transactions.
"Aetna U.S. Healthcare is looking forward to a solid working relationship
with ENVOY Corporation which will allow us to continue to streamline our claims
and member referral processing areas," said Timothy E. Nolan, head of operations
for Aetna U.S. Healthcare. "We expect to significantly increase the numbers of
health care transactions processed electronically."
Commenting on the announcement, Jim D. Kever, president and co-chief
executive officer of ENVOY, said "ENVOY is pleased to have been selected by
Aetna U.S. Healthcare, the nations largest health insurer, to be their single
source health care EDI technology partner. We believe this long-term
relationship has tremendous strategic significance and will substantially
accelerate the connectivity and depth of EDI transaction processing within the
health care market."
ENVOY Corporation is a leading provider of electronic data interchange
services to participants in the health care industry, including pharmacies,
physicians, hospitals, dentists, billing services, commercial insurance
companies, managed care organizations, state and federal government agencies and
others.
Aetna U.S. Healthcare is the nation's leading health and related benefits
organization with a total health enrollment of 14 million Americans nationwide.
13
