<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
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
requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
SHARES OUTSTANDING AS OF AUGUST 12, 1998:
21,196,354
CLASS:
COMMON STOCK, NO PAR VALUE PER SHARE
<PAGE> 2
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ENVOY CORPORATION
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
--------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
CASH AND CASH EQUIVALENTS $ 14,951 $ 8,598
ACCOUNTS RECEIVABLE - NET 37,293 33,510
INVENTORIES 2,018 2,585
DEFERRED INCOME TAXES 1,997 1,797
OTHER 2,874 1,811
--------- ---------
TOTAL CURRENT ASSETS 59,133 48,301
PROPERTY AND EQUIPMENT, NET 19,405 19,508
OTHER ASSETS 68,982 69,714
--------- ---------
TOTAL ASSETS $ 147,520 $ 137,523
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
ACCOUNTS PAYABLE, ACCRUED EXPENSES AND OTHER
CURRENT LIABILITIES $ 34,881 $ 30,011
CURRENT PORTION OF LONG-TERM DEBT 82 263
--------- ---------
TOTAL CURRENT LIABILITIES 34,963 30,274
LONG-TERM DEBT, LESS CURRENT PORTION 588 527
OTHER NON-CURRENT LIABILITIES 8,577 9,163
SHAREHOLDERS' EQUITY:
PREFERRED STOCK -- No par value; authorized, 12,000,000 shares;
issued 2,800,000 and 3,730,233 in 1998 and in 1997, respectively 41,300 55,021
COMMON STOCK -- No par value; authorized, 48,000,000 shares;
issued, 21,191,459 and 19,993,158 in 1998 and 1997,
respectively 125,767 114,652
ADDITIONAL PAID-IN CAPITAL 8,485 7,208
RETAINED DEFICIT (72,160) (79,322)
--------- ---------
TOTAL SHAREHOLDERS' EQUITY 103,392 97,559
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 147,520 $ 137,523
========= =========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
2
<PAGE> 3
ENVOY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
REVENUES $ 42,949 $ 32,169 $ 85,473 $ 62,932
OPERATING COSTS AND EXPENSES:
COST OF REVENUES 19,808 15,025 39,205 29,532
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 9,067 7,758 19,285 15,518
RESEARCH AND DEVELOPMENT
EXPENSES 651 521 1,273 1,236
DEPRECIATION AND AMORTIZATION
EXPENSES 6,267 6,286 13,260 12,359
WRITE OFF OF ACQUIRED IN-PROCESS
TECHNOLOGY 0 0 0 3,000
-------- -------- -------- --------
OPERATING INCOME 7,156 2,579 12,450 1,287
OTHER INCOME (EXPENSE):
INTEREST INCOME 205 485 333 937
INTEREST EXPENSE (405) (221) (825) (606)
-------- -------- -------- --------
(200) 264 (492) 331
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES 6,956 2,843 11,958 1,618
INCOME TAX PROVISION 4,170 1,923 6,914 2,662
-------- -------- -------- --------
NET INCOME (LOSS) $ 2,786 $ 920 $ 5,044 $ (1,044)
======== ======== ======== ========
NET INCOME (LOSS) PER COMMON SHARE
BASIC $ 0.13 $ 0.05 $ 0.24 $ (0.05)
======== ======== ======== ========
DILUTED $ 0.11 $ 0.04 $ 0.20 $ (0.05)
======== ======== ======== ========
WEIGHTED AVERAGE SHARES OUTSTANDING
BASIC 21,127 19,668 20,912 19,324
======== ======== ======== ========
DILUTED 25,296 24,482 25,169 19,324
======== ======== ======== ========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
3
<PAGE> 4
ENVOY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
1998 1997
-------- --------
<S> <C> <C>
NET CASH PROVIDED BY
OPERATING ACTIVITIES $ 19,741 $ 8,854
INVESTING ACTIVITIES:
PURCHASES OF PROPERTY AND EQUIPMENT (3,099) (4,242)
DECREASE IN OTHER ASSETS (121) (2,029)
PAYMENTS FOR BUSINESSES ACQUIRED LESS CASH
ACQUIRED OF $550 (9,419) (4,000)
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (12,639) (10,271)
FINANCING ACTIVITIES:
PROCEEDS FROM ISSUANCE OF COMMON
STOCK 1,113 945
CAPITAL DISTRIBUTIONS OF EXPRESSBILL COMPANIES (318) (350)
PROCEEDS FROM SHORT-TERM AND LONG-TERM DEBT 0 880
PAYMENTS ON SHORT-TERM AND LONG-TERM DEBT (1,544) (168)
-------- --------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (749) 1,307
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 6,353 (110)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 8,598 36,737
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 14,951 $ 36,627
======== ========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
4
<PAGE> 5
ENVOY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1998
A. BASIS OF PRESENTATION
The accompanying unaudited 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. Operating
results for the three-month and six-month periods ended June 30, 1998 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1998.
As more fully discussed in Note B, on February 27, 1998, the Company
completed business combinations with Professional Office Services, Inc. ("POS"),
XpiData, Inc. ("XpiData") and Automated Revenue Management, Inc. ("ARM")
(collectively referred to as the "ExpressBill Companies"). These transactions
have been accounted for as poolings of interests and the Company's historical
consolidated financial statements have been restated to include the accounts and
results of operations of the ExpressBill Companies.
These financial statements, footnote disclosures and other information
should be read in conjunction with the restated audited financial statements and
the accompanying notes thereto in the Company's Current Report on Form 8-K/A,
filed on May 5, 1998.
B. POOLING WITH EXPRESSBILL COMPANIES
On February 27, 1998, the Company completed business combinations with
the three companies operating the ExpressBill patient statement processing and
printing services businesses, for an aggregate of 3,500,000 shares of ENVOY
Common Stock. Shareholders of XpiData, based in Scottsdale, Arizona, received
1,365,000 shares and shareholders of POS and its affiliated company, ARM, both
of which are based in Toledo, Ohio, received an aggregate of 2,135,000 shares.
The ExpressBill patient statement services include electronic data transmission
and formatting, statement printing and mailing services for health care
providers and practice management system vendors. These transactions have been
accounted for as poolings of interests. Accordingly, the Company's historical
consolidated financial statements have been restated to include the accounts and
results of operations of the ExpressBill Companies. A reconciliation of
previously reported revenues and earnings for the three- month and six-month
periods ended June 30, 1997 appears below:
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
June 30, June 30,
1997 1997
(in thousands, (in thousands,
except except
per share data) per share data)
--------------- ---------------
<S> <C> <C>
Revenues:
ENVOY $ 26,416 $52,508
ExpressBill Companies 5,753 10,424
-------- -------
Combined $ 32,169 $62,932
======== =======
Net income (loss):
ENVOY $ (165) $(2,398)
ExpressBill Companies 1,085 1,354
-------- -------
Combined $ 920 $(1,044)
======== =======
Net income (loss) per common share:
ENVOY $ (0.01) $ (0.15)
Combined $ 0.04 $ (0.05)
</TABLE>
5
<PAGE> 6
C. ACQUISITION
On May 6, 1998, the Company acquired all the issued and outstanding
capital stock of Synergy Health Care, Inc. ("Synergy"), which provides health
care information products and services to participants in the health care
market, for $10,200,000 in cash, including amounts paid to certain selling
stockholders for noncompete agreements. The acquisition was accounted for under
the purchase method of accounting, applying the provisions of APB Opinion No.
16. The financial statements for the three and six month periods ended
June 30, 1998, reflect the operations of Synergy for the period after the date
of acquisition. The purchase price has been allocated based upon the Company's
preliminary estimates, and actual allocations will be based on further studies
and may change during the allocation period, generally one year following the
date of acquisition.
D. NET INCOME PER SHARE
The following table sets forth the computation of basic and diluted net
income (loss) per common share (in thousands, except for per share data):
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
1998 1997 1998 1997
-------- ------- -------- ---------
<S> <C> <C> <C> <C>
Numerator:
Numerator for basic and diluted
earnings per share - net income (loss)
available to common shares $ 2,786 $ 920 $ 5,044 $ (1,044)
======== ======= ======== =========
Denominator:
Denominator for basic earnings per share -
weighted average shares 21,127 19,668 20,912 19,324
Effect of dilutive securities:
Employee stock options 1,369 1,084 1,298 - (1)
Convertible preferred stock 2,800 3,730 2,959 - (1)
-------- ------- ------- ---------
Denominator for diluted earnings per share -
adjusted weighted average shares 25,296 24,482 25,169 19,324
======== ======= ======== =========
Basic net income (loss) per common share $ 0.13 $ 0.05 $ 0.24 $ (0.05)
======== ======= ======== =========
Diluted net income (loss) per common share $ 0.11 $ 0.04 $ 0.20 $ (0.05)
======== ======= ======== =========
</TABLE>
(1) Stock options to purchase 1,142,800 shares of Common Stock and Series B
Convertible Preferred Stock (convertible in 3,730,233 shares of common
stock) for the six months ended June 30, 1998 were the only securities
issued which would have been included in the diluted earnings per share
calculation for the six months ended June 30, 1998 had they not been
antidilutive due to the net loss reported by the Company.
E. EFFECT OF NEW ACCOUNTING PRONOUNCEMENT
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement No. 130, "Reporting Comprehensive Income," which establishes standards
for reporting and displaying comprehensive income and its components in a full
set of general purpose financial statements. FASB Statement 130 is effective for
interim and annual periods beginning after December 15, 1997. Comprehensive
income encompasses all changes in shareholders' equity (except those arising
from transactions with owners) and includes net income, net unrealized capital
gains or losses on available for sale securities and foreign currency
translation adjustments. The Company does not believe adoption of this
pronouncement will have a material impact on the Company's results of
operations, as comprehensive income is the same as net income for the Company.
7
<PAGE> 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Although the Company believes that the assumptions underlying the
forward-looking statements contained herein are reasonable, any of the
assumptions could be inaccurate, and therefore, there can be no
assurance that the forward-looking statements included herein will
prove to be accurate. There are many factors that may cause actual
results to differ materially from those indicated by the
forward-looking statements, including, among others, competitive
pressures, changes in pricing policies, delays in product development,
business conditions in the marketplace, general economic conditions and
the various risk factors set forth in the Company's filings and other
periodic reports filed with the Securities and Exchange Commission (the
"Commission"). In light of the significant uncertainties inherent in
the forward-looking statements included herein, the inclusion of such
information should not be regarded as a representation by the Company
that the objectives and plans of the Company will be achieved. The
following discussion and analysis should be read in conjunction with,
and is qualified in its entirety by, the Unaudited Consolidated
Financial Statements, including the notes thereto.
OVERVIEW
The Company is a leading provider of EDI and transaction processing
services to participants in the health care market, including pharmacies,
physicians, hospitals, dentists, billing services, commercial insurance
companies, managed care organizations, state and federal government agencies and
others.
On May 6, 1998, the Company acquired all the issued and outstanding
capital stock of Synergy Health Care, Inc. ("Synergy"), which provides health
care information products and services to participants in the health care
market, for $10,200,000 in cash, including amounts paid to certain selling
stockholders for noncompete agreements.
On February 27, 1998, the Company completed business combinations with
the ExpressBill Companies pursuant to separate agreements and plans of merger
for an aggregate of 3.5 million shares of Common Stock. These combinations have
been accounted for as poolings of interests, and the historical financial
statements of the Company for all periods have been restated to include the
accounts and results of operations of the ExpressBill Companies.
The Company also has made several other acquisitions since the
beginning of 1996, including the acquisitions of National Electronic Information
Corporation ("NEIC") and several other businesses (collectively, the "1996
Acquired Businesses") and Healthcare Data Interchange Corporation ("HDIC") and
Diverse Software Solutions, Inc. ("DSS") in 1997 (collectively, the "1997
Acquired Businesses"). The 1996 Acquired Businesses and the 1997 Acquired
Businesses are collectively referred to herein as the "Acquired Businesses".
These acquisitions were accounted for under the purchase method of accounting
and, as a result, the Company has recorded the assets and liabilities of the
Acquired Businesses at their estimated fair values, with the excess of the
purchase price over these amounts being recorded as goodwill. In connection with
the allocation of purchase price for these Acquired Businesses, valuations of
all identified intangible assets of these Acquired Businesses were made. The
intangible assets for certain of the Acquired Businesses included in-process
technology projects, among other assets, which were related to research and
development that had not reached technological feasibility and for which there
was no alternative future use. Pursuant to applicable accounting pronouncements,
the amounts of the purchase price allocated to these projects were expensed. As
a result of the valuations in connection with certain of the Acquired
Businesses, including NEIC, DSS and HDIC, the Company recorded write-offs for
acquired in-process technology of $30.7 million in 1996 and $38.0 million in
1997. See "-- Acquired In-Process Technology." The financial statements for all
periods reflect the operations of the Acquired Businesses, including Synergy,
for the periods after their respective dates of acquisition.
The Company's revenues principally have been derived from EDI and
transaction processing services to the health care market which generally are
paid for by the health care providers or third-party payors. Revenues generally
are earned on a per transaction basis. In addition, total revenues include
non-transaction based revenues. These revenues include maintenance, licensing
and support activities, as well as the sale of ancillary software and hardware
products and, in the case of the ExpressBill Companies, certain printing
services.
7
<PAGE> 8
The Company's revenues generally are comprised of the following types
of EDI and transaction processing services: (i) pharmacy EDI, (ii) medical and
other EDI and (iii) patient statements. The table below shows the number of
transactions processed by the Company for the periods presented:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
------- ------- ------- -------
(in thousands) (in thousands)
<S> <C> <C> <C> <C>
Pharmacy EDI 175,529 139,840 354,041 286,502
Medical and other EDI 68,899 49,363 140,546 95,527
Patient statements 38,855 23,167 72,491 42,713
------- ------- ------- -------
Totals 283,283 212,370 567,078 424,742
======= ======= ======= =======
</TABLE>
The transactions reflected above include the transactions of the Acquired
Businesses from the date of acquisition, and include the transactions of the
ExpressBill Companies for all periods.
While pharmacy EDI transactions currently represent a majority of the
Company's total transactions, the fees associated with these transactions are
significantly less on a per transaction basis than those received for medical
EDI and patient statement transactions. As a result, pharmacy EDI revenue
constituted less than 16% of the Company's total revenues in the three month and
six month periods ended June 30, 1998. For 1997, the pharmacy EDI business grew
at less than half the rate experienced in the Company's other businesses based
on the number of transactions processed. The Company believes the limited growth
in the Company's pharmacy EDI revenues as compared to the Company's medical EDI
and patient statement revenues primarily is the result of two factors. First,
the acquisitions of the Acquired Businesses have contributed significantly to
the growth of the medical EDI and patient statement business, and the Company
has not made any acquisitions in the pharmacy EDI business. In addition, the
Company believes that the growth in the pharmacy EDI business has not been as
great as in the medical EDI and patient statement business because of the larger
market penetration in the more mature pharmacy EDI business. As a result, the
Company expects its pharmacy EDI business as presently conducted to represent a
decreasing portion of the Company's total revenues in the future. As the mix of
the Company's business changes, a decline in the growth rates associated with
the Company's medical and other EDI and patient statement business could have a
material adverse effect on the financial condition and operating results of the
Company. There can be no assurance that the mix of the Company's business or
growth rates will continue at their current level.
The Company continues to actively pursue the acquisition of health care
information businesses and other companies complementary to its business. The
Company's ability to successfully negotiate and close acquisitions will
materially impact the financial condition and operating results of the Company.
There can be no assurance that the Company will find attractive acquisition
candidates, be able to successfully finance and complete the acquisitions,
consolidate and integrate such businesses following the acquisition or
successfully operate them on a going forward basis.
8
<PAGE> 9
RESULTS OF OPERATIONS
The following table presents, for the periods indicated, the percentage
relationship certain statements of operations items bear to revenues.
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
June 30, June 30,
1998 1997 1998 1997
----------------------------------------------
<S> <C> <C> <C> <C>
Revenues 100.0% 100.0% 100.0% 100.0%
Cost of revenues 46.1 46.7 45.9 46.9
Selling, general and administrative expenses 21.1 24.1 22.5 24.7
Research and development expenses 1.5 1.6 1.5 2.0
Depreciation and amortization expenses 14.6 19.6 15.5 19.6
Write-off of acquired in-process technology 0 0 0 4.8
---------------------------------------------
Operating income 16.7 8.0 14.6 2.0
Interest income .4 1.5 0.4 1.5
Interest expense (.9) (0.7) (1.0) (1.0)
---------------------------------------------
Income from continuing operations before income taxes
and loss in investee 16.2 8.8 14.0 2.5
Provision for income taxes 9.7 6.0 8.1 4.2
---------------------------------------------
Income (loss) from continuing operations 6.5% 2.8% 5.9% (1.7)%
=============================================
</TABLE>
THREE MONTHS ENDED JUNE 30, 1998 AS COMPARED WITH THREE MONTHS ENDED
JUNE 30, 1997
Revenues. Revenues for the quarter ended June 30, 1998 were $42.9
million compared to $32.2 million for the same period last year, an increase of
$10.8 million or 33.5%. The increase in revenue is primarily the result of
higher transaction volumes, which increased 33.4% in the three months ended June
30, 1998 compared to the same period in 1997. The increases were primarily the
result of medical EDI and patient statement internal transaction growth, and, to
a lesser extent, the acquisition of HDIC. Without the increased transaction
volume from HDIC, transaction volumes would have increased 30.9% in the second
quarter of 1998 compared to the same period in 1997.
Cost of Revenues. Cost of revenues includes the cost of communications,
computer operations, operating supplies, product development and customer
support, as well as the cost of hardware sales and rebates to third parties for
transaction processing volume. Cost of revenues in the second quarter of 1998
was $19.8 million compared to $15.0 million for the first quarter of 1997, an
increase of $4.8 million or 32%. The dollar increase is attributable to the
additional costs associated with the increased transaction volume and, to a
lesser extent, increases in rebates paid to third parties in connection with
medical EDI transactions. These third parties aggregate medical EDI transactions
from health care providers, but require a clearinghouse (such as ENVOY) with
direct connections to payors in order to complete the processing of the
transactions. ENVOY typically receives revenue from payors on these
transactions, and pays rebates based on volume to certain of these third parties
as an inducement to use ENVOY as their clearinghouse for these transactions. The
increase in rebates paid to third parties was approximately $227,000 and
primarily results from an increase in the volume of claims received from certain
large third party vendors and claims clearinghouses. If the mix of revenues
continues to shift toward larger vendors and claims clearinghouses, the Company
expects rebates to represent an increasing portion of its costs of revenues. As
a percentage of revenues, cost of revenues continued to improve to 46.1% in the
second quarter of 1998 compared to 46.7% in the second quarter of 1997. The
improvement is primarily attributable to the Company's ability to spread certain
fixed costs of revenue over a larger base of revenues.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses include marketing, finance, accounting and
administrative costs. Selling, general and administrative expenses for the three
months ended June 30, 1998 were $9.1 million compared to $7.8 million in the
same period in 1997, an increase of 16.9%. As a percentage of revenues, however,
selling, general and administrative expenses were 21.1% for the second quarter
of 1998 compared to 24.1% for the second quarter of 1997. The improvement is
attributable to the Company's ability to spread its infrastructure costs over a
larger base of revenues.
Research and Development Expenses. Expenses related to research and
development of new products are expensed as incurred until technological
feasibility is established for the product. Thereafter, all development costs
are capitalized until the products are available for general use by customers.
Research and development expenses for the three months ended June 30, 1998 were
$651,000 compared to $521,000 for the comparable period in 1997.
Depreciation and Amortization Expenses. Depreciation and amortization
expenses relate primarily to host computers, communications equipment and
goodwill and identifiable intangible assets related to acquisitions.
Depreciation and amortization expense for the second quarter of 1998 was $6.3
million, unchanged from the comparable period in 1997. At June 30, 1998, the
9
<PAGE> 10
Company had net goodwill of $32.5 million remaining to be amortized over periods
of three to 15 years following the acquisitions. In addition, the Company had
net identifiable intangible assets of $22.0 million remaining to be amortized
over two to nine year periods, as applicable.
Net Interest Income (Expense). The Company recorded net interest
expense of $200,000 for the three months ended June 30, 1998 compared to net
interest income of $264,000 for the second quarter in 1997. Interest income
decreased to $205,000 in the second quarter of 1998 from $485,000 in the second
quarter of 1997. In August 1997, the Company acquired HDIC for approximately
$36.4 million in cash and the assumption of certain liabilities associated with
unfavorable contracts. Following this acquisition, the Company had less cash
available for investment, accounting for the reduction in interest income in
1998. Interest expense increased to $405,000 in the second quarter of 1998 from
$221,000 in the second quarter of 1997. Interest expense in the second quarter
of 1998 resulted primarily from interest expense that is required to be imputed
in order to account for certain unfavorable contracts assumed in the HDIC
acquisition. Interest expense in the three months ended June 30, 1997 resulted
primarily from the Company's $10.0 million 9% convertible subordinated notes
issued in June 1995 (the "Convertible Notes"). In a series of transactions
completed during 1996 and 1997, all of the Convertible Notes were converted into
shares of Common Stock and, therefore, were not outstanding during the three
months ended June 30, 1998.
Income Tax Provision. The Company's income tax provision for the second
quarter of 1998 was $4.2 million compared to $1.9 million for the comparable
period in 1997. Income tax expense recorded is based on estimated taxable
income. Amortization of certain goodwill and identifiable intangible assets is
not deductible for income tax purposes.
SIX MONTHS ENDED JUNE 30, 1998 AS COMPARED WITH SIX MONTHS ENDED JUNE 30, 1997
Revenues. Revenues for the six month period ended June 30, 1998 were
$85.5 million compared to $62.9 million for the same period in the prior year,
an increase of $22.5 million or 35.8%. The increase in revenue is primarily the
result of higher transaction volumes, which increased 33.5% in the six months
ended June 30, 1998 compared to the same period in 1997. The increases were
primarily the result of medical EDI and patient statement internal transaction
growth, and, to a lesser extent, the acquisition of HDIC. Without the increased
transaction volume from HDIC, transaction volumes would have increased 29.9% in
the six months ended June 30, 1998 compared to the same period in 1997.
Cost of Revenue. Cost of revenues for the six-month period ended June
30, 1998 was $39.2 million compared to $29.5 for the six-month period ended June
30, 1997. The dollar increase is attributable to the additional costs associated
with the increased transaction volume and increases in rebates paid to third
parties in connection with medical EDI transactions. The increase in rebates
paid to third parties was approximately $1.8 million and results primarily from
an increase in the volume of claims received from certain large third party
vendors and claims clearinghouses. As a percentage of revenues, cost of revenues
improved to 45.9% for the six-month period ended June 30, 1998 compared to 46.9%
in the same period last year. The improvement is primarily attributable to the
Company's ability to spread certain fixed costs of revenue over a larger base of
revenues.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the six-month period ended June 30, 1998 were $19.3
million compared with $15.5 million for the same period last year, an increase
of $3.8 million or 24.3%. The dollar increase is a result of the inclusion of
the Acquired Businesses following the date of acquisition and the required
infrastructure to support the larger base of revenues. As a percentage of
revenues, selling, general and administrative expenses were 22.5% for the
six-month period ended June 30, 1998 compared with 24.7% in the same period last
year. The improvement as a percentage of revenue is a result of a larger revenue
base to support these expenses, as well as the elimination of certain
duplicative costs realized in connection with the Acquired Businesses following
the date of acquisition. Transaction costs related to the business combinations
with the ExpressBill Companies totaled $780,000 in the six months ended June 30,
1998 and consisted of approximately $500,000 in legal and accounting fees,
$200,000 for financial advisory services and $80,000 in filing fees and other
transaction costs. These amounts are included in selling, general and
administrative expenses. Excluding these transaction costs, selling, general and
administrative expenses as a percentage of revenues for the first six months of
1998 would have been 21.6%.
Research and Development Expenses. Research and development expenses
for the six months ended June 30, 1998 were $1.3 million compared to $1.2
million for the first six months of 1997.
Depreciation and Amortization. Depreciation and amortization expenses
for the six-month period ended June 30, 1998 were $13.3 million compared to
$12.4 million for the comparable period in 1997. The increase primarily
resulted from a full six-month period of amortization of goodwill and other
intangibles in 1998 related to the 1997 Acquired Businesses.
Write-off of Acquired In-Process Technology. The Company incurred a
one-time write-off of acquired in-process technology of $3.0 million in
connection with the March 1997 acquisition of DSS. This amount represents an
allocation of the purchase price
10
<PAGE> 11
to the projects that consisted primarily of the development of additional
interfaces and functionality for DSS service offerings. Such amount was charged
to expense because the projects related to research and development that had not
reached technological feasibility and for which there was no alternative future
use. See "--Acquired In-Process Technology."
Net Interest Income (Expense). The Company recorded net interest
expense of $492,000 for the six-month period ended June 30, 1998 compared to net
interest income of $331,000 in the comparable period in 1997. Interest income
decreased to $333,000 in the six months ended June 30, 1998 from $937,000 in the
same period of 1997. In August 1997, the Company acquired HDIC for approximately
$36.4 million in cash and the assumption of certain liabilities associated with
unfavorable contracts. Following this acquisition, the Company had less cash
available for investment, accounting for the reduction in interest income in
1998. Interest expense increased to $825,000 in the six months ended June 30,
1998 from $606,000 in the same period of 1997. Interest expense in 1998 resulted
primarily from interest expense that is required to be imputed in order to
account for certain unfavorable contracts assumed in the HDIC acquisition.
Interest expense in the six months ended June 30, 1997 resulted primarily from
the Convertible Notes.
Income Tax Provision. The Company's income tax provision for the
six-month period ended June 30, 1998 was $6.9 million compared to $2.7 million
in the comparable period in 1997. Income tax expense recorded is based upon
estimated taxable income. Amortization of certain goodwill and identifiable
intangibles are not deductible for income tax purposes.
ACQUIRED IN-PROCESS TECHNOLOGY
In connection with the purchases of certain of the Acquired Businesses,
including NEIC, DSS and HDIC, the Company made allocations of the purchase price
to acquired in-process technology totaling $30.7 million in 1996 and $38.0
million in 1997. These amounts were expensed as non-recurring charges on the
respective acquisition dates of the Acquired Businesses because the acquired
in-process technology had not yet reached technological feasibility and had no
future alternative uses. Since the respective dates of acquisition, the Company
has used the acquired in-process technology to develop new health care EDI and
transaction processing product and service offerings, which have or will become
part of the Company's suite of products when completed. Products using the
acquired in-process technology have been introduced at various times following
the respective acquisition dates of the Acquired Businesses, and the Company
currently expects to complete the development of the remaining projects at
various dates during 1998 and 1999. Upon completion, the Company offers the
related products and services to its customers.
The nature of the efforts required to develop the acquired in-process
technology into commercially viable products principally relate to the
completion of all planning, designing and testing activities that are necessary
to establish that the product or service can be produced to meet its design
requirements, including functions, features and technical performance
requirements. The Company currently expects that the acquired in-process
technology will be successfully developed, but there can be no assurance that
commercial viability of these products will be achieved. Furthermore, future
developments in the health care EDI and transaction processing industry, changes
in EDI and transaction processing technology, changes in other product and
service offerings or other developments may cause the Company to alter or
abandon these plans.
The fair value for the in-process technology in each acquisition was
based on analysis of the markets, projected cash flows and risks associated with
achieving such projected cash flows. In developing these cash flow projections,
revenues were forecasted based on relevant factors, including aggregate revenue
growth rates for the business as a whole, individual service offering revenues,
characteristics of the potential market for the service offerings and the
anticipated life of the underlying technology. Operating expenses and resulting
profit margins were forecasted based on the characteristics and cash flow
generating potential of the acquired in-process technology, and included
assumptions that certain expenses would decline over time as operating
efficiencies were obtained. Appropriate adjustments were made to operating
income to derive net cash flow, and the estimated net cash flows of the
in-process technologies in each acquisition were then discounted to present
value using rates of return that the Company believes reflect the specific
risk/return characteristics of these research and development projects. The
selection of discount rates for application in each acquisition were based on
the consideration of: (i) the weighted average cost of capital ("WACC"), which
measures a company's cost of debt and equity financing weighted by the
percentage of debt and percentage of equity in its target capital structure;
(ii) the corresponding weighted average return on assets ("WARA") which measures
the after-tax return required on the assets employed in the business weighted by
each asset group's percentage of the total asset portfolio; and (iii) venture
capital required rates of return which typically relate to equity financing for
relatively high-risk business or business projects.
Failure to complete the development of these projects in their
entirety, or in a timely manner, could have a material adverse impact on the
Company's operating results, financial condition and results of operations. No
assurance can be given that actual revenues and operating profit attributable to
acquired in-process technology will not deviate from the projections used to
value such technology in connection with each of the respective acquisitions.
Ongoing operations and financial results for acquired businesses and the Company
as a whole are subject to a variety of factors which may not have been known or
estimable at the date of such acquisition, and the estimates discussed below
should not be considered the Company's current projections for operating results
for the acquired businesses or the Company as a whole.
11
<PAGE> 12
A description of the acquired in-process technology and the estimates
made by the Company for each of NEIC, DSS and HDIC is set forth below.
NEIC
The in-process technology acquired in the NEIC acquisition consisted of
five significant research and development projects. These projects were all
aimed at facilitating the ease of participation of healthcare providers into
clearinghouse technologies and ensuring compliance with regulatory and other
industry standards. After acquiring NEIC, the Company continued the development
of these in-process projects, all of which the Company estimates were less than
10% complete at the date of acquisition. The aggregate value assigned to the
NEIC in-process technology was $30.0 million. A brief description of the five
in-process projects is set forth below:
- UniClaim. This product is a PC based claims processing system that
extracts Health Care Financing Administration 1500 claim formats from
practice management systems ("PMS"), performs edits and transports the
file to a host system where EDI formatting is completed for delivery to
payors. This project was completed in the second quarter of 1996. The
value assigned to this in-process technology was $4.4 million.
- GTEDS. This product is a computerized system for the collection,
validation and distribution of claims from various sources to claims
receivers. The project was completed in the fourth quarter of 1996. The
value assigned to the GTEDS in-process technology was $21.5 million.
- On-Line. This product is an application that performs "screen
scraping" (i.e., it captures data from a screen presentation and
creates an American National Standards Institute 270 eligibility
request.) This project was completed during the second quarter of 1998.
The value assigned to this in-process technology was $1.2 million.
- SmartPost. This product is an application to populate a physician
PMS with remittance data for automatic posting to the PMS. In the first
quarter of 1997, the Company completed the acquisition of DSS, which
already had a Receivables Management product that included
substantially the same functionality as the SmartPost product, and
determined to abandon further development of SmartPost. The value
assigned to this in-process technology was $2.5 million.
- Expect. This product is an application for screen scraping at payor
locations. In the first quarter of 1997, the Company identified an
existing software application with the same capabilities as Expect, and
made a decision to license that software and abandon the Expect
project. The value assigned to this in-process technology was $400,000.
At the time of the valuation, the expected costs to complete all such projects
were $2.2 million. As of March 1998, approximately $1.8 million had been
incurred for these projects, and there were no additional expected costs to
complete the research and development projects acquired from NEIC.
Revenue attributable to NEIC's in-process technology was assumed to
increase in the first three years of the six year projection period at annual
rates ranging from 43% to 10%, decreasing over the remaining years at rates
ranging from 36% to 4% as other products are released in the marketplace.
Projected annual revenue ranged from approximately $29.3 million to $70.6
million over the term of the projections. These projections were based on
aggregate revenue growth rates for the business as a whole, individual product
revenues, giving consideration to transaction volumes and prices, anticipated
growth rates for the electronic claims market, anticipated product development
and product introduction cycles, electronic claims cycles and the estimated life
of the underlying technology. Projected revenues from the in-process technology
were assumed to peak in 1998 and decline from 1999 to 2001 as other new products
are expected to enter the market.
Gross profit was assumed to increase in the first three years of the
projection period at annual rates ranging from 44% to 11%, decreasing over the
remaining years at rates ranging from 37% to 6%, resulting in incremental annual
gross profits of approximately $23.7 million to $59.4 million. The gross profit
projections assumed a growth rate approximately the same as the revenue growth
rate.
Operating profit was assumed to increase in the first four years of the
projection period at annual rates of 105% to 2%, and decrease over the remaining
years at 33% annually, resulting in incremental annual operating profits of
approximately $7.4 million to $24.8 million. Operating profit is projected to
increase at a faster rate than revenues in the earlier years of the projection
primarily because all product developments costs were assumed to be incurred in
the first two years, reducing operating expenses as a percentage of revenue
after the second year.
The Company used a 25% discount rate for valuing in-process technology
acquired in the NEIC acquisition, which the Company believes reflected the risk
associated with the completion of these research and development projects and
the estimated future economic benefits to be generated subsequent to their
completion.
12
<PAGE> 13
DSS
The in-process technology acquired in the DSS acquisition consisted
primarily of projects related to DSS's Receivables Management product line and
four peripheral products expected to be used as add-on features to the
Receivables Management product. DSS's Receivables Management product line works
with existing hospital information system ("HIS") and PMS software
and provides claims and receivables management, including billings, collections
and cash applications, among other functions. At the time of acquisition, DSS
was selling versions of the Receivables Management product to work with certain
HIS and PMS products; however, the Company noted that there was still
substantial development work required in order to complete versions which were
adapted to other major HIS and PMS products. After acquiring DSS, the Company
continued development of the Receivables Management product and the four
associated add-on features, all of which the Company estimates were less than
10% complete at the date of acquisition. These development efforts included
planning, modifying existing designs, coding and testing of the resulting
products. The aggregate value assigned to the DSS in-process technology was $3.0
million. Since each of these projects were to be incorporated into the DSS
product line, the cash flow projections prepared for valuation purposes treated
all of these projects as a single unit and, therefore, the individual projects
were not separately valued. A brief description of each of the four add-on
features is set forth below:
- Materials Management. This product incorporates certain customized
features into licensed software to allow for online transaction
processing of inventory data. This project was completed during the
third quarter of 1997.
- Billing and 72 Hour Compliance. This product processes all
emergency room billings and collections, in addition to tracking
patients throughout the emergency/casualty process. This project was
completed during the first quarter of 1998.
- Registration. This product facilitates access to patient records,
as well as providing basic patient information to payors. The Company
estimates that this project was approximately 25% complete as of June
30, 1998, and currently anticipates that this project will be completed
during the fourth quarter of 1998.
- Collections. This product assists the health care provider's HIS or
PMS system in the management of receivables. In the fourth quarter of
1997, management placed further development of this project on hold
while it evaluates alternative technologies and development strategies.
At the time that the project was placed on hold, the Company estimates
that this project was approximately 50% complete.
At the time of the valuation, the expected costs to complete all such projects
totaled $200,000. Approximately $150,000 had been incurred for these projects
through June 30, 1998, and the Company estimates that approximately $50,000
will be required to complete the remaining research and development projects.
Revenue attributable to DSS's in-process technology was forecasted
through 2004. Over this time period, the Company expects to realize increases in
the in-process technology's revenues from: (i) an expected penetration of the
Company's customer base; (ii) sales of new versions of the Receivables
Management product to existing DSS customers; and (iii) sales from the
development of additional "add-on" features to both the Company's and DSS's
customers. Revenue for the in-process technology was assumed to increase in the
first four years of the projection period at rates ranging from 38% to 15%,
decreasing over the remaining years at rates ranging from 40% to 5% as other
products are released in the marketplace. Projected annual revenue ranged from
approximately $1.9 million to $5.2 million over the term of the projections.
These projections were based on anticipated penetration of the Company's
existing customer base, sales of new versions of the Receivables Management
product to existing DSS customers, and sales from the development of additional
"add-on" products to both the Company's and DSS's customers, taking into account
projected product development and introduction schedules, product sales cycles
and the estimated life of the product technologies. Projected revenues from the
in-process technology were assumed to peak in 2000 and decline from 2001 to 2004
as other new products are expected to enter the market.
Gross profit was assumed to increase in the first four years of the
projection period at annual rates ranging from 38% to 15%, decreasing over the
remaining years at rates ranging from 40% to 5%, resulting in incremental annual
gross profits of approximately $1.6 million to $4.4 million. The gross profit
projections assumed a growth rate approximately the same as the revenue growth
rate.
Operating profit was assumed to increase in the first four years of the
projection period at annual rates of 94% to 15%, and decrease over the remaining
years at rates ranging from 40% to 5%, resulting in incremental annual operating
profits of approximately $450,000 to $1.7 million. Operating profit is projected
to increase at a faster rate than revenues in the second year primarily because
all product developments costs were assumed to be incurred in the first year,
reducing operating expenses as a percentage of revenue after the first year.
The Company used a 20% discount rate for valuing in-process technology
acquired in the DSS acquisition, which the Company believes reflected the risk
associated with the completion of these research and development projects and
the estimated future economic benefits to be generated subsequent to their
completion.
13
<PAGE> 14
HDIC
The in-process technology acquired in the HDIC acquisition consisted of
seven significant research and development projects associated with HDIC's
product line. At the time of acquisition, HDIC had developed on-line, real-time
claims transaction technology which permitted Aetna U.S. Healthcare, Inc.
("AUSHC") to receive real-time EDI transactions, and was in the process of
developing new transaction sets which would allow health care providers to
submit additional health care transactions electronically. After acquiring HDIC,
the Company modified the Company's existing front-end transaction platforms to
accommodate HDIC's technology and continued the development of seven in-process
projects, all of which the Company estimates were less than 10% complete at the
date of acquisition. The Company believes that the resulting technology has
given, and will continue to give, the Company a competitive advantage in the
marketplace by significantly enhancing the Company's existing EDI and
transaction processing capabilities with additional transaction sets. The
aggregate value assigned to HDIC's in-process technology was $35.0 million.
Since each of these projects were to be incorporated into the HDIC project line,
the cash flow projections prepared for valuation purposes treated all these
projects as a single unit and, therefore, the individual projects were not
separately valued. A brief description of each of the seven in-process projects
is set forth below:
- Real-time referrals. This product is designed to allow batch or
on-line real-time transaction processing for referral authorization and
the ability to receive or confirm acknowledgment through the Company's
network that a valid referral is on file with the primary care provider
("PCP"). This project was completed during the second quarter of 1998.
- Vision claims. This product is designed to provide the capability
for health care providers to submit vision claims and vision related
information electronically. The Company estimates that the project was
approximately 75% complete as of June 30, 1998, and currently
anticipates that this project will be completed during the third
quarter of 1998.
- Lab utilization/results. This product is designed to allow
electronic transmission of lab testing requests and reporting of lab
results. The Company estimates that the project was approximately 90%
complete as of June 30, 1998, and currently anticipates that this
project will be completed during the third quarter of 1998.
- Provider directories. This product is designed to allow for the
maintenance of reference information related to health care providers
and provider networks. The Company estimates that the project was
approximately 75% complete as of June 30, 1998, and currently
anticipates that this project will be completed in the fourth quarter
of 1998.
- Real-time encounters/claims. This product is designed to allow
batch or on-line real-time transaction processing for the transmission
of encounter data from the PCP or a capitated specialist to the
insurer, and the subsequent acknowledgment of receipt. The Company
estimates that the project was approximately 50% complete as of June
30, 1998, and currently anticipates that this project will be completed
during the first quarter of 1999.
- Electronic pre-certifications. This product is designed to allow
batch or real-time batch transaction processing for the request and
authorization to perform non-capitated procedures or hospital
admissions. This transaction is initiated from the PCP, specialist
hospital or other delivery system. The Company estimates that the
project was approximately 10% complete as of June 30, 1998, and
currently anticipates that this project will be completed during the
second quarter of 1999.
- Rosters through the Internet. This product is designed to use the
Internet as a means to deliver to health care providers managed care
program eligibility status and capitated payment information. The
Company estimates that the project was approximately 55% complete as of
June 30, 1998, and currently anticipates that this project will be
completed during the third quarter of 1999.
At the time of the valuation, the expected costs to complete all such projects
totaled $1.8 million. Approximately $400,000 has been incurred for these
projects through June 30, 1998 in completing these projects, and the Company
estimates that approximately $1.8 million will be required to complete the
remaining research and development projects.
Revenue attributable to HDIC's in-process technology was assumed to
increase in the first three years of the six year projection period at rates
ranging from 56% to 7%, decreasing over the remaining years at rates ranging
from 54% to 4% as other products are released in the marketplace. Projected
annual revenue ranged from approximately $11.2 million to $48.2 million over the
term of the projections. These projections were based on increased transaction
volume through existing and new customer channels, increased fees per
transaction, anticipated growth rates for the electronic claims market,
anticipated product development and product introduction cycles, electronic
claims cycles and the estimated life of the underlying technology. In addition,
these projections also took into account the expected effects that completing
the in-process technology would have in reducing volume constraints which the
Company believes resulted in underutilization of the HDIC technology. Projected
revenues from the in-process technology were assumed to peak in 2000 and decline
from 2001 to 2003 as other new products are expected to enter the market.
Gross profit was assumed to increase in the first three years of the
projection period at rates ranging from 55% to 7%, decreasing over the remaining
years at rates ranging from 57% to 10%, resulting in incremental annual gross
profits of approximately
14
<PAGE> 15
$7.5 million to $36.5 million. The gross profit projections assumed a growth
rate approximately the same as the revenue growth rate.
Operating profit was assumed to increase in the second year of the
projection period at a rate of 75%, remain unchanged in the third year, and
decrease over the remaining years at rates ranging from 58% to 12%, resulting in
incremental annual operating profits of approximately $5.2 million to $26.1
million. Operating profit is projected to increase at a faster rate than
revenues in the second year because all product development costs were assumed
to be incurred in the first year, reducing operating expenses as a percentage of
revenue in the second year.
The Company used a 30% discount rate for valuing the in-process
technology acquired from HDIC, which the Company believes reflected the risk
associated with the completion of these research and development projects and
the estimated future economic benefits to be generated subsequent to their
completion.
LIQUIDITY AND CAPITAL RESOURCES
The Company has incurred operating losses in recent years primarily as
a result of the write-off of acquired in-process technology related to the
Acquired Businesses, together with substantial non-cash depreciation and
amortization charges. During the six months ended June 30, 1998, however,
operations generated positive cash flows of $19.7 million compared to $8.9
million for the six months ended June 30, 1997.
Investing activities consist primarily of payments for acquired
businesses and purchases of property and equipment. Investing activities used
cash of $12.6 million in the six months ended June 30, 1998 and used cash of
$10.3 million in the six months ended June 30, 1997.
Financing activities consist primarily of proceeds from the issuance of
capital stock, and proceeds from and payments on debt. Financing activities used
cash of $749,000 in the six months ended June 30, 1998 and provided $1.3 million
of cash in the six months ended June 30, 1997.
On May 6, 1998, the Company completed the acquisition of Synergy for
$10.2 million in cash. Following this acquisition and as of June 30, 1998, the
Company had available cash and cash equivalents of approximately $15.0 million.
The Company purchases additional computer hardware and software
products from time to time as required to support the Company's business. The
Company incurred capital expenditures of $3.0 million and $4.2 million for the
six month periods ended June 30, 1998 and 1997, respectively, primarily for
computer hardware and software products. The Company currently estimates that
total capital expenditures for 1998 will be approximately $8 to $9 million.
The Company is expensing as incurred all costs associated with system
changes related to its Year 2000 compliance project. The Company estimates that
the total cost of the Year 2000 expenses will be approximately $4.0 million, of
which approximately $2.5 million will be incurred during 1998. These costs are
being funded with available cash.
At June 30, 1998, the Company had no amounts outstanding under its $50
million revolving credit facility. Any future borrowings made under the credit
facility would bear interest at a rate equal to the Base Rate (as defined in the
credit facility) or an index tied to LIBOR. Any future borrowings under the
credit facility would be due and payable in full on June 30, 2000. The credit
facility contains financial covenants applicable to the Company and its
subsidiaries, including ratios of debt to capital, annualized EBITDA to
annualized interest expense and certain other financial covenants customarily
included in a credit facility of this type. The Company and its subsidiaries
also are subject to certain restrictions relating to payment of dividends to
shareholders of the Company, acquisitions, incurrence of debt and other
restrictive provisions; however, there are no restrictions on the ability of the
Company's subsidiaries to transfer funds to the Company in the form of
dividends, loans or advances. The credit facility is secured by substantially
all of the assets of the Company and its subsidiaries.
In February 1998, the Company issued 3.5 million shares of Common Stock
in connection with the ExpressBill Companies' business combinations. Also in
February 1998, 930,233 shares of the Company's Series B Convertible Preferred
Stock were converted into an equal number of shares of Common Stock. As a result
of these transactions, the number of shares of Common Stock outstanding
increased by approximately 4.4 million shares, or 27%, to 21.1 million shares.
From time to time, the Company has engaged and will continue to engage
in acquisition discussions with health care information businesses and other
companies complementary to its business. In the event the Company engages in
such acquisitions in the future, its currently available capital resources may
not be sufficient for such purposes and the Company may be required to incur
additional indebtedness or issue additional capital stock, which could result in
increased interest expense or dilution to existing investors.
15
<PAGE> 16
Based on current operations, anticipated capital needs to fund known
expenditures and current acquisitions, the Company believes its available cash,
cash flow from operations and the $50.0 million revolving credit facility will
provide the capital resources necessary to meet its liquidity and cash flow
requirements over the next 12 months, including the Company's current short-term
obligations. The Company believes that present funding sources will provide the
ability to meet long-term obligations as they mature. As of June 30, 1998, the
Company's long-term obligations totaled $9.2 million and consisted of $588,000
in long-term debt net of current portion, and $8.6 million in long-term
obligations related to unfavorable contracts assumed in connection with the HDIC
acquisition. Such amounts relate primarily to the Company's obligations under
the AUSHC services agreement to assume a portion of the transaction processing
fees related to certain secondary Medicare transactions, and existing agreements
assumed by the Company with several businesses that served as claims
clearinghouses for AUSHC prior to the HDIC acquisition. The Company's available
cash is invested in interest bearing securities with maturities of up to 30
days.
SEASONALITY
The Company's business is to some extent seasonal, with more revenues
being generated from September through March as a result of a greater number of
pharmaceutical claims arise in those months, while operating expenses tend to
remain relatively constant over the course of the year.
16
<PAGE> 17
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, the Company may be a party to legal proceedings incidental to
its business but believes that none of these proceedings is material to its
business at the present time.
ITEM 4. SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS.
The Company held its Annual Meeting of Shareholders on June 4, 1998 (the "Annual
Meeting"). The shareholders of the Company voted as follows on the two agenda
items considered at the Annual Meeting:
(a) to elect two (2) Class III Directors, Fred C. Goad, Jr. and Kevin M.
McNamara, for three-year terms or until their successors are duly elected and
qualified. The following table sets forth the number of votes cast for, against
and abstained with respect to each of the nominees.
<TABLE>
<CAPTION>
NOMINEE FOR AGAINST ABSTAINED
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Fred C. Goad, Jr. 19,158,830 0 153,775
Kevin M. McNamara 19,158,995 0 153,610
</TABLE>
(b) to ratify, confirm and approve the ENVOY Corporation 1998 Stock Incentive
Plan. There were 16,294,073 votes cast for such proposal, 1,296,941 votes cast
against such proposal and 14,249 abstaining with respect to such proposal.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
10 Employment Agreement between the Company and Gregory T. Stevens
27 Financial Data Schedule (for SEC use only).
(b) Reports on Form 8-K.
The Company filed a Current Report on Form 8-K/A on May 5, 1998 pursuant to Item
7(b) thereof with the Securities and Exchange Commission (the "Commission") to
amend an earlier Form 8-K filed on March 9, 1998. The amendment was filed for
the purpose of including certain financial information, which was omitted in the
Form 8-K originally filed, required to be filed as a result of the business
combinations with the ExpressBill Companies.
The Company filed a Current Report on Forms 8-K on July 2, 1998 pursuant to Item
7(c) thereof with the Commission to file a material contract under Rule
601(b)(10) of Regulation S-K.
17
<PAGE> 18
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.
ENVOY CORPORATION
Date: August 12, 1998 By: /s/ Fred C. Goad, Jr.
----- ---------------------------------------
Fred C. Goad, Jr.
Chairman and Co-Chief Executive Officer
By: /s/ Kevin M. McNamara
---------------------------------------
Kevin M. McNamara
Senior Vice President and
Chief Financial Officer
18
<PAGE> 19
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. NAME
----------- ----
<S> <C>
10 Employment Agreement between the Company and
Gregory T. Stevens
27 Financial Data Schedule (for SEC use only)
</TABLE>
<PAGE> 1
Exhibit 10
EMPLOYMENT AGREEMENT
OF
GREGORY T. STEVENS
THIS EMPLOYMENT AGREEMENT ("Agreement") is entered into between ENVOY
Corporation, a Tennessee corporation ("Company"), and Gregory T. Stevens
("Executive"), effective as of April 1, 1998 (the "Effective Date"). The Company
and the Executive are sometimes referred to herein as the "Parties".
In consideration of the mutual covenants contained in this Agreement
and other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, and intending to be legally bound, the parties hereby agree
as follows:
1. Employment: The Company hereby employs the Executive and the Executive
hereby accepts employment with the Company upon terms and conditions set
forth herein.
2. Duties and Responsibilities:
2.1 Extent of Service: The Executive shall, during the term of this
Agreement, devote such of his entire time, attention, energies and business
efforts ("Business Efforts") to his duties as an Executive of the Company as are
reasonably necessary to carry out his duties specified in Paragraph 2.2 below.
The Executive shall not, during the term of this Agreement, engage in any other
business activity (whether or not such business activity is pursued for gain,
profit or other pecuniary advantage) if such business activity would impair the
Executive's ability to carry out his duties hereunder. This Paragraph 2.1,
however, shall not be construed to prevent the Executive from investing his
personal assets as a passive investor.
2.2 Position and Duties: The Executive shall serve the Company as Vice
President, General Counsel and Secretary and, in such capacities, shall be the
chief legal officer for the Company and its affiliates and shall have principal
responsibility for all legal matters relating to the Company Business (as
defined in Section 9.1 below). In furtherance hereof, the parties agree that a
significant portion of the Executive's responsibilities shall include those
legal matters typically associated with being the chief legal officer of a
publicly traded company. The Executive shall perform, faithfully and diligently,
the services and functions relating to such offices or otherwise reasonably
incident to such offices as may be designated from time to time by the Board of
Directors of the Company; provided that all such services and functions shall be
reasonable and within the Executive's area of expertise; and provided further
that the Executive shall be physically capable of performing the same.
2.3 Place of Employment: During the term of this Agreement, the
Executive's primary place of employment shall be in Nashville, Tennessee, unless
otherwise mutually agreed by the
<PAGE> 2
Company and Executive. During the term of this Agreement, the Company will
provide the Executive with a private office and other customary staff support
services, all as are commensurate with the services and functions to be
performed by him hereunder.
3. Salary and Other Benefits: Subject to the terms and conditions of this
Agreement:
3.1 Salary: As compensation for his services under and during the term
of his employment under this Agreement, the Executive shall be paid an annual
salary of not less than $137,500, payable in accordance with the then current
payroll policies of the Company. Such salary shall be subject to increase by the
Board of Directors of the Company (or the appropriate committee thereof) at the
beginning of each calendar year, or otherwise as consistent with the timing of
employee pay increases. The annual salary shall be payable pursuant to this
Paragraph 3.1 in accordance with the Company's regular payroll practices from
time to time (hereinafter sometimes referred to as his "Base Salary").
3.2 Other Benefits: As long as the Executive is employed by the
Company, the Executive shall be entitled to receive the following benefits in
addition to his Base Salary:
(a) The Executive shall have the right to participate in all
group benefit plans of the Company (including without limitation,
disability, accident, medical, life insurance, hospitalization and
pension) and stock and other incentive plans (including without
limitation stock option, stock appreciation or other similar stock
based plans), all in accordance with the Company's regular practices
with respect to its senior management employees.
(b) The Executive shall be entitled to reimbursement from the
Company for reasonable out-of-pocket expenses incurred by him in the
course of the performance of his duties hereunder. Executive also shall
be entitled to reimbursement for professional fees and expenses,
including without limitation bar association dues and continuing legal
education seminar fees, as are customary to maintain his position and
standing as a licensed attorney in the State of Tennessee and in his
areas of expertise.
(c) The Company shall pay Executive an annual bonus, payable
during the first quarter of each year, or otherwise as consistent with
the timing of the payment of other employee bonuses, based on the
previous year's performance, of up to 20% (or such additional amount as
may otherwise be determined by the Board of Directors) of his then
current Base Salary (the "Bonus"), subject to performance criteria
established by the Board of Directors.
(d) The Executive shall be entitled to such vacation, holidays
and other paid or unpaid leaves of absence as are consistent with the
Company's other senior management employees. Executive shall be
entitled to twenty-eight (28) days of paid vacation each
2
<PAGE> 3
year. This vacation allowance shall be cumulative from year to year,
but shall be limited to six (6) weeks accumulation. Executive
recognizes the essential nature of his duties and hereby agrees the
maximum amount of vacation time to be taken shall not exceed
twenty-eight (28) consecutive days.
4. Term: The term of this Agreement shall be for an initial period of thirty
(30) months following the Effective Date (the "Initial Term"), and shall
thereafter automatically be extended for additional periods of one year on a
yearly basis, unless on or before 60 days prior to the expiration of any
subsequent year period, either the Executive or the Company gives the other
party notice that the term of this Agreement will not be so extended, in which
case the term of this Agreement will end at the end of such period as designated
in the notice.
5. Termination and Resignation: During the Initial Term, the Company shall
have the right to terminate the Executive's employment hereunder at any time
only for Cause. Following the Initial Term, the Company shall have the right to
terminate Executive's employment hereunder at any time and for any reason. Upon
any termination by the Company, the Executive shall be entitled to receive from
the Company prompt payment of the amounts determined pursuant to Paragraph 6.
The Executive shall have the right to terminate his employment hereunder at any
time by resignation, and he shall thereupon be entitled to receive from the
Company prompt payment of the amount determined pursuant to Paragraph 6 below.
6. Certain Payments Upon Termination and Resignation:
6.1 Pro Rata Payments: If (a) the Company at any time terminates the
Executive's employment for Cause (as defined in Section 6.3 below) or (b) the
Executive voluntarily resigns for any reason other than because of an uncured
material breach by the Company of any term of this Agreement prior to a Change
in Control (as defined in Section 7.3(c) below), then in each case the Executive
shall be entitled to receive only his Base Salary and any other accrued benefits
due Executive in accordance with Paragraph 3.2(a) on a pro rata basis to the
date of termination plus reimbursement of expenses through the date of
termination in accordance with Paragraph 3.2(b). If the Executive at any time
dies or becomes disabled (being defined as the inability of the Executive to
perform his normal employment duties for the remainder of the term of this
Agreement because of either physical or mental incapacity), the Executive shall
be entitled to receive only his Base Salary and any other accrued benefits due
Executive in accordance with Paragraph 3.2(a) on a pro rata basis and
reimbursement of expenses in accordance with Paragraph 3.2(b) to the date of
termination or resignation. For purposes of this Paragraph 6.1, "pro rata" shall
mean the product of the Executive's annual Base Salary that would have been
payable had the Executive's employment not terminated multiplied by a fraction
the denominator of which is 365 and the numerator of which is the number of days
during the calendar year that have passed through the date of the termination of
the Executive's employment.
3
<PAGE> 4
6.2 Base Salary Payment: If (a) the Company terminates this Agreement
or the Executive's employment without Cause or (b) the Executive resigns because
of the uncured material breach by the Company of any term of this Agreement,
then in each case the Executive shall be entitled to receive his Base Salary for
a period of six months following such termination, payable on a pro rata basis,
in accordance with the Company's regular payroll practices. Furthermore, if
Executive has not secured regular full-time employment within the six month
period following such termination date, the Company will continue to pay his
current Base Salary for up to an additional six months or until such time as
Executive secures regular full-time employment, whichever is the earlier to
occur. The additional six months pay will be evaluated on a monthly basis.
Following such termination and in furtherance hereof, Executive agrees to
actively seek new regular full-time employment, to provide the Company evidence
of his efforts to secure new regular full-time employment and to promptly notify
the Company if he secures such employment.
6.3 Definition of Cause: Termination by the Company of the Executive's
employment for "Cause" shall mean termination (a) upon the willful
misappropriation of funds or properties of the Company; (b) the willful
contravention of the standards referred to in the last sentence of Paragraph 8
below; (c) Executive's gross negligence in the performance of his duties
hereunder, intentional nonperformance or misperformance of such duties, or
refusal to abide by or comply with the directives of the Board of Directors, his
superior officers, the Company's policies and procedures, which actions continue
for a period of at least five days after receipt by the Executive of written
notice of the need to cure or cease; (d) Executive's willful dishonesty, fraud,
or misconduct with respect to the business or affairs of the Company; and (e)
Executive's conviction of a felony or other crime involving moral turpitude. For
purposes of this definition, no act, or failure to act, on the Executive's part
shall be considered "willful" unless done, or omitted to be done, by the
Executive not in good faith and without reasonable belief that the Executive's
action or omission was in the best interest of the Company.
7. Effect of Change in Control:
(a) Contemporaneously with the occurrence of a Change in Control of the
Company, all outstanding options previously granted to the Executive under any
then existing Company stock option, stock appreciation or other employee
incentive plan that are not otherwise exercisable by the Executive at the time
the Change in Control of the Company occurs shall immediately vest and remain
exercisable for a period of no less than 90 days from such date.
(b) Following a Change in Control, if (i) the Company fails to cure a
material breach hereunder by the Company or (ii) Executive's duties,
responsibilities or authority are materially different than prior to the Change
in Control, then in each case, the Executive will be entitled, in his sole
discretion, to voluntarily resign at any time thereafter and receive the Base
Salary payments as set forth in Section 6.2 plus an amount equal to Executive's
then current Bonus amount. Furthermore, if not previously vested in accordance
with subsection (a) above, all
4
<PAGE> 5
outstanding options previously granted to the Executive under any then existing
stock option, stock appreciation or other employee incentive plan of the Company
(or any successor plan) that are not otherwise exercisable by the Executive
shall immediately vest and remain exercisable by Executive for a period of no
less than 90 days from such date.
(c) A "Change in Control" shall be conclusively deemed to have occurred
if (and only if) any of the following shall have taken place: (i) a change in
control is reported by the Company in response to either Item 6(e) of Schedule
14A of Regulation 14A promulgated under the Securities Exchange Act of 1934, as
amended ("Exchange Act"), or Item 1 of Form 8-K promulgated under the Exchange
Act; (ii) any person (as such term is used in Section 13(d) and 14(d)(2) of the
Exchange Act) is or becomes the beneficial owner (as defined in Rule 13d-3 under
the Exchange Act) directly or indirectly, of securities of the Company
representing forty percent or more of the combined voting power of the Company's
then outstanding securities; or (iii) following the election or removal of
directors, a majority of the Board consists of individuals who were not members
of the Board two years before such election or removal, unless the election of
each director who was not a director at the beginning of such two-year period
has been approved in advance by directors representing at least a majority of
the directors then in office who were directors at the beginning of the two-year
period.
8. Preservation of Business; Fiduciary Responsibility: The Executive shall
use his reasonable best efforts to preserve the business and organization of the
Company, to keep available to the Company the services of present employees and
to preserve the business relations of the Company with suppliers, distributors,
customers and others. The Executive shall not commit any act, or in any way
assist others to commit any act, which could reasonable be expected to injure
the Company in any material respect. So long as the Executive is employed by the
Company, the Executive shall observe and fulfill proper standards of fiduciary
responsibility attendant upon his service and office.
9. Restrictive Covenants:
9.1 Covenants Against Competition: Executive acknowledges that (a) the
business of the Company and its affiliates is as described in the Company's
annual report on Form 10-K as filed with the Securities and Exchange Commission
for its fiscal year ended December 31, 1997, and thereafter as described in each
successive annual report on Form 10-K filed by the Company (the "Company
Business"); and (b) Executive's work relating to Company Business will bring him
into close contact with many confidential matters not readily available to the
public.
9.2 Non-Compete: During the term of this Agreement and for a period of
one (1) year following the termination of Executive's employment with the
Company (including any renewal periods as provided in Paragraph 4), whether
Executive's employment terminates pursuant to the provisions of Paragraph 5 of
this Agreement or otherwise (collectively, the "Restricted Period"), Executive
covenants and agrees that he will not, without the express approval of the Board
of
5
<PAGE> 6
Directors, anywhere in the continental United States engage in any business, as
an individual, partner, shareholder, officer, director, principal, agent,
employee, trustee or consultant, if such business is competitive with the
Company Business; provided, however, that Executive may (a) own, directly or
indirectly, solely as an investment, securities of any entity if Executive (i)
is not a controlling person with respect to such entity and (ii) does not,
directly or indirectly, own five percent or more of any class of the securities
of such entity and (b) nothing in this Section 9.2 shall be deemed to prohibit
Executive from engaging in the private practice of law during the Restricted
Period.
9.3 Trade Secrets; Confidential Information: Executive covenants and
agrees that at all times during and after the Restricted Period, he shall keep
secret and not disclose to others or appropriate to his own use or the use of
others any trade secrets, or secret or confidential information or knowledge
pertaining to the Company Business or the affairs of the Company or any of its
affiliates including without limitation trade know-how, trade secrets,
consultant contracts, customer lists, pricing policies, operational methods,
marketing plans or strategies, product development techniques or plans, business
acquisition plans, new personnel acquisition plans, technical processes, designs
and design projects, inventions and research projects. Information shall not be
deemed confidential or secret for purposes of this Agreement if it is generally
known in the industry.
9.4 Executives of the Company: During the Restricted Period, Executive
shall not directly or indirectly hire away or solicit to hire away from the
Company or any of its affiliates any employee of the Company Business or its
affiliates.
9.5 Property of the Company: All memoranda, notes, lists, records and
other documents (and all copies thereof) made or compiled by Executive relating
to the Company Business or made available to Executive during his employment by
the Company concerning the business or affairs of the Company Business or any of
its affiliates, other than any of such which may also pertain personally to
Executive or were derived from or constitute legal form documents made or
developed by Executive in his capacity as an attorney, shall be the exclusive
property of the Company and shall be delivered to the Company promptly upon the
termination of Executive's employment with the Company or at any other time on
request by the Board of Directors of the Company or such affiliates.
9.6 Rights and Remedies Upon Breach: If Executive breaches, or
threatens to commit a breach of, any of the provisions of Paragraphs 9.2 through
9.5 of this Agreement (collectively, the "Restrictive Covenants"), the Company
shall have the following rights and remedies, each of which shall be independent
of the other and severally enforceable, and all of which shall be in addition
to, and not in lieu of, any other rights and remedies available to the Company:
(a) the right and remedy to have any of the Restrictive Covenants specifically
enforced by any court having jurisdiction and in Tennessee by an arbitration
panel as provided in Paragraph 12 of this Agreement, it being hereby
acknowledged and agreed by Executive that any such breach or
6
<PAGE> 7
threatened breach will cause irreparable injury to the Company and that money
damages will not provide an adequate remedy to the Company; and (b) the right
and remedy to require Executive to account for and pay over to the Company all
compensation, profits, monies, accruals, increments or other benefits derived or
received by Executive as a result of any transactions constituting a breach of
any of the Restrictive Covenants, and Executive shall account for and pay over
such benefits to the Company.
9.7 Severability of Restrictive Covenants: If it is determined that any
of the Restrictive Covenants, or any part thereof, is invalid or unenforceable,
the remainder of the Restrictive Covenants shall not thereby be affected and
shall be given full effect, without regard to the invalid portions. If it is
determined that any of the Restrictive Covenants, or any part thereof, is
unenforceable because of the duration of such provision, the geographical area
covered thereby, or any other determination of unreasonableness of the
provision, the arbitration panel making such determination shall have the power
to reduce the duration, area or scope of such provision and, in its reduced
form, such provision shall then be enforceable and shall be enforced.
10. Notice: All notices, requests, demands and other communications given
under or by reason of this Agreement shall be in writing and shall be deemed
given when delivered in person, by facsimile or other electronic transmission or
when mailed, by certified mail (return receipt requested), postage prepaid,
addressed as follows (or to such other address as a party may specify by notice
pursuant to this provision):
(a) To the Company:
ENVOY Corporation
15 Century Boulevard, Suite 600
Two Lakeview Place
Nashville, Tennessee 37214
Attn: Jim D. Kever
President and Co-CEO
Facsimile: (615) 321-4994
(b) To Executive:
Gregory T. Stevens
4604 Tara Drive
Nashville, TN 37215
11. Controlling Law and Performability: The execution, validity,
interpretation and performance of this Agreement shall be governed by the laws
of the State of Tennessee.
7
<PAGE> 8
12. Arbitration: Any dispute or controversy arising under or in connection
with this Agreement shall be settled by arbitration in Nashville, Tennessee. In
the proceeding, the Executive shall select one arbitrator, the Company shall
select one arbitrator and the two arbitrators so selected shall select a third
arbitrator. The decision of a majority of the arbitrators shall be binding on
the Executive and the Company. Should one party fail to select an arbitrator
within five days after notice of the appointment of an arbitrator by the other
party or should the two arbitrators selected by the Executive and the Company
fail to select an arbitrator within ten days after the date of the appointment
of the last of such two arbitrators, any person sitting as a Judge of the United
States District Court for the Middle District of Tennessee, Nashville Division,
upon application of the Executive or the Company, shall appoint an arbitrator to
fill such space with the same force and effect as though such arbitrator had
been appointed in accordance with the second sentence of this Paragraph 12. Any
arbitration proceeding pursuant to this Paragraph 12 shall be conducted in
accordance with the rules of the American Arbitration Association. Judgment may
be entered on the arbitrators' award in any court having jurisdiction.
13. Additional Instruments: The Parties shall execute and deliver any and
all additional instruments and agreements that may be necessary or proper to
carry out the purposes of this Agreement.
14. Entire Agreement and Amendments: This Agreement contains the entire
agreement of the Parties relating to the matters contained herein and supersedes
all prior agreements and understandings, oral or written, between the Parties
with respect to the subject matter hereof. This Agreement may be changed only by
an agreement in writing signed by the Party against whom enforcement of any
waiver, change, modification, extension or discharge is sought.
15. Severability: If any provision of the Agreement is rendered or declared
illegal or unenforceable by reason of any existing or subsequently enacted
legislation or by the decision of any arbitrator or by decree of a court of last
resort, the Parties shall promptly meet and negotiate substitute provisions for
those rendered or declared illegal or unenforceable to preserve the original
intent of this Agreement to the extent legally possible, but all other
provisions of this Agreement shall remain in full force and effect.
16. Assignments: The Company may assign (whether by operation of law or
otherwise) this Agreement only with the written consent of the Executive, which
consent shall not be withheld unreasonably, and in the event of an assignment of
this Agreement, all covenants, conditions and provisions hereunder shall inure
to the benefit of and be enforceable against the Company's successors and
assigns. The rights and obligations of Executive under this Agreement are
personal to him, and no such rights, benefits or obligations shall be subject to
voluntary or involuntary alienation, assignment or transfer.
17. Effect of Agreement: Subject to the provisions of Paragraph 16 with
respect to assignments, this Agreement shall be binding upon the Executive and
his heirs, executors,
8
<PAGE> 9
administrators, legal representatives and assigns and upon the Company and
respective successors and assigns.
18. Execution: This Agreement may be executed in multiple counterparts each
of which shall be deemed an original and all of which shall constitute one and
the same instrument.
19. Waiver of Breach: The waiver by either Party of a breach of any
provision of the Agreement by the other Party shall not operate or be construed
as a waiver by such Party of any subsequent breach by such other Party.
IN WITNESS WHEREOF, the Parties have executed this Agreement effective
as of the date first above written.
ENVOY CORPORATION
By: /s/ Kevin M. McNamara
------------------------------------
Name: Kevin M. McNamara
Title: Chief Financial Officer
EXECUTIVE:
/s/ Gregory T. Stevens
----------------------------------------
GREGORY T. STEVENS
9
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF ENVOY CORPORATION FOR THE PERIOD ENDED JUNE 30, 1998 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 14,951
<SECURITIES> 0
<RECEIVABLES> 41,431
<ALLOWANCES> 4,138
<INVENTORY> 2,018
<CURRENT-ASSETS> 59,133
<PP&E> 44,538
<DEPRECIATION> 25,133
<TOTAL-ASSETS> 147,520
<CURRENT-LIABILITIES> 34,963
<BONDS> 588
0
41,300
<COMMON> 125,767
<OTHER-SE> (63,675)
<TOTAL-LIABILITY-AND-EQUITY> 147,520
<SALES> 0
<TOTAL-REVENUES> 85,473
<CGS> 0
<TOTAL-COSTS> 39,205
<OTHER-EXPENSES> 33,818
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 825
<INCOME-PRETAX> 11,958
<INCOME-TAX> 6,914
<INCOME-CONTINUING> 5,044
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,044
<EPS-PRIMARY> 0.24
<EPS-DILUTED> 0.20
</TABLE>
