8-K 1 y55977e8-k.txt HEALTH MANAGEMENT SYSTEMS, INC. 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) December 11, 2001 Health Management Systems, Inc. (Exact name of registrant as specified in its charter) New York 0-20946 13-2770433 State of Incorporation Commission File (I.R.S. Employer Number Identification Number) 401 Park Avenue South, New York, New York 10016 (Address of principal executive offices, zip code) (212) 685-4545 (Registrant's telephone number, including area code) Not Applicable (Former name, former address, and former fiscal year, if changed since last report.) ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS. On December 11, 2001, Health Management Systems, Inc., ("HMS" or the "Company") consummated the sale of all of the issued and outstanding capital stock of its healthcare decision support software systems and services business, Health Care microsystems, Inc. ("HCm"), a wholly owned subsidiary, which operated as the Company's Decision Support Group, for $9.8 million. The assets of HCm largely consisted of accounts receivable, capitalized software costs and property and equipment. HCm was sold to Avega Partners, Inc. (the "Purchaser"), an entity owned by the executive management team of HCm, including Mr. Robert V. Nagelhout, a then member of the Company's Board of Directors. Proceeds from the sale, which are subject to reduction for certain post closing price adjustments and transaction costs estimated at $0.3 million and $0.4 million, respectively, were $9.2 million in cash and the assumption, by the Purchaser, of $0.6 million of the Company's liabilities. The net gain from this transaction is estimated to be approximately $2.6 million and will be reported as a component of discontinued operations in the Company's Form 10-K filing for the fiscal year ending December 31, 2001. The sale price was determined by arms length negotiation between the management of the Company and the Purchaser, within parameters established by the Board of Directors of the Company, excluding Mr. Nagelhout. Additionally, the Company obtained a fairness opinion regarding the sale price, prepared by an independent investment banking firm. Mr. Nagelhout has since resigned from the Company's Board of Directors. ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS. (a) Financial Statements of Business Acquired. Not applicable. (b) Pro Forma Financial Information. UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION OF HEALTH MANAGEMENT SYSTEMS, INC. The unaudited pro forma condensed consolidated financial information reflects pro forma adjustments that are based upon available information and certain assumptions that we believe are reasonable. The unaudited pro forma financial information does not purport to represent the results of operations or financial position that would have resulted had the sale of HCm, to which pro forma effect is given, been consummated as of the dates or for the periods indicated. The unaudited pro forma condensed consolidated balance sheet gives effect to the disposition as if it had occurred on July 31, 2001. For purposes of the unaudited pro forma condensed consolidated statements of operations, HCm's results of operations during the years ended October 31, 2000, 1999 and 1998 have been eliminated from the Company's historical consolidated statements of operations for the fiscal years ended October 31, 2000, 1999 and 1998 as if the sale of that business occurred at the beginning of such years. In addition, HCm's unaudited results of operations during the nine months ended July 31, 2001 have been eliminated from the Company's historical consolidated statement of operations for the nine months ended July 31, 2001 as if the sale had occurred on November 1, 2000. The expected gain on the sale of HCm is not considered in the presented unaudited pro forma condensed consolidated statements of operations. In July 2001, the Company discontinued the operations of its Payor Systems Group ("PSG") and began an orderly closure of the business. This decision followed from the notice of contract termination the Company received from the largest customer of PSG and the determination that this segment did not fit with the long-term strategies and operations of the business at-large. As a consequence, the operating 2 results and related loss estimated on disposal were presented as discontinued operations in the unaudited consolidated financial statements as of and for the nine months ended July 31, 2001. In addition, on October 30, 2001, the Company changed its fiscal year end from October 31 to December 31. As a result, on December 19, 2001, the Company filed a transition report on Form 10-Q as of December 31, 2000 and for the two month periods ended December 31, 2000 and 1999. The sale of HCm occurred before the filing of this report, therefore the unaudited condensed consolidated balance sheet as of December 31, 2000 and the results of operations for the transition period present HCm as a discontinued operation in the transition report. Accordingly, no pro forma December 31, 2000 financial statements are presented in this report. The unaudited pro forma financial statements and accompanying notes should be read in conjunction with the historical consolidated financial statements of HMS as reported in its annual report on Form 10-K as of and for the fiscal year ended October 31, 2000, and its quarterly report on Form 10-Q as of and for the nine months ended July 31, 2001. 3 HEALTH MANAGEMENT SYSTEMS, INC. UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET AS OF JULY 31, 2001 (IN THOUSANDS)
Historical HMS Pro Forma Pro Forma July 31, 2001 Adjustments Consolidated -------------- ----------- ------------- Assets Current assets: Cash and cash equivalents $ 15,783 $ (9,196)(b) $ 24,979 Short term investments 4,675 - 4,675 Accounts receivable, net 17,228 2,941 (a) 14,287 Prepaid expenses and other current assets 4,548 383 (a) 4,165 ---------- ---------- --------- Total current assets 42,234 (5,872) 48,106 Property and equipment, net 4,895 1,231 (a) 3,664 Capitalized software costs 7,452 5,447 (a) 2,005 Goodwill, net 7,160 - 7,160 Deferred income taxes, net 11,086 - 11,086 Other assets 1,894 11 (a) 1,883 ---------- ---------- --------- Total assets $ 74,721 $ 817 $ 73,904 ========== ========== ========= Liabilities & stockholders' equity Current liabilities: Accounts payable and accrued expenses $ 11,718 $ 2,035 (a) $ 10,383 (700)(c) Deferred revenue 2,715 2,715 (a) - Net liabilities of discontinued operations 835 - 835 ---------- ---------- --------- Total current liabilities 15,268 4,050 11,218 Other liabilities 1,039 - 1,039 ---------- ---------- --------- Total liabilities 16,307 4,050 12,257 ---------- ---------- --------- Stockholders' equity: Common stock 192 - 192 Capital in excess of par 72,945 - 72,945 Accumulated deficit (5,650) (3,233)(d) (2,417) Accumulated other comprehensive loss (51) - (51) Treasury stock (8,300) - (8,300) Note receivable from sale of stock (722) - (722) ---------- ---------- --------- Total stockholders' equity 58,414 (3,233) 61,647 ---------- ---------- --------- Total liabilities & stockholders' equity $74,721 $ 817 $ 73,904 ========== ========== =========
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (a) Represents the historical assets and liabilities of HCm as of July 31, 2001. HCm was sold by the Company on December 11, 2001. (b) Adjustment to record the cash proceeds received by the Company from the sale of HCm. (c) Adjustment to record the transaction expenses associated with the sale of HCm, to be paid subsequently. (d) Adjustment to recognize the book gain generated from the sale of HCm based on July 31, 2001 balances. 4 HEALTH MANAGEMENT SYSTEMS, INC. UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED JULY 31, 2001 (IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
Historical HMS Pro Forma nine months ended Adjustments Pro Forma July 31, 2001 Note (a) Consolidated ------------------ ------------- ------------ Revenue $ 62,129 $ 16,921 $ 45,208 Cost of services: Compensation 34,484 8,262 26,222 Data processing 7,074 2,272 4,802 Occupancy 6,218 1,274 4,944 Direct project costs 9,259 1,050 8,209 Other operating expenses 7,514 1,491 6,023 Restructuring costs 785 -- 785 Amortization of intangibles 264 -- 264 -------- -------- -------- 65,598 14,349 51,249 -------- -------- -------- Operating income (loss) (3,469) 2,572 (6,041) Other income: Gain of sale of assets 1,614 -- 1,614 Interest income, net 582 14 568 -------- -------- -------- Total other income 2,196 14 2,182 -------- -------- -------- Income (loss) before income taxes (1,273) 2,586 (3,859) Income tax (benefit) expense (463) 984 (1,447) -------- -------- -------- Income (loss) from continuing operations $ (810) $ 1,602 $ (2,412) ======== ======== ======== Loss per common share data: Basic and diluted $ (0.04) $ (0.14) ======== ======== Weighted average common shares outstanding: Basic and diluted 17,694 17,694 ======== ========
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (a) Represents the historical financial results of HCm for the nine months ended July 31, 2001. HCm was sold by the Company on December 11, 2001. 5 HEALTH MANAGEMENT SYSTEMS, INC. UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED OCTOBER 31, 2000 (IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
Historical HMS Pro Forma for the year ended Adjustments Pro Forma October 31, 2000 Note (a) Consolidated ---------------- ----------- ------------ Revenue $ 98,087 $ 21,781 $ 76,306 Cost of services: Compensation 62,986 11,098 51,888 Data processing 4,488 2,221 2,267 Occupancy 10,788 1,869 8,919 Direct project costs 11,187 1,256 9,931 Other operating expenses 11,389 2,049 9,340 Restructuring costs 3,483 -- 3,483 Amortization of intangibles 948 -- 948 --------- -------- -------- 105,269 18,493 86,776 --------- -------- -------- Operating income (loss) (7,182) 3,288 (10,470) Other income: Interest income, net 1,158 47 1,111 --------- -------- -------- Income (loss) before income taxes (6,024) 3,335 (9,359) Income tax (benefit) expense (2,563) 1,417 (3,980) --------- -------- -------- Income (loss) from continuing operations $ (3,461) $ 1,918 $ (5,379) ========= ======== ======== Loss per common share data: Basic and diluted $ (0.20) $ (0.31) ======== ======== Weighted average common shares outstanding: Basic and diluted 17,467 17,467 ======== ========
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (a) Represents the historical financial results of HCm for the fiscal year ended October 31, 2000. HCm was sold by the Company on December 11, 2001. 6 HEALTH MANAGEMENT SYSTEMS, INC. UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED OCTOBER 31, 1999 (IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
Historical HMS Pro Forma for the year ended Adjustments Pro Forma October 31, 1999 Note (a) Consolidated ------------------ ------------ ------------- Revenue $ 114,055 $ 21,829 $ 92,226 Cost of services: Compensation 64,253 12,307 51,946 Data processing 6,746 1,524 5,222 Occupancy 9,377 1,908 7,469 Direct project costs 11,214 681 10,533 Other operating expenses 11,328 3,072 8,256 Amortization of intangibles 840 -- 840 -------- ------- ------ 103,758 19,492 84,266 -------- ------- ------ Operating income 10,297 2,337 7,960 Other income: Interest income, net 1,277 13 1,264 -------- ------- ------ Income before income taxes 11,574 2,350 9,224 Income tax expense 4,091 930 3,161 -------- ------- ------ Income from continuing operations $ 7,483 $ 1,420 $ 6,063 ======= ======== ======= Earnings per common share data: Basic $ 0.43 $ 0.35 ======= ====== Diluted $ 0.43 $ 0.35 ======= ====== Weighted average common shares outstanding: Basic 17,357 17,357 ======= ======= Diluted 17,419 17,419 ======= =======
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (a) Represents the historical financial results of HCm for the fiscal year ended October 31, 1999. HCm was sold by the Company on December 11, 2001. 7 HEALTH MANAGEMENT SYSTEMS, INC. UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED OCTOBER 31, 1998 (IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
Historical HMS Pro Forma for the year ended Adjustments Pro Forma October 31, 1998 Note (a) Consolidated ------------------- ----------- ------------ Revenue $ 105,252 $ 24,451 $ 80,801 Cost of services: Compensation 59,288 13,478 45,810 Data processing 8,771 2,004 6,767 Occupancy 9,663 1,841 7,822 Direct project costs 5,068 - 5,068 Other operating expenses 12,838 4,231 8,607 Amortization of intangibles 1,964 - 1,964 ---------- ---------- --------- 97,592 21,554 76,038 ---------- ---------- --------- Operating income 7,660 2,897 4,763 Other income: Interest and other income, net 2,297 617 1,680 ---------- ---------- --------- Income before income taxes 9,957 3,514 6,443 Income tax expense 3,869 1,468 2,401 ---------- ---------- --------- Income from continuing operations $ 6,088 $ 2,046 $ 4,042 ========== ========== ========= Earnings per common share data: Basic $ 0.35 $ 0.23 ========== ========= Diluted $ 0.34 $ 0.23 ========== ========= Weighted average common shares outstanding: Basic 17,366 17,366 ========== ========= Diluted 17,833 17,833 ========== =========
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (a) Represents the historical financial results of HCm for the fiscal year ended October 31, 1998. HCm was sold by the Company on December 11, 2001. 8 (c) Exhibits Exhibit Number Description ------- ----------- 10.1 Stock Purchase Agreement dated December 11, 2001 between Health Management Systems, Inc., Avega Partners, Inc., Robert V. Nagelhout and Thomas Kazamek 99 Press release dated December 11, 2001 9 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 thereunto duly authorized. Date: December 26, 2001 HEALTH MANAGEMENT SYSTEMS, INC. -------------------------------- (Registrant) By: /s/ William F. Miller III ----------------------------- William F. Miller III Chairman and Chief Executive Officer By: /s/ Robert M. Holster ----------------------------- Robert M. Holster President, Chief Operating Officer and Interim Chief Financial Officer