-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CRpB+uRrN+rKsHkgl6R8nZC3mZ/zjYUQOx65jRK4HqaPQJtR4nWHTDoKLAOEaBrk lcyNQT9XVQPyOMvlT3A4rQ== 0000950168-96-001533.txt : 19960816 0000950168-96-001533.hdr.sgml : 19960816 ACCESSION NUMBER: 0000950168-96-001533 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960814 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MEDIC COMPUTER SYSTEMS INC CENTRAL INDEX KEY: 0000885378 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER INTEGRATED SYSTEMS DESIGN [7373] IRS NUMBER: 561306083 STATE OF INCORPORATION: NC FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-20183 FILM NUMBER: 96614554 BUSINESS ADDRESS: STREET 1: 8601 SIX FORKS ROAD STE 300 CITY: RALEIGH STATE: NC ZIP: 27615 BUSINESS PHONE: 9198478102 10-Q 1 MEDIC COMPUTER SYSTEMS, INC. 10-Q #44754.1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period _______________ to __________________ Commission file number 0-20183 Medic Computer Systems, Inc. (Exact name of registrant as specified in its charter) North Carolina 56-1306083 (State or other jurisdiction of incorporation (I.R.S. Employer Identification Number) or organization)
8601 Six Forks Road, Suite 300, Raleigh, NC 27615 (Address of principal executive offices, zip code) (919) 847-8102 (Registrant's telephone number, including area code) N/A (Former name, former address and former fiscal year, if changed since last report) 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. Class Number Outstanding Date ----- ------------------ ---- Common Stock 24,348,545 August 8, 1996 $.01 par value MEDIC COMPUTER SYSTEMS, INC. INDEX TO FORM 10-Q
Pages Part I. FINANCIAL INFORMATION Item 1. Financial Statements: Balance Sheets as of December 31, 1995 and 3 June 30, 1996 Statements of Operations for the three months and six months ended 4 June 30, 1995 and 1996 Statements of Cash Flows for the six months ended June 30, 1995 and 1996 5 Notes to Financial Statements 6 - 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 - 15 Part II. OTHER INFORMATION. Item 6. Exhibits and Reports on Form 8-K 16 SIGNATURES 17 EXHIBIT INDEX 18
2 MEDIC COMPUTER SYSTEMS, INC. CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
JUNE 30, DECEMBER 31, 1996 1995 ---- ---- (UNAUDITED) (UNAUDITED AND RESTATED) ASSETS Current assets: Cash and cash equivalents $32,993 $38,935 Short-term investments 16,672 11,461 Accounts receivable, trade, net 44,898 41,189 Inventories and maintenance parts 11,994 12,294 Prepaid expenses 6,575 6,190 Other current assets 1,372 1,237 Deferred income tax benefit 2,255 2,515 - ------------------------------------------------------------------------------------------------------------------------------ TOTAL CURRENT ASSETS 116,759 113,821 Property and equipment, at cost, net 8,185 7,075 Intangible assets, at cost, net 19,622 20,445 Other assets 99 122 - ------------------------------------------------------------------------------------------------------------------------------ TOTAL ASSETS $144,665 $141,463 - ------------------------------------------------------------------------------------------------------------------------------ LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Current portion of long-term note $1,475 $2,677 Accounts payable, trade 5,520 7,336 Customer deposits and deferred maintenance revenue 9,573 13,396 Income taxes payable 0 1,676 Accrued expenses: Commissions 1,660 1,604 Compensation and related items 5,985 3,963 Other 2,746 3,075 - ------------------------------------------------------------------------------------------------------------------------------ TOTAL CURRENT LIABILITIES 26,959 33,727 Long-term note, less current portion 2,192 3,127 Other long-term liabilities 134 172 - ------------------------------------------------------------------------------------------------------------------------------ Shareholders' equity: Common Stock, $.01 par value; 40,000,000 shares authorized; 24,336,008 and 24,210,264 shares issued and outstanding in 1996 and 1995, respectively 243 242 Additional paid-in capital 69,960 68,628 Retained earnings 45,177 35,567 - ------------------------------------------------------------------------------------------------------------------------------ 115,380 104,437 - ------------------------------------------------------------------------------------------------------------------------------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $144,665 $141,463 - ------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements 3 MEDIC COMPUTER SYSTEMS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
------------------------------- ------------------------------- THREE MONTHS ENDED SIX MONTHS ENDED ------------------------------- ------------------------------- JUNE 30, JUNE 30, JUNE 30, JUNE 30, 1996 1995 1996 1995 NET REVENUES: Systems $20,325 $18,148 $41,488 $34,845 Maintenance, forms and other services 24,259 18,116 46,470 34,658 ------------------------------------------------------------------ TOTAL NET REVENUES 44,584 36,264 87,958 69,503 - --------------------------------------------------------------------------------------------------------------------------- COST OF REVENUES: Systems 11,887 11,135 24,888 21,880 Maintenance, forms and other services 14,679 10,445 27,841 19,753 ------------------------------------------------------------------ TOTAL COST OF REVENUES 26,566 21,580 52,729 41,633 - --------------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------ GROSS MARGIN 18,018 14,684 35,229 27,870 - --------------------------------------------------------------------------------------------------------------------------- OPERATING EXPENSES: Sales and marketing 4,274 3,581 8,397 6,748 General and administrative 2,580 1,922 4,862 3,665 Amortization of intangible assets 447 757 892 1,512 Research and development 2,370 1,968 4,793 3,686 - --------------------------------------------------------------------------------------------------------------------------- TOTAL OPERATING EXPENSES 9,671 8,228 18,944 15,611 - --------------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------ INCOME FROM OPERATIONS 8,347 6,456 16,285 12,259 - --------------------------------------------------------------------------------------------------------------------------- OTHER INCOME: Interest income (574) (478) (1,118) (706) - --------------------------------------------------------------------------------------------------------------------------- INCOME BEFORE INCOME TAXES 8,921 6,934 17,403 12,965 - --------------------------------------------------------------------------------------------------------------------------- PROVISION FOR INCOME TAXES 3,229 2,354 6,320 4,591 - --------------------------------------------------------------------------------------------------------------------------- NET INCOME $5,692 $4,580 $11,083 $8,374 - --------------------------------------------------------------------------------------------------------------------------- PRO FORMA DATA: INCOME BEFORE PRO FORMA INCOME TAX PROVISION $5,692 $4,580 $11,083 $8,374 PRO FORMA INCOME TAX EXPENSE FOR THE PERIODS PRIOR TO MAY 31, 1996 FOR COMPUSYSTEMS 232 301 489 557 - --------------------------------------------------------------------------------------------------------------------------- PRO FORMA NET INCOME $5,460 $4,279 $10,594 $7,817 - --------------------------------------------------------------------------------------------------------------------------- PRO FORMA EARNINGS PER SHARE: Net income per share $0.22 $0.18 $0.43 $0.33 - --------------------------------------------------------------------------------------------------------------------------- Weighted average common shares and equivalents used in computing net income per share 24,814,430 24,084,248 24,786,156 23,387,158 - ---------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements. 4 MEDIC COMPUTER SYSTEMS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (DOLLARS IN THOUSANDS)
SIX MONTHS ENDED SIX MONTHS ENDED JUNE 30, 1996 JUNE 30, 1995 ------------- ------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $11,083 $8,374 ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES: Depreciation and amortization of property and equipment 1,072 652 Amortization of intangibles 892 1,512 Deferred income taxes 260 0 Accounts receivable, trade (net) (3,709) (9,311) Inventories and maintenance parts 300 (2,026) Prepaid expenses (385) (278) Other (7) (95) Accounts payable, trade (1,816) (934) Customer deposits and deferred maintenance revenue (3,823) 980 Income taxes payable (1,777) (466) Accrued expenses 1,749 1,621 Payments on long-term note payable to vendor (903) 0 Other long-term liabilities (38) (33) - ------------------------------------------------------------------------------------------------------------------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 2,898 (4) - ------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of short-term investments (14,929) (817) Proceeds from the sale of short-term investments 9,718 1,500 Payments for purchases of property and equipment (2,182) (1,947) Payments for acquisitions made, net of cash acquired (70) (5) - ------------------------------------------------------------------------------------------------------------------- NET CASH USED IN INVESTING ACTIVITIES (7,463) (1,269) - ------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock 289 35,578 Distributions to CompuSystems' shareholders (1,475) (1,211) Payment on long-term note (1,234) (38) Tax benefits from stock options exercised 1,043 1,237 - ------------------------------------------------------------------------------------------------------------------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (1,377) 35,566 - ------------------------------------------------------------------------------------------------------------------- Net change in cash and cash equivalents (5,942) 34,293 CASH AND CASH EQUIVALENTS: Beginning of period 38,935 16,644 - ------------------------------------------------------------------------------------------------------------------- End of period $32,993 $50,937 - ------------------------------------------------------------------------------------------------------------------- CASH PAID FOR INTEREST AND INCOME TAXES WAS AS FOLLOWS: Interest $43 $52 - ------------------------------------------------------------------------------------------------------------------- Income taxes $6,351 $3,899 - -------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements. 5 MEDIC COMPUTER SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION The financial statements included herein are unaudited and have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). In the opinion of management, all adjustments (which include normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows at June 30, 1996 and for all periods presented have been made. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, but the Company believes that the disclosures made are adequate to make the information presented not misleading. For more complete financial information, these financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 1995. Results for interim periods are not necessarily indicative of the results for any other interim period or for the full fiscal year. On June 10, 1996, the Company declared a two-for-one stock split of the Company's Common Stock effective June 24, 1996, pursuant to which each shareholder of record received one additional share of Common Stock for each share held as of that date. The financial statements have been restated to reflect the effect of the split. 2. BUSINESS COMBINATIONS On May 31, 1996, the Company acquired all of the outstanding stock of CompuSystems, Inc. ("CompuSystems"), a privately held company based in Columbia, South Carolina, through an exchange of stock in a merger transaction. Medic issued 718,886 shares of its common stock to the shareholders of CompuSystems in the merger. The transaction was accounted for as a pooling of interests, and accordingly, the Company's financial statements for the periods prior to the merger have been restated to include the results of CompuSystems for all periods presented. Details of the results of operations of the previously separate companies before the acquisition are as follows:
Jan 1 - May 31, 1996 Jan 1 - June 30, 1995 Medic CompuSystems Total Medic CompuSystems Total Revenue $63,181 $ 4,085 $67,266 $64,985 $ 4,518 $69,503 Net Income $ 5,660 $ 1,167 $ 6,827 $ 6,980 $ 1,394 $ 8,374 Pro Forma Income Tax Expense $ 489 $ 489 $ 557 $ 557 Pro Forma Net Income $ 5,660 $ 678 $ 6,338 $ 6,980 $ 837 $ 7,817
6 3. INVENTORIES AND MAINTENANCE PARTS Ending inventories consist of the following (in thousands):
June 30, December 31, 1996 1995 (unaudited) (unaudited and restated) New and used computer hardware and parts $ 10,481 $ 10,865 Inventory shipped to customers for which revenue recognition criteria has not been met 1,147 1,007 Forms, FastBill and FastClaim 366 422 ------- ------- $11,994 $12,294 ======= =======
4. INTANGIBLE ASSETS Intangible assets consist of the following (in thousands):
Amortization June 30, December 31, Method Estimated Lives 1996 1995 (unaudited) (unaudited and restated) Excess of purchase price over net assets acquired and other intangible assets Straight-line 15 years $ 25,844 $ 25,769 Noncompetition agreement Straight-line 5 years 374 374 -------- -------- 26,218 26,143 Less accumulated amortization 6,596 5,698 ------ -------- $ 19,622 $ 20,445 ========== =========
5. INCOME TAXES The tax provisions for the six months ended June 30, 1996 and 1995, differ from the statutory U.S. federal income tax rate primarily due to state income taxes, nondeductible amortization of intangibles offset by tax-free interest income, and the tax status of CompuSystems. Reconciliation between the "expected" income tax expense (benefit) rate based on the statutory U.S. federal income tax rate and the actual effective rate of the expense:
Six months ended June 30, 1996 1995 Statutory U.S. federal rate 35.0% 35.0% State income taxes, net of federal income tax benefit 4.8 4.8 Taxes on CompuSystems, an S-Corporation prior to May 31, 1996, paid by former shareholders (2.8) (4.3) R & D tax credits ( .5) ( .7) Amortization of intangibles and other permanent differences (.2) .6 ---- ------ 36.3% 35.4% ==== ====
7 Deferred income taxes result from temporary differences in the recognition of income and expense items for income tax and financial statement purposes. The components of the deferred tax asset as of June 30, 1996 are as follows: June 30, 1996 Deferred revenue $ 1,519 Inventory reserves and/or writedowns 297 Allowance for bad debts and sales returns and credits 427 Accrued bonuses and vacation 413 Accrued pension and profit sharing plan (425) Other 24 ---------- $ 2,255 6. RELATED PARTY TRANSACTIONS In June 1996, the Company entered into a software license agreement, valued at $2,026,000, with a customer that shares common members of the Board of Directors with the Company and in which several senior members of management are minority shareholders. The terms of this agreement were based on prevailing market pricing and consistent with other transactions of equal magnitude with unrelated parties. As of June 30, 1996, the Company had receivables outstanding in the amount of $2,026,000 related to this agreement. 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS On June 10, 1996, the Company declared a two-for-one stock split of the Company's Common Stock effective June 24, 1996, pursuant to which each shareholder of record received one additional share of Common Stock for each share held as of that date. This is the Company's first stock split since it became publicly held in 1992 and increased the number of shares outstanding to approximately 24.3 million. The discussion of operations that follows is based on the restated balances of shares outstanding given the effect of the split. On May 31, 1996, the Company acquired all of the outstanding stock of CompuSystems, Inc. ("CompuSystems"), a privately held company based in Columbia, South Carolina, through an exchange of stock in a merger transaction. Medic issued 718,886 shares of its common stock to the shareholders of CompuSystems in the merger. The transaction was accounted for as a pooling of interests, and accordingly, the Company's financial statements for the periods prior to the merger have been restated to include the results of CompuSystems for all periods presented. The discussion of results of operations that follows is based on the combined operations of the Company and CompuSystems with respect to all periods presented. On September 29, 1995, the Company acquired Compudata Professional Systems, Ltd. ("Compudata"), located in Marietta, Georgia for approximately $2 million in cash. The transaction was accounted for as a purchase and, accordingly, the results of operations of CompuData are included in the Company's financial statements from September 29, 1995. On August 31, 1995, the Company acquired National Medical Systems, Inc. ("National Medical"), located in Westboro, Massachusetts through an exchange of stock in a merger transaction valued at approximately $5 million. The transaction was accounted for as a pooling of interests, but was not material to the Company's results of operations and financial position. Accordingly, the results of operations of National Medical are included in the Company's financial statements from August 31, 1995. On August 28, 1995, the Company acquired the assets of Script Systems, Inc. ("Script") from Infomed Holdings, Inc. with headquarters in Princeton, New Jersey, for approximately $3 million in cash and the assumption of certain liabilities. The transaction was accounted for as a purchase and, accordingly, the results of operations of Script are included in the Company's financial statements from August 31, 1995. The Company's revenues and operating results can vary significantly from quarter to quarter as a result of a number of factors, including the volume and timing of systems sales and installations, and product deliveries from the Company's vendors. The timing of such revenues from systems sales is difficult to forecast because the Company's sales cycle can vary depending upon factors such as the size of the transaction and the general economic conditions. Given that a significant percentage of the Company's expenses are relatively fixed, a variation in the timing of systems sales can cause significant variations in operating results from quarter to quarter. The Company's future operating results may fluctuate as 9 a result of these and other factors, such as customer purchasing patterns, and the timing of new product and service introductions and product upgrade releases. THREE MONTHS ENDED JUNE 30, 1996 COMPARED TO THREE MONTHS ENDED JUNE 30, 1995 TOTAL NET REVENUES Total net revenues increased by 22.9% from $36,264,000 during the three months ended June 30, 1995, to $44,584,000 during the three months ended June 30, 1996. Systems sales increased by 12.0% from $18,148,000 during the three months ended June 30, 1995, to $20,325,000 during the three months ended June 30, 1996. Systems sales to new customers increased by 26.8% from $9,714,000 during the three months ended June 30, 1995 to $12,319,000 during the three months ended June 30, 1996, and systems sales to existing customers for upgrades and add-ons decreased 5.1% from $8,434,000 in 1995 to $8,006,000 in 1996. The Company believes that because the general market for personal computers, networking hardware and peripheral equipment has been subject to increasingly competitive pricing, certain customers have elected to purchase these types of equipment from other sources. The Company believes that it still maintains and grows a strong add-on sales presence in the marketplace and focuses on providing strong after-sales support and higher value-added products to its customer base. The systems sales backlog increased by 33.5% from $24,856,000 at June 30, 1995, to $33,182,000 at June 30, 1996, reflecting an increase in orders secured during both of the first two quarters of 1996 compared to the first two quarters of 1995. The increase in backlog relative to the increase in systems sales revenues also reflects the longer installation process for large systems installations. Systems sales during a quarter as a percentage of systems sales backlog as of the end of the preceding quarter can fluctuate materially, and the Company believes that the backlog may not be indicative of future results for the following quarter or for any particular period. Net revenues from maintenance, forms and other services revenues increased by 33.9% from $18,116,000 for the three months ended June 30, 1995, to $24,259,000 for the three months ended June 30, 1996. This increase was primarily the result of increases in hardware and software maintenance revenues of $2,689,000 and other increases in FastBillSM revenue of $2,598,000 and in FastClaim(R) revenue of $771,000. COST OF REVENUES Cost of systems sales increased by 6.8% from $11,135,000 for the three months ended June 30, 1995, to $11,887,000 for the three months ended June 30, 1996, due primarily to increased systems sales. Cost of systems sales decreased as a percentage of related revenues from 61.4% for the three months ended June 30, 1995, to 58.5% for the three months ended June 30, 1996, due primarily to more favorable margins on systems sales to new customers resulting from a higher percentage of software products and professional services delivered with the new system contracts, primarily sales of the +Medic Vision system. Cost of maintenance, forms and other services revenues increased by 40.5% from $10,445,000 for the three months ended June 30, 1995, to $14,679,000 for the three months ended June 30, 1996, due primarily to increased related revenues. Cost of maintenance, forms and other services revenues increased as a percentage of related revenues from 57.7% for the three months ended June 30, 1995, to 60.5% for the three months ended June 30, 1996, due primarily to the increase in FastBill sales as a percentage of maintenance, forms and other services revenues. FastBill has a relatively lower margin as compared to the gross margins on maintenance and FastClaim revenues. 10 Primarily as a result of the factors described above, the total cost of net revenues remained relatively constant as a percentage of total net revenues at 59.5% for the three months ended June 30, 1995, compared to 59.6% for the three months ended June 30, 1996. SALES AND MARKETING EXPENSES Sales and marketing expenses increased by 19.4% from $3,581,000 for the three months ended June 30, 1995, to $4,274,000 for the three months ended June 30, 1996, due to increased systems sales. Sales and marketing expenses decreased as a percentage of net revenues from 9.9% for the three months ended June 30, 1995, to 9.6% for the three months ended June 30, 1996, due primarily to increased systems sales per salesperson and lower systems sales as a percentage of total net revenues in 1996. Sales and marketing expenses for maintenance, forms and other services revenue, which are increasing as a percentage of total net revenues, are relatively lower than sales and marketing expenses for systems sales. GENERAL AND ADMINISTRATIVE EXPENSES General and administrative expenses increased by 34.2% from $1,922,000 for the three months ended June 30, 1995, to $2,580,000 for the three months ended June 30, 1996, due primarily to the overall company growth and to non-recurring merger related expenses of $243,000 expensed in the quarter in connection with the acquisition of CompuSystems. General and administrative expenses increased as a percentage of net revenues from 5.3% for the three months ended June 30, 1995, to 5.8% for the three months ended June 30, 1996, due primarily to the merger expenses. RESEARCH AND DEVELOPMENT Research and development expenses increased by 20.4% from $1,968,000 for the three months ended June 30, 1995, to $2,370,000 for the three months ended June 30, 1996, due primarily to staff additions. Research and development expenses remained relatively constant as a percentage of net revenues at 5.4% for the three months ended June 30, 1995, compared to 5.3% for the three months ended June 30, 1996. The Company maintains a high level of investment into research and development activities primarily directed to increased investments in developing new clinical products and enhancements to its practice management systems. The Company has not capitalized any research and development costs under Statement of Financial Accounting Standards No. 86 because the amounts that would be subject to capitalization have not been material. AMORTIZATION Amortization of intangible assets decreased by 41.0% from $757,000 for the three months ended June 30, 1995, to $447,000 for the three months ended June 30, 1996, due primarily to a reduction in goodwill resulting from the November 1995 expiration of a non-competition agreement with Medic's former parent company. INCOME FROM OPERATIONS Income from operations increased by 29.3% from $6,456,000 for the three months ended June 30, 1995, to $8,347,000 for the three months ended June 30, 1996, due to the increase in gross margin of $3,334,000 partially offset by increased operating expenses of $1,443,000. Income from operations increased as a percentage of net revenues from 17.8% for the three months ended June 30, 1995, to 18.7 % for the three months ended June 30, 1996, due primarily to lower operating expenses as a percentage of net revenues as described above. 11 OTHER INCOME Net interest income increased from $478,000 for the three months ended June 30, 1995, to $574,000 for the three months ended June 30, 1996, due primarily to increased invested cash resulting from net proceeds from the secondary stock offering completed in April 1995. COMBINED ACTUAL AND PRO FORMA PROVISION FOR INCOME TAXES The Company's combined actual and pro forma provision for income taxes in absolute terms increased by 30.4% from $2,655,000, or 38.3% of pretax income, for the three months ended June 30, 1995, to $3,461,000, or 38.8% of pretax income, for the three months ended June 30, 1996, due primarily to increased pretax income. The increase in the combined actual and pro forma income taxes as a percentage of pretax income was due primarily to the reduction in benefit from the research and experimentation tax credits previously available. The combined actual and pro forma tax provisions differ from the U.S. statutory federal income tax rate due primarily to state income taxes, nondeductible amortization of intangible assets and tax-free interest income. SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30, 1995 TOTAL NET REVENUES Total net revenues increased by 26.6% from $69,503,000 during the six months ended June 30, 1995, to $87,958,000 during the six months ended June 30, 1996. Systems sales increased by 19.1% from $34,845,000 during the six months ended June 30, 1995, to $41,488,000 during the six months ended June 30, 1996. Systems sales to new customers increased by 31.3% from $19,179,000 during the six months ended June 30, 1995 to $25,175,000 during the six months ended June 30, 1996, and systems sales to existing customers for upgrades and add-ons increased by 4.1% from $15,666,000 in 1995 to $16,313,000 in 1996. The Company believes that because the general market for personal computers, networking hardware and peripheral equipment has been subject to increasingly competitive pricing, certain customers have elected to purchase these types of equipment from other sources. The Company believes that it still maintains and grows a strong add-on sales presence in the marketplace and focuses on providing strong after-sales support and higher value-added products to its customer base. Net revenues from maintenance, forms and other services revenues increased by 34.1% from $34,658,000 for the six months ended June 30, 1995, to $46,470,000 for the six months ended June 30, 1996. This increase was primarily the result of increases in hardware and software maintenance revenues of $4,781,000 and other increases in FastBill revenue of $5,379,000 and FastClaim revenue of $1,565,000. COST OF REVENUES Cost of systems sales increased by 13.7% from $21,880,000 for the six months ended June 30, 1995, to $24,888,000 for the six months ended June 30, 1996, due primarily to increased systems sales. Cost of systems sales decreased as a percentage of related revenues from 62.8% for the six months ended June 30, 1995, to 60.0% for the six months ended June 30, 1996, due primarily to more favorable margins on systems sales to new customers resulting from a higher percentage of software products and professional services delivered with the new system contracts. Cost of maintenance, forms and other services revenues increased by 40.9% from $19,753,000 for the six months ended June 30, 1995, to $27,841,000 for the six months ended June 30, 1996, due to increased related revenues. Cost of maintenance, forms and other services revenues increased as a percentage of related revenues from 57.0% for the six months ended June 30, 1995, to 59.9% for the six months ended 12 June 30, 1996, due primarily to the increase in FastBill sales as a percentage of maintenance, forms and other services revenues. FastBill has a relatively lower margin as compared to margins on maintenance and FastClaim revenues. Primarily as a result of the factors described above, the total cost of net revenues remained a percentage of total net revenues at 59.9% for both the six months ended June 30, 1995 and for the six months ended June 30, 1996. SALES AND MARKETING EXPENSES Sales and marketing expenses increased by 24.4% from $6,748,000 for the six months ended June 30, 1995, to $8,397,000 for the six months ended June 30, 1996, due to increased systems sales. Sales and marketing expenses decreased as a percentage of net revenues from 9.7% for the six months ended June 30, 1995, to 9.5% for the six months ended June 30, 1996, due primarily to increased systems sales per sales person and lower systems sales as a percentage of total net revenues in 1996. GENERAL AND ADMINISTRATIVE EXPENSES General and administrative expenses increased by 32.7% from $3,665,000 for the six months ended June 30, 1995, to $4,862,000 for the six months ended June 30, 1996, due primarily to the overall company growth and to non-recurring merger related expenses of $243,000 expensed in 1996 in connection with the acquisition of CompuSystems. General and administrative expenses increased as a percentage of net revenues from 5.3% for the six months ended June 30, 1995, to 5.5% for the six months ended June 30, 1996, due primarily to non-recurring merger related costs. RESEARCH AND DEVELOPMENT Research and development costs increased by 30.0% from $3,686,000 for the six months ended June 30, 1995, to $4,793,000 for the six months ended June 30, 1996, due primarily to staff additions. Research and development expenses remained relatively constant as a percentage of net revenues at 5.3% for the six months ended June 30, 1995, compared to 5.4% for the six months ended June 30, 1996. The Company remains committed to maintaining a high level of investment in research and development activities primarily directed to increased investments in developing new clinical products and enhancements to its practice management systems. AMORTIZATION Amortization of intangible assets decreased by 41.0% from $1,512,000 for the six months ended June 30, 1995, to $892,000 for the six months ended June 30, 1996, due primarily to a reduction in goodwill resulting from the November 1995 expiration of a non-competition agreement with Medic's former parent company. INCOME FROM OPERATIONS Income from operations increased by 32.8% from $12,259,000 for the six months ended June 30, 1995, to $16,285,000 for the six months ended June 30, 1996, due to the increase in gross margin of $7,359,000 partially offset by increased operating expenses of $3,333,000. Income from operations increased as a percentage of net revenues from 17.6% for the six months ended June 30, 1995, to 18.5% for the six months ended June 30, 1996, due primarily to lower operating expenses as a percentage of net revenues as described above. OTHER INCOME 13 Net interest income increased from $706,000 for the six months ended June 30, 1995, to $1,118,000 for the six months ended June 30, 1996, due primarily to increased invested cash primarily resulting from proceeds of the secondary stock offering completed in April 1995. COMBINED ACTUAL AND PRO FORMA PROVISION FOR INCOME TAXES The Company's combined actual and pro forma provision for income taxes increased in absolute terms by 32.3% from $5,148,000, or 39.7% of pretax income, for the six months ended June 30, 1995, to $6,809,000, or 39.1% of pretax income, for the six months ended June 30, 1996, due primarily to increased pretax income. The decrease in the combined actual and pro forma income taxes as a percentage of pretax income was due primarily to the decrease in nondeductible amortization expense and offset by the increase in tax-free interest income as percentages of pretax income. The combined actual and pro forma tax provisions differ from the U.S. statutory federal income tax rate due primarily to state income taxes, nondeductible amortization of intangible assets and tax-free interest income. LIQUIDITY AND CAPITAL RESOURCES The Company has funded its operations through cash flow from operations, borrowings and from the net proceeds from the issuance of 1,700,000 shares of its Common Stock as part of a public offering in April 1995. At June 30, 1996, the Company had cash and cash equivalents equal to $32,993,000, short-term investments in the amount of $16,672,000 and a working capital position in the amount of $89,800,000. The Company currently has a $4,000,000 unsecured line of credit with the Wachovia Bank of North Carolina, N.A. ("Bank") . This commitment expires on September 17, 1996, and is subject to the Company maintaining a condition satisfactory to the Bank. At June 30, 1996, there were no borrowings outstanding under this line. The line of credit presently accrues interest on borrowings at the lesser of U.S. prime minus 0.5%, LIBOR plus 1.7% or a rate that approximates the published CD Base Rate plus 1.7%. Interest is due and payable in arrears monthly and/or at the maturity of the individual borrowings. The Company's balance of cash and cash equivalents decreased by 15.3% from $38,935,000 at December 31, 1995 to $32,993,000 at June 30, 1996, offset by a net increase in short-term investments of $5,211,000. Cash was provided from operating activities in the amount of $2,898,000 and used for purchases of fixed assets in the amount of $2,182,000. The Company's accounts receivable balance increased by 9.0% from $41,189,000 at December 31, 1995, to $44,898,000 at June 30, 1996 due primarily to the growth experienced by the Company in the quarter and the expanding nature of the customer base from predominantly small group medical practices to include larger, consolidated physician practices, hospital organizations, affiliated physician networks and managed services organizations. These larger customers have been extended longer payment terms to more closely match the time required by their organizations to integrate the Company's practice management products throughout their organizations after the installation of the system. Inventories decreased minimally from $12,294,000 at December 31, 1995, to $11,994,000 at June 30, 1996. Prepaid expenses increased by 6.2% from $6,190,000 at December 31, 1995, to $6,575,000 at June 30, 1996, due primarily to prepaid insurance for corporate insurance renewals, prepaid expenses paid in connection with increased customer maintenance contracts and prepaid postage for FastBill services. Property and equipment increased by 15.7% from $7,075,000 at December 31, 1995, to $8,185,000 at June 30, 1996, due primarily to the purchase of computer equipment to enhance the Company's internal 14 information management systems and portable computers for sales demonstrations and customer field support. Accordingly, the Company's capital expenditures increased from $1,947,000 during the six months ended June 30, 1995, to $2,182,000 during the six months ended June 30, 1996. Accounts payable decreased by 24.8%, from $7,336,000 at December 31, 1995, to $5,520,000 at June 30, 1996, due primarily to the timing of payments for purchases. Customer deposits and deferred revenue decreased by 28.5% from $13,396,000 at December 31, 1995, to $9,573,000 at June 30, 1996, due to decreased deferred maintenance billings of $3,995,000 as a result of the timing of July 1996 maintenance billings and other deferred revenues of $114,000 offset by net increases in customer deposits of $286,000. There were no income taxes payable at June 30, 1996 as compared to $1,676,000 payable at December 31, 1995, given the timing of quarterly estimated payments. Accrued commissions increased by 3.5% from $1,604,000 at December 31, 1995, to $1,660,000 at June 30, 1996, due primarily to increased systems sales and to higher commissions accrued than paid out in the six months ended June 30, 1996. Accrued compensation and related items increased by 51.0% from $3,963,000 at December 31, 1995, to $5,985,000 at June 30, 1996, due primarily to increases in the profit-sharing plan accrual, accrued vacation, federal and state tax withholdings and voluntary employee stock purchase plan withholdings. These increases were partially offset by decreases resulting from payment of bonuses accrued at December 31, 1995. Other accrued expenses decreased by 10.7% from $3,075,000 at December 31, 1995, to $2,746,000 at June 30, 1996, due primarily to the timing of payments relating to local and state sales taxes. The Company believes that cash generated from operations, current cash and cash equivalents, and cash available under the revolving credit facility will be sufficient to meet its cash and capital requirements for the immediately foreseeable future. From time to time, the Company has been contacted by or has made contact with third parties who represent potential strategic partners or acquisition candidates. Depending upon the cash requirements of a potential transaction, the Company may finance the transaction through its cash flow from operations or may raise additional funds by pursuing various financing vehicles such as additional bank financing or one or more additional public offerings or private placements of the Company's securities. However, there can be no assurance that any such transactions will occur, that the funds to finance any such acquisition will be available on reasonable terms or at all, or that the consummation of such transactions will not adversely affect the Company's cash balances and capital requirements. The Company believes that inflation has not had a significant impact on the Company's results of operations to date. 15 PART II - OTHER INFORMATION ITEM 6. Exhibits and Reports on Form 8-K (a) Exhibits: 11.1 Computations of Net Income per share of Common Stock (b) Reports on Form 8-K: During the registrant's fiscal quarter ended June 30, 1996 the registrant filed a report on Form 8-K on June 13, 1996 in connection with the merger with CompuSystems, Inc. 16 MEDIC COMPUTER SYSTEMS, INC. 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. MEDIC COMPUTER SYSTEMS, INC. DATED: August 12, 1996 /s/ LUANNE L. ROTH Luanne L. Roth Vice President and Chief Financial Officer (Duly Authorized Officer and Principal Financial and Accounting Officer) 17 MEDIC COMPUTER SYSTEMS, INC. EXHIBIT INDEX
Exhibit No. Page No. 11.1 Computations of Net Income per share of Common Stock 19
18 EX-11 2 EXHIBIT 11.1 Exhibit 11.1 MEDIC COMPUTER SYSTEMS, INC. COMPUTATION OF NET INCOME PER SHARE OF COMMON STOCK
---------------------------------- ---------------------------------- THREE MONTHS ENDED SIX MONTHS ENDED ---------------------------------- ---------------------------------- JUNE 30, JUNE 30, 1996 1995 1996 1995 ---- ---- ---- ---- Primary: Weighted average number of Common Shares outstanding 24,315,656 23,483,170 24,274,760 22,744,398 Common Stock equivalents assuming exercise of dilutive options, determined by the treasury stock method 498,774 601,078 511,396 642,760 ------- ------- ------- ------- Common Stock and equivalents 24,814,430 24,084,248 24,786,156 23,387,158 ========== ========== ========== ========== Pro Forma Net income $ 5,460,000 $ 4,279,000 $10,594,000 $ 7,817,000 ============ =========== =========== =========== Pro Forma Net income per Common Share $ .22 $ .18 $ .43 $ .33 ===== ===== ===== ===== Fully diluted: Weighted average number of Common Shares outstanding 24,315,656 23,483,170 24,274,760 22,744,398 Common Stock equivalents assuming exercise of dilutive options, determined by the treasury stock method 488,048 601,078 523,584 642,760 ------- ------- ------- ------- Common Stock and equivalents 24,803,704 24,084,248 24,798,344 23,387,158 ========== ========== ========== ========== Pro Forma Net income $ 5,460,000 $ 4,279,000 $10,594,000 $ 7,817,000 =========== =========== ============ =========== Pro Forma Net income per Common Share $ .22 $ .18 $ .43 $ .33 ===== ===== ===== =====
Notes: The calculation for pro forma fully diluted earnings per share has not been included with the Consolidated Statements of Operations as fully diluted earnings per share does not differ from primary earnings per share. 19 EX-27 3 EXHIBIT 27
5 6-MOS DEC-31-1995 JUN-30-1996 32,993 16,672 46,594 (1,696) 11,994 116,759 14,136 (5,951) 144,665 26,959 0 0 0 243 115,137 144,665 41,488 87,958 24,888 52,729 0 0 43 17,403 6,809 10,594 0 0 0 10,594 .43 .43
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