We have derived the following selected historical consolidated financial data from our audited consolidated financial statements at December 31, 2001 and 2000 and for the years ended December 31, 2001, 2000 and 1999, which are included in this Form 10-K. The report of PricewaterhouseCoopers LLP, our independent accountants, on our consolidated financial statements at December 31, 2001 and 2000 and for the years ended December 31, 2001, 2000 and 1999 appears elsewhere in this Form 10-K. Our selected historical financial data should be read in conjunction with the related consolidated financial statements and notes thereto appearing elsewhere in this Form 10-K.
(1) We have reclassified the business units sold in 2001 and 2000 as discontinued operations in the Consolidated Statements of Operations. During 2000, we sold our unemployment compensation, workers' compensation, workers' compensation managed care organization, and self-funded businesses. In 2001, we sold our TPA and MGU business units.
We are a leading provider of technology-enabled medical cost management solutions for the healthcare industry. We provide integrated national PPO network access, electronic claims repricing, and claims and data management services to health care payers, such as self-insured employers, medical insurance carriers, HMOs, third party administrators and other entities that pay claims on behalf of health plans, and health care services providers, including individual providers and provider networks.
The Forbearance Agreement extended to us by our lending group gave the Company until March 29, 2002 to repay or restructure the Company's senior debt in the amount of $69.0 million of outstanding principal and accrued and unpaid interest and legal fees. On April 12, 2002 the Company executed the various agreements documenting the terms of the restructured facility (collectively, the "Agreement") and closed on the debt restructure transaction. The indebtedness was restructured by reducing our term loan with the Senior Lenders to $40.0 million with an annual interest rate of prime plus 1.0% and issuing $29.0 million of the Company's Series C Preferred Stock and an additional note in the amount of $184,872.00. In connection with this restructuring, the Company issued the lenders 75,000 shares of common stock as a restructuring fee.
The following table sets forth, for the periods indicated, the percentages that certain items of income and expense bear to our revenue for such periods.
Personnel expense for the year ended December 31, 2001 increased $0.8 million, or 9.6%, to $9.1 million from $8.3 million in 2000. Personnel expense increased as salaries and wages increased to meet the demands of increased revenues. Personnel expense as a percentage of revenues decreased to 27.8% in 2001 compared to 30.8% in 2000. The Company was able to increase efficiencies in its claim repricing operations through increased use of its technology, which allowed the Company to increase the number of claims processed per person in 2001.
General and administrative expense for the year ended December 31, 2001 increased $6.4 million, or 75.3%, to $14.9 million from $8.5 million in 2000. This increase was primarily attributable to increases in network fees, electronic imaging, postage, computer software and maintenance costs, and printing costs supporting our
increased revenues. Bad debt expense increased $2.7 million due to the related increase in revenues, an overall increase in the estimated allowance for doubtful accounts based on historical collection rates, and a $1.2 million additional reserve against certain accounts resulting from customer negotiations. Additionally, the Company incurred increased legal and other costs associated with our divestiture and credit facilities restructuring activities during 2001 totaling $0.7 million. During 2000, the Company received proceeds from a key-man life insurance policy totaling $0.5 million that reduced overall general and administrative costs during such period.
Depreciation and amortization expense for the year ended December 31, 2001 increased $0.1 million to $1.8 million from $1.7 million in 2000. This increase is primarily attributable to the amortization of internally developed software costs that were capitalized in 2001 and the depreciation of new property and equipment acquired in 2001.
Provision for income taxes during 2001 was $26.8 million compared to a benefit for income taxes of $3.3 million during 2000. During 2001, the Company was required to establish a $36.5 million valuation allowance on its net deferred tax assets as a result of cumulative losses in recent years, as required by SFAS 109.
During the second quarter of 2000, we recorded an extraordinary loss of $1.0 million, net of taxes, related to our credit facility. This loss represented $1.5 million of pretax non-interest fees and expenses connected with the prior facility, which were previously subject to amortization over five years. No such gains or losses were recognized during 2001.
Revenues for the year ended December 31, 2000 increased $8.2 million, or 43.9%, to $26.9 million from $18.7 million in 1999. Revenues increased primarily due to the addition of new customers. Claims volume increased to 2.1 million claims repriced in 2000 compared to 1.4 million claims repriced in 1999, or a 50.0% increase in claim volume.
1999. The Company was able to increase efficiencies in its claim repricing operations through increased use of technology that allowed the Company to increase the number of claims processed per person in 2000.
General and administrative expense for the year ended December 31, 2000 increased $1.3 million, or 18.1%, to $8.5 million from $7.2 million in 1999. The increase was primarily attributable the growth in the Company's business. Additionally, in 2000, the Company received proceeds from a key-man life insurance policy totaling $0.5 million that reduced overall general and administrative costs. General and administrative expenses as a percent of operating revenues were 31.7% in 2000 compared to 38.7% in 1999. The decrease in general and administrative expenses as a percent of operating revenues is primarily due to overall increased efficiencies and the impact of the proceeds form the key man life insurance policy received in 2000.
Gains on sale of investments for the years ended December 31, 2000 and 1999, was $0.3 million and $4.6 million, respectively. During the second quarter of 2000, we sold all 109,732 shares of our Caredata.com, Inc. stock. In 1999 we sold 1,415,000 shares of HealthAxis.com stock.
Depreciation and amortization expense for the year ended December 31, 2000 decreased $0.8 million to $2.4 million from $3.2 million in 1999. This decrease is primarily attributable to property and equipment that became fully depreciated in 1999 that were not offset by related acquisitions in 2000.
Interest expense for the year ended December 31, 2000 increased $2.8 million to $10.5 million from $7.7million in 1999. This increase resulted from an increased average interest rate of 373 basis points on our line of credit due to the amended terms of our credit facility. This increase was partially offset by a reduction of $9.2 million in the average outstanding principal balance on the credit facility.
Liquidity is our ability to generate adequate amounts of cash to meet our financial commitments. Our primary sources of cash are fees generated from the claims repricing services we provide our customers. Our uses of cash consist of payments to our networks, operating expenses such as compensation and benefits, occupancy and related costs, and general and administrative expenses associated with operating our business, taxes, and debt service obligations. We had cash and cash equivalents totaling $0.4 million at December 31, 2001. Cash flow (used in) provided by operating activities was $(9.9) million, $3.2 million, and $13.0 million during 2001, 2000, and 1999, respectively. Excluding, the effects of the discontinued operations, cash flows provided by operating activities would have been $5.2 million, during 2001.
As part of its business strategy, the Company has been pursuing the restructure of its credit facility. The majority of this debt matured on August 31, 2001, at which time we defaulted on the maturity payment. Effective September 1, 2001 we entered into a Forbearance Agreement, as amended, ("Forbearance Agreement") with our lending group that gave the Company until March 29, 2002 to repay or restructure this debt. As of December 31, 2001, the Company had debt outstanding to its lenders totaling approximately $64.7 million and accrued and unpaid interest and fees totaling approximately $4.2 million. On April 12, 2002 (the "Effective Date") we closed a
transaction to restructure and refinance our existing bank debt . Under the terms of the Agreement, in exchange for the outstanding principal, accrued and unpaid interest and fees due to its lenders, the Company entered into a $40.0 million term loan that accrues interest at prime plus 1.0% with interest payments due monthly. Quarterly principal payments of $50,000 are due beginning June 30, 2002 and the term loan is due in full on May 31, 2004. The term loan is collateralized by substantially all of the Company's assets. The restructured credit facility does not include a line of credit or the ability to borrow an additional funds. The remainder of the amounts due to the lenders was exchanged for approximately $29.0 million of the Company's Series C Preferred Stock and an additional note in the amount of $184,872.00. The terms of the Series C Preferred Stock are discussed in detail earlier in this section, under "Recent Events." The Agreement contains certain financial covenants including minimum monthly EBITDA levels (defined as earnings before interest, taxes, depreciation and amortization and adjusted for non-cash items deducted in calculating net income and severance, if any, paid to certain officers of the Company), maximum quarterly and annual capital expenditures, a minimum quarterly fixed charge ratio that is based primarily on the Company's operating cash flows, and maximum quarterly and annual extraordinary expenses (excluding certain pending and threatened litigation, indemnification agreements and certain other matters as defined in the Agreement). The amounts due to the lenders as of December 31, 2001 are classified as long-term debt in the accompanying consolidated financial statements included elsewhere in this Form 10-K.
In connection with the closing of the transactions contemplated by the Agreement, the Company entered into a letter agreement with the lenders and Wachovia Bank, National Association, as administrative agent for the lenders and for the holders of the Series C Preferred Stock, pursuant to which the lenders, in their capacity as such and as holders of the Series C Preferred Stock, granted the Company an option, exercisable for 120 days following the Closing, to consider the entire indebtedness under the Agreement paid in full and to redeem the Series C Preferred Stock in exchange for the following consideration: (1) payment of $40,000,000 plus accrued and unpaid interest under the Agreement, (2) payment of the outstanding principal balance plus accrued interest under an additional note in the principal amount of $184,872.00, (3) payment of outstanding fees and expenses of lenders' counsel and consultants incurred in connection with the Agreement, (4) the issuance of an additional 1,650,000 shares of the Company's Common Stock, and (5) replacement or substitution of the Letters of Credit provided for under the Agreement. At this time the Company does not have any commitments for the funds necessary to exercise the option.
Prior to the Company entering into the Agreement, the Company operated under a Forbearance Agreement, as amended (the "Forbearance Agreement"), with its lending group. The Forbearance Agreement extended the terms and conditions of the June 8, 2000, Second Amended and Restated Credit Agreement (the "Credit Agreement"), which matured on August 31, 2001. Under the terms of the Forbearance Agreement, as amended, which became effective on September 1, 2001, the Company had until March 29, 2002 to repay the amounts due under the existing credit facility or to restructure the credit facility. During the term of the Forbearance Agreement interest accrued at an annual interest rate equal to prime plus 6.0%. Interest was payable monthly at prime plus 1.0% per annum. The difference between the accrual rate of interest and the rate paid was due at the termination of the Forbearance Agreement and was rolled into the amount restructured. In addition, the Company was required to repay accrued and unpaid interest as of August 31, 2001 (totaling approximately $1.0 million) and were required to achieve minimum cash collection levels and maximum cash disbursements as defined in the Forbearance Agreement. We were in compliance with the terms of the Forbearance Agreement, as amended.
In connection with the sale of the TPA and MGU business units and the assumption by HealthPlan Holdings, Inc., of certain liabilities associated therewith (the "Transaction"), the New England Life Insurance Co. drew in full on a letter of credit in its favor in the amount of $6,000,000. Under the terms of the Credit Agreement with First Union National Bank and the other lenders named therein, any payment under the letter of credit which is not promptly reimbursed to the lenders by the Company upon notice of such draw constitutes a payment default. The lenders indefinitely waived this payment default pursuant to the terms of a Limited Waiver and Extension dated as of June 15, 2001, which also waived certain additional terms of the Credit Agreement in order to permit certain terms of the Transaction which were not part of the original Stock Purchase Agreement of April 1, 2001 but were rather added through the First Amendment to Stock Purchase Agreement (the "First Amendment"), dated June 18, 2001.
On March 27, 2002, the Company retired a subordinated note, including accrued interest totaling approximately $2.5 million by issuing 274,000 shares of its common stock, based on the closing price of the Company's common stock one day immediately prior to the retirement date of this note, and by issuing a credit for $950,000 payable with in-kind claims repricing services.
On April 12, 2002, the maturity date of notes totaling $500,000 due to two members of its board of directors was extended to November 30, 2004. These notes bear interest at prime plus 4% per annum, but payment of interest is subordinated and deferred until all senior obligations are paid.
On July 6, 2001, the Company completed a $3.8 million private placement of its common stock at a 15% discount to the 10 day trading average through July 2, 2001. The purchasers of these securities were certain investment funds managed by DePrince Race and Zollo, Inc., an investment management firm in which director John Race is one of the principals. The net proceeds from this private placement were used to satisfy certain pre-closing obligations connected with the Company's recent divestiture of its TPA and managing general agent underwriter business units to HPHI. In connection with the placement the Company issued unregistered shares of its common stock and has agreed to register such shares within 30 days of the date of the issuance. These shares were included in the registration statement filed in connection with the shares issued in the sale to HPHI.
The Company also issued 75,000 shares of its common stock to HPHI in connection with a letter agreement dated July 2, 2001 between HPHI and the Company settling certain payment obligations relating to the Closing of the HPHI transaction and including terms for the payment in full of the pre-closing liabilities of the Company. Additionally, in connection with extending certain payment obligations with its lenders which were due June 30 and July 31, the Company issued 75,000 shares of its common stock to its lenders pursuant to the terms of a Third Amendment and Limited Waiver amending the Company's credit facility with its senior lenders. The Company has agreed to promptly register the shares issued to its lenders and to HPHI. These shares were included in the registration statement filed in connection with the shares issued in the sale to HPHI. Such shares have not been registered as of December 31, 2001.
We spent $0.1 million, $4.8 million and $8.0 million for capital expenditures during 2001, 2000 and 1999, respectively.
We do not believe that inflation had a material effect on our results of operations for the year ended December 31, 2001 or 2000. There can be no assurance, however, that our business will not be affected by inflation in the future.
accordance with such policies, based upon estimates and assumptions. Although we believe that our estimates and assumptions are reasonable, actual results may differ.
We earn revenues in the form of fees generated from the repricing of medical claims. We generally enter into agreements with our health benefit payers payer clients that require them to pay a percentage of the cost savings realized from PlanVista's network discounts with participating providers. These agreements are generally terminable upon 90 days notice. During 2001, three clients and their affiliates accounted for an aggregate of 24.6% of our net revenues. The loss of either of these client groups could have a material adverse effect on the Company's financial results. In 2001, over 92% of our revenues were generated from percentage of savings contracts with our customers. Revenues from percentage of savings contract are recognized when claims processing and administrative services have been performed. Revenues from customers with certain contingent contractual rights and revenues based on a percentage of collected cash are not recognized until the corresponding cash is collected. The remainder of our revenues is generated from customers that pay us a monthly fee based on eligible employees enrolled in a benefit plan covered by our health benefits payers clients. Revenues under such agreements are recognized based when the services are provided.
As of December 31, 2001 we have goodwill related to the 1998 acquisition of PlanVista Solutions totaling $29.4 million. We evaluate the carrying value of our goodwill for impairment whenever indicators of impairment exist. If we determine that such indicators are present, we then prepare an undiscounted future net cash flow projection for the asset. In preparing this projection, we must make a number of assumptions concerning such things as, for example, future booking volume levels, price levels, commission rates, rates of growth in our online booking businesses, and rates of increase in operating expenses. If our projection of future net cash flows is in excess of the carrying value of the recorded asset, no impairment is recorded. If the carrying value of the asset exceeds the projected undiscounted net cash flows, an impairment is recorded. The amount of the impairment charge is determined by discounting the projected net cash flows.
expectations, we may be required to record an impairment charge, the amount of which could be material to our results of operations.
In July 2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 141, "Business Combinations" and SFAS No. 142 "Goodwill and Other Intangible Assets." SFAS No. 141 requires business combinations initiated after June 30, 2001 to be accounted for using the purchase method of accounting, and broadens the criteria for recording intangible assets separate from goodwill. Recorded goodwill and intangibles will be evaluated against this new criteria and may result in certain intangibles being subsumed into goodwill, or alternatively, amounts initially recorded as goodwill may be separately identified and recognized apart from goodwill. SFAS No. 142 requires the use of a nonamortization approach to account for purchased goodwill and certain intangibles. Under a nonamortization approach, goodwill and certain intangibles will not be amortized into results of operations, but instead would be reviewed for impairment and written down and charged to results of operations only in the periods in which the recorded value of goodwill and certain intangibles is more than its fair value. The provisions of each statement which apply to goodwill and intangible assets acquired prior to June 30, 2001 will be adopted by the Company on January 1, 2002. These new requirements will impact future period net income by an amount equal to the discontinued goodwill amortization offset by goodwill impairment charges, if any, and adjusted for any differences between the old and new rules for defining intangible assets on future business combinations. An initial impairment test must be performed as of January 1, 2002. We are evaluating the impact of the adoption of these standards but have not yet determined the full effect of these recent accounting pronouncements on our financial position and results of operations. Amortization expense was $1.4 million in 2001.
Risks associated with an investment in the Company, and with achievement of the Company's forward-looking statements in this report, its news releases, websites, public filings, investor and analyst conferences and elsewhere include, but are not limited to, the risk factors described below. Any of the risk factors described below could have a material adverse effect on the Company's business, financial condition, or results of operations. The Company may not succeed in addressing these challenges and risks.
Failure to comply with financial covenants will cause default under Term Loan and, in some cases, may allow Series C Preferred Stockholders to control Board.
We recently completed a restructuring of our credit facilities with our lenders. We replaced approximately $69.0 million of indebtedness to our lenders, including outstanding principal and accrued and unpaid interest and bank fees with a $40.0 million term loan, collateralized by substantially all of the Company's assets, and $29.0 million of convertible preferred stock. The term loan requires the Company to achieve financial covenants including minimum monthly EBITDA levels, maximum quarterly and annual capital expenditures, a minimum quarterly fixed charge ratio, and maximum quarterly and annual extraordinary expenses (as defined in the agreements). The convertible preferred stock agreement contains provisions permitting the preferred stockholders to elect three members to the Company's board of directors and permitting the preferred stockholders to immediately elect one additional member to the Company's board of directors to replace one of the board members elected by the Company's common shareholders if the there is a default of any of the financial covenants or Company fails to achieve certain minimum cash levels as defined in the convertible preferred stock agreement. If the Company does not comply with the
We granted registration rights covering additional shares which HealthPlan Holdings received upon converting the $5.0 million promissory note they received from us in connection with our sale of HealthPlan Services, Inc. to them and other shares we issued to them in payment of interest due on the note and in connection with our failure to make specified post-closing payments under the acquisition agreement. Under the conversion terms of the note, HealthPlan Holdings is guaranteed the issuance of sufficient shares so as to give them, on the sale of such securities, $5.0 million in gross proceeds. Accordingly, any substantial decrease in the price of our common stock would mean that HealthPlan Holdings would be entitled to a greater number of shares upon conversion of the note and the issuance of such shares would be dilutive to existing stockholders. Our registration rights agreement with HealthPlan Holdings requires that while the HealthPlan Holdings registration rights are outstanding, no future registration rights may be granted that are superior to the rights granted to HealthPlan Holdings and restricts our ability to grant registration rights to others which would allow others to register and sell their securities when HealthPlan Holdings is selling securities under a demand registration right.
Additionally, our expense levels are based, in part, on our expectations regarding future revenues, and our expenses are generally fixed, particularly in the short term. We may be unable to adjust spending in a timely manner to compensate for unexpected revenue shortfalls. A shortfall in revenues or a delay in the collection of outstanding accounts receivable, could have a adverse impact on our ability to meet payment obligations to our lenders and vendors and could have a material adverse effect on our business, operating results and financial condition.
We face competition from HMOs, PPOs, TPAs and other managed health care companies. We believe that, as managed care continues to gain acceptance in the marketplace and technology is adopted, our competition will
We may not be able to successfully manage our growth strategy.
Our strategy is to continue internal growth and, as opportunities arise and resources permit, to consider acquisitions of, or relationships with, other companies in related lines of business within our core expertise. As a result, we are subject to certain growth-related risks, including the risk that we will be unable to retain personnel or acquire the resources necessary to service growth adequately. Expenses arising from efforts to increase our market penetration may have a negative impact on operating results. In addition, we cannot assure you that we will be able to identify suitable opportunities for acquisitions or relationships or complete these acquisitions. We may not be able to integrate effectively any acquired business, and we will have to bear the financial impact of expenses incurred in integrating acquired businesses.
Problems with our computers or other technology could negatively affect our business.
Aspects of our business depend upon our ability to store, retrieve, process and manage data and to maintain and upgrade our data processing capabilities. If our data processing capabilities are interrupted for any extended length of time, or if we lose stored data, or experience programming errors or other computer problems arise, we could lose customers and revenues.
We expect that our future growth will depend on our ability to process and manage claims data more efficiently and to provide more meaningful healthcare information to clients and payers of healthcare. Our current data processing capabilities are at 33% of capacity. We believe our current data processing capabilities are adequate for the foreseeable future. However, we may not be able to efficiently upgrade our systems to meet future demands, and we may not be able to develop, license or otherwise acquire software to address these market demands as well or as timely as our competitors.
sales cycle involved in selling our new services, and we cannot predict client claims experience. This makes it difficult to predict the quarter in which sales will occur. Our expense levels are based, in part, on our expectations regarding future revenues, and our expenses are generally fixed, particularly in the short term. We may be unable to adjust spending in a timely manner to compensate for unexpected revenue shortfalls. Any significant shortfall of revenues in relation to our expectations could cause significant declines in our quarterly operating results.
Many healthcare industry participants are consolidating to create integrated healthcare delivery systems with greater market power. As provider networks and managed care organizations consolidate, competition to provide products and services such as those we provide will become more intense, and the importance of establishing and maintaining relationships with key industry participants will become greater. These industry participants may try to use their market power to negotiate price reductions for our products and services. If we are forced to reduce our prices, our margins will decrease unless we are able to achieve corresponding reductions in expenses.
A small number of clients account for a significant portion of our revenue.
The loss of one or more of our significant clients could cause our business to suffer. Our top three clients accounted for 24.6% of our revenue for the year ended December 31, 2001. These clients may account for a significant portion of our revenues in 2002, and we expect that a small number of our clients will continue to account for a substantial portion of our revenues for some time. In addition, companies in the healthcare industry generally have been consolidating, resulting in a limited number of payers and provider networks controlling an increasing portion of claims. Therefore, we believe that our revenue will be largely dependent upon product acceptance by a smaller number of payers and provider networks. If we lose any one of our major clients or receive less favorable terms from any of our major clients, we will lose revenue that would adversely impact our financial condition and results of operations.
The Internet and electronic healthcare information markets are in the early stages of development and are rapidly evolving. A number of market entrants have introduced or developed products and services that are competitive with our products and services. We expect that additional companies will continue to enter these markets. In new and rapidly evolving industries, there is significant uncertainty and risk as to the demand for, and market acceptance of, recently introduced products and services. Because the markets for certain of our products and services are new and evolving, we are not able to predict the size and growth rate of those markets with any certainty. We cannot assure you that markets for our products and services will develop or that, if they do, they will be strong and continue to grow at a sufficient pace. If markets fail to develop, develop more slowly than expected or become saturated with competitors, our business prospects will be impaired.
Although contracts with some of our clients are longer-term contracts, the majority of our contracts can be terminated, with revenues from such contracts also readily terminable within six months. In addition, the vast majority of PlanVista's contracts contain payment terms that are based on a percentage of savings to the client or on the number of claims re-priced. If we are unable to achieve significant savings for our clients or re-price a significant number of claims, we will not derive much revenue from our contracts.
All of our contracts with provider networks contain provisions allowing the termination of these contracts with as little as 30 days' notice. The termination of these contracts by the networks would render us unable to provide network access to our clients and therefore would remove our ability to reprice claims and derive revenues. Termination by the provider networks or other changes within the provider networks may be outside of our control and could negatively affect our ability to provide services to our clients.
Our common stock has experienced significant price and volume fluctuations recently. Our stock price reached a ranged from a high of $9.44 per share to a low of $4.14 per share during the year ended December 31, 2001. As of March 31, 2002, our closing stock price was $6.40 per share. These fluctuations are not necessarily directly related to our operating performance, and our stock may not continue to trade at the current price level.
In addition, our growth rate is partially attributable to health care expenditures nationally and the related growth of claims processed by PlanVista. We may not continue to grow in the future, and if we do grow, it may not be at or near historical levels.
Some companies that have experienced volatility in the market price of their stock have been sued in securities class action litigation. In light of the fluctuations in our stock price, it is possible that we may be the subject of a securities class action litigation in the future. Such litigation often results in substantial costs and a diversion of management's attention and resources and could harm our business, prospects, results of operations, or financial condition.
PlanVista does not plan to pay dividends on the common stock.
PlanVista has not declared or paid a cash dividend in recent years, and we do not expect to declare or pay any cash dividends in the foreseeable future. We intend to retain all earnings, if any, in order to expand our operations and pay down our debt.
Although we began operating in 1995, the increasing popularity and use of electronic claims and data processing tools and the Internet has occurred only recently and, as a result, the focus of our business has changed significantly. We did not begin our current focus on being a technology-enabled service provider leveraging our existing network access business until early 2001. As a result, our operating history is not indicative of our future performance, and our business is difficult to evaluate because we are facing new risks and challenges. You should evaluate our prospects in light of the risks and uncertainties encountered by companies in the early stages of development, particularly companies in new and rapidly evolving markets. These risks include: