Emergis Reports First Quarter 2005 Financial Results.MONTREAL Montreal (mŏn'trēôl`), Fr. Montréal (môNrāäl`), city (1991 pop. 1,017,666), S Que., Canada, on Montreal island, surrounded by St. Lawrence River and Rivière des Prairies. -- Emergis Emergis Incorporated (TSX: EME) is a Canadian e-Business company dealing with interactions between companies and electronic commerce. The company is linked to the merger of Bell Canada's Electronic Business Solutions and MPACT Immedia Inc. (TSX TSX Toronto Stock Exchange (TSE before April, 2002) TSX Transfer from Stack Pointer to Index TSX True Space Extension :EME n. 1. An uncle. ) - Q1 revenue at $39.3 M - Q1 EBITDA at $5.8 M including contract settlements - Annualized cost reductions of more than $40 M since Q1 2004 Emergis Inc. (TSX:EME) today announced its unaudited financial results for the three-month period ended March 31, 2005. Revenue for the quarter was $39.3 million compared to $62.1 million ($40.8 million excluding non-core revenue) in the first quarter of 2004.Non-core operations1 ceased as of June June: see month. 30, 2004. EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) A metric used to show a company's profitability, but not its cash flow. EBITDA became popular in the 1980s to show the potential profitability of leveraged buyouts, but has become 2 was $5.8 million compared to $6.5 million in the first quarter last year, and the net loss from continuing operations continuing operations Parts of a business that are expected to be maintained as an ongoing segment of an overall business operation. Income and losses from continuing operations are reported separately if any segments have been discontinued during the was $(5.7) million ($(0.06) per share) compared to a net loss of $(6.7) million ($(0.06) per share) in 2004.One-time one-time adj. 1. or one·time a. Occurring or undertaken only once: a one-time winner in 1995. b. items consisted of income from contract settlements totalling $1.2 million received during the current quarter and a $6.3 million reversal reversal n. the decision of a court of appeal ruling that the judgment of a lower court was incorrect and is reversed. The result is that the lower court which tried the case is instructed to dismiss the original action, retry the case, or is ordered to change its of restructuring charges restructuring charge The expense of reorganizing a company's operations. A restructuring charge is an infrequent expense that generally results from asset writedowns or facility closings. recorded in the corresponding quarter of 2004. Reported total net loss for the quarter was $(5.7) million ($(0.06) per share) compared to $(0.1) million ($(0.00) per share) in 2004. Per-share data is on a fully diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. basis. "During the quarter, we made real progress in our Health operations, growing the business both organically and through the acquisition of the Canadian Canadian (kənā`dēən), river, 906 mi (1,458 km) long, rising in NE New Mexico. and flowing E across N Texas and central Oklahoma into the Arkansas River in E Oklahoma. operations of NDCHealth. We are continuing to position the Company to participate in opportunities to develop drug information systems, and our program to integrate the acquisitions we've we've Contraction of we have. we've have made in the pharmacy pharmacy, art of compounding and dispensing drugs and medication. The term is also applied to an establishment used for such purposes. Until modern times medication was prepared and dispensed by the physician himself. In the 18th cent. systems area is on track," said Francois Cote, President and Chief Executive Officer of Emergis. Mr. Cote added, "In Finance, as a result of the restructuring restructuring - The transformation from one representation form to another at the same relative abstraction level, while preserving the subject system's external behaviour (functionality and semantics). activities which took place last year, we reported a significant year-over-year improvement in EBITDA despite the anticipated decline in revenue." The presentation of the Company's financial results, including both the current and historical periods, reflects the sale of the following operations: U.S. Health in March 2004, eSecurity practice in June 2004 and webdoxs electronic bill presentment See EBPP. operations in July July: see month. 2004.As a result, these operations have been reported as discontinued operations Discontinued operations Divisions of a business that have been sold or written off and that no longer are maintained by the business. and their total contribution to Emergis' consolidated con·sol·i·date v. con·sol·i·dat·ed, con·sol·i·dat·ing, con·sol·i·dates v.tr. 1. To unite into one system or whole; combine: results has been included as a single line item above net income, and both revenue and EBITDA exclude their contribution. The contribution of discontinued operations to first quarter 2005 results was nil. Revenue summary for the quarter Three-month periods ended March 31, 2005, December December: see month. 31, 2004 and March 31, 2004, in millions of Canadian dollars Noun 1. Canadian dollar - the basic unit of money in Canada; "the Canadian dollar has the image of loon on one side of the coin" loonie dollar - the basic monetary unit in many countries; equal to 100 cents :
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Q1 2005 Q4 2004 Q1 2004
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Health 21.4 20.0 14.4
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Finance 17.9 25.6 26.4
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Total core revenue 39.3 45.6 40.8
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Non-core - - 21.3
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Total revenue 39.3 45.6 62.1
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- Health revenue increased 49% on a year-over-year basis mainly due
to acquisitions in the pharmacy systems area, higher claims
processing revenue and revenue from the Company's medical claims
processing project with the government of British Columbia.
On a sequential quarterly basis, the increase was due to higher
claims processing revenue and to the B.C government project.
- Finance revenue decreased both on a year-over-year and a sequential
quarterly basis mainly due to lower implementation fees relating to
the Company's eLending U.S. platform and the previously disclosed
expiry of certain point-of-sale and messaging contracts. In
addition in the year-over-year comparison, these decreases are
partly offset by transition service revenue associated with the
sale of eSecurity and webdoxs operations.
- Recurring revenue represented 93% of core revenue compared to 85%
in the first quarter of 2004 and 87% in the fourth quarter of 2004.
EBITDA summary for the quarter
Three-month periods ended March 31, 2005, December 31, 2004 and March
31, 2004, in millions of Canadian dollars:
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Q1 2005 Q4 2004 Q1 2004
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Health 4.4 2.7 1.6
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Finance 1.4 3.2 (5.8)
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Non-core - - 4.4
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Restructuring and other - (21.4) 6.3
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Total EBITDA 5.8 (15.5) 6.5
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- Health EBITDA was $4.4 million (21% of Health revenue) compared to
$2.7 million (14%) in the fourth quarter and $1.6 million (11%) in
the first quarter of 2004. The year-over-year and sequential
quarterly increases were due mainly to a higher contribution from
claims processing.
- Excluding $1.2 million received from contract settlements, Finance
contributed $0.2 million to EBITDA in the quarter (1% of Finance
revenue) compared to an EBITDA loss of $(5.8) million in the first
quarter last year and to $3.2 million in the fourth quarter of 2004
(13%). The year-over-year improvement reflects the Company's
continued focus on improving the profitability of Finance, partly
offset by lower contributions from point-of-sale and eLending U.S.
activities. Compared to the fourth quarter, Finance EBITDA
decreased due to a lower contribution from point-of-sale
activities.
- In the current quarter, the Company generated income of $1.2
million from contract settlements related to its eInvoicing
solution.
- Emergis undertook a new streamlining initiative in the fourth
quarter of 2004 in response to an anticipated decline in revenue in
certain areas of Finance in 2005. The initiative, which was
reflected in a restructuring charge taken in the fourth quarter of
2004, is expected to reduce annual operating costs by about $18
million and was designed to allow the Company to meet its 2005
EBITDA target. The charge reflected mainly a reduction in
headcount and a rationalization of facilities.
- During the first quarter of 2004, $6.3 million of a provision taken
in 2003 for restructuring and other charges was reversed due to the
postponement of certain restructuring activities beyond the end of
the first quarter. Charges equal to the reversal were taken in
subsequent quarters in 2004. As a result, the total impact of the
reversal and the subsequent charges in 2004 was nil.
- Since the first quarter of 2004, the Company has reduced annual
operating costs, including direct costs, by more than $40 million.
This calculation excludes the impact of non-core expenses which are
no longer part of its cost base.
- At March 31, 2005, some $9.7 million of restructuring charges
remained in accounts payable and accrued liabilities.
Financial position at March 31, 2005 Cash on hand at quarter end was $155.9 million, down from $204.8 million at December 31, 2004, reflecting mainly a decrease in accounts payable and the funding of the purchase of the Canadian claims processing business of NDCHealth.Long-term debt Long-Term Debt Loans and financial obligations lasting over one year. Notes: For example debts obligations such as bonds and notes which have maturities greater than one year would be considered long-term debt. at March 31, 2005 was $8.2 million.Subsequent to the quarter end, the Company received US$9.0 million (C$11.2 million) related to options held by its former U.S. Health subsidiary. MultiPlan One of the first spreadsheets. Developed by Microsoft, it was first used on CP/M machines, which predated the IBM PC. complaint On April 27, 2005, MultiPlan, Inc., the purchaser of Emergis' former U.S. Health subsidiary, filed in federal court in New York New York, state, United States New York, Middle Atlantic state of the United States. It is bordered by Vermont, Massachusetts, Connecticut, and the Atlantic Ocean (E), New Jersey and Pennsylvania (S), Lakes Erie and Ontario and the Canadian province of a complaint seeking, among other relief, compensation in excess of US$64 million for damages allegedly incurred in connection with its purchase of the U.S. Health business. The complaint alleges a variety of claims arising from the share purchase agreement. Emergis is of the view that the allegations are without merit and intends to take all appropriate actions to vigorously vig·or·ous adj. 1. Strong, energetic, and active in mind or body; robust. See Synonyms at healthy. 2. Marked by or done with force and energy. See Synonyms at active. defend its position. Corporate highlights Normal course issuer bid - In February February: see month. , the Company announced its intention to carry out a normal course issuer bid through the facilities of the TSX.Since the announcement, 429,500 shares have been repurchased at an average price of $3.54 per share for a total aggregate cost of $1.5 million, of which $1.0 million was paid in the first quarter.No purchases were made prior to the announcement of the acquisition of the Canadian operations of NDCHealth. Cancellation cancellation (See: cancel) CANCELLATION. Its general acceptation, is the act of crossing a writing; it is used sometimes to signify the manual operation of tearing or destroying the instrument itself. Hyde v. Hyde, 1 Eq. Cas. Abr. 409; Rob. of the repurchased shares was effected after the quarter end. Acquisition of NDCHealth's Canadian claims processing and pharmacy systems businesses - In March, the Company acquired the Canadian claims processing business of NDCHealth Corporation and reached agreement with NDCHealth to acquire its Canadian pharmacy systems business. The claims processing business offers drug and dental insurance Dental insurance is insurance designed to pay the costs associated with dental care. Dental insurance pays a portion of the bills from dentists, hospitals, and other providers of dental services. claims transport and switching to insurance carriers and adjudicators, and the pharmacy systems business offers technology solutions to pharmacies This article is a list of major pharmacies (also known as chemists and drugstores) by country. Australia Pharmacies in Australia are mostly independently-owned by pharmacists, often operated as franchises of retail brands offered by the three major .Consideration excluding acquisition costs for the two businesses is C$17.3 million in cash, of which $12.0 million was paid during the quarter.The pharmacy systems transaction closed after the quarter end. These acquisitions were in line with the Company's strategy to strengthen its position in the Canadian health technology sector and complement its existing operations.The claims processing business was a significant addition to its drug and dental dental /den·tal/ (den´t'l) pertaining to a tooth or teeth. den·tal adj. 1. Of, relating to, or for the teeth. 2. Of, relating to, or intended for dentistry. specialized spe·cial·ize v. spe·cial·ized, spe·cial·iz·ing, spe·cial·iz·es v.intr. 1. To pursue a special activity, occupation, or field of study. 2. network operations, bringing in important new clients. The pharmacy systems business brings in major pharmacy chains as clients, and expands Emergis' presence in pharmacy solutions across Canada Across Canada was an afternoon program that formerly aired on The Weather Network. The segment ran from early 1999 until mid 2002. The show ran from 3:00PM ET until 7:00 PM ET. . Price adjustment to U.S. Health divestiture The breakup of AT&T. By federal court order, AT&T divested itself on January 1, 1984 of its 23 operating companies, which became known as the Regional Bell Operating Companies (RBOCs). - Emergis will receive payments totaling up to US$15.3 million as an adjustment to the price received for its former U.S. health subsidiary that was sold in 2004, including a cash payment of US$9.0 million that was received subsequent to the quarter end. Emergis will receive a second payment of up to US$6.3 million in one year's time.The second payment represents the lesser of US$6.3 million and the then market value of a certain number of the securities underlying the options. The current market value of these securities is approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. US$12.2 million. In addition to its activities relating to relating to relate prep → concernant relating to relate prep → bezüglich +gen, mit Bezug auf +acc the re-pricing of medical claims for the benefit of health care payors, the former subsidiary held options to purchase shares in a publicly traded company publicly traded company A company whose shares of common stock are held by the public and are available for purchase by investors. The shares of publicly traded firms are bought and sold on the organized exchanges or in the over-the-counter market. . While these options remained in the subsidiary when Emergis sold it, the sale agreement included a price adjustment that allowed Emergis to retain the economic benefit associated with the exercise of the options or the purchase of the options by a third party. Operating highlights Health WSIB WSIB Workplace Safety and Insurance Board WSIB Washington State Investment Board claims interface with hospitals - MediSolution has adapted its MediAR+ interface to provide direct electronic access to Emergis' platform for the processing and payment of workers' compensation workers' compensation, payment by employers for some part of the cost of injuries, or in some cases of occupational diseases, received by employees in the course of their work. claims for the Workplace Safety and Insurance Board of Ontario Ontario, city, United States Ontario, city (1990 pop. 133,179), San Bernardino co., S Calif., near Los Angeles, in a region of vineyards; inc. 1891. . St. John's Rehab Hospital is the first hospital to benefit from this adaptation adaptation, in biology, has several meanings. It can mean the adjustment of living matter to environmental conditions and to other living things either in an organism's lifetime (physiological adaptation) or in a population over many many generations (evolutionary which allows them to reduce costs and speed up cash flows. MediSolution expects that by the end of 2005 all of its hospital clients will be submitting claims to the WSIB electronically. Finance New electronic remittance Money sent from one individual to another in the form of cash, check, or some other manner. Financial statements sent by a creditor to a debtor frequently refer to the process of submitting a monthly remittance. REMITTANCE, comm. law. processing system - Emergis is now processing transactions on behalf of a major Canadian bank client following the migration from Emergis' "Pay 2" payment platform to its new electronic remittance processing services (ERPS ERPS Enterprise Resource Planning System ERPS Enhanced Reference Picture Selection ERPS Equipment Release Priority System ERPS EOS Real-Time Processing System ) platform.The ERPS platform allows improved performance, more flexibility, scalability How much a system can be expanded. See scalable. scalability - How well a solution to some problem will work when the size of the problem increases. For example, a central server of some kind with ten clients may perform adequately but with a thousand clients it and added functionality such as a web interface for customer service, reporting features and transaction-based billing. Emergis expects to migrate other bank clients to the new platform in the course of 2005 and the beginning of 2006. Extended agreement with MONEX MONEX Monsoon Experiment MONEX Money Exchange - In February, Emergis extended its transaction processing Updating the appropriate database records as soon as a transaction (order, payment, etc.) is entered into the computer. It may also imply that confirmations are sent at the same time. Transaction processing systems are the backbone of an organization because they update constantly. reseller An organization that sells hardware and software to the general public. Resellers purchase products from software publishers and hardware manufacturers. agreement with Money Express Financial Inc. (MONEX) of Ontario.Under the new five-year agreement, Emergis will continue to provide debit A monetary amount that is subtracted from an account balance. A debit from one account is a credit to another. See credit. and credit online authorization The right or permission to use a system resource; the process of granting access. See access control. and settlement, as well as a service desk to support merchants who use the MONEX point-of-sale point of sale n. pl. points of sale A business or place where a product or service can be purchased. Also called point of purchase. point (POS (1) See point of sale and packet over SONET. (2) "Parent over shoulder." See digispeak. POS - point of sale ) solutions. Independent service organizations represent a new and growing channel for POS services and the Company is strengthening its position as an important non-bank player in that market in Canada Canada (kăn`ədə), independent nation (2001 pop. 30,007,094), 3,851,787 sq mi (9,976,128 sq km), N North America. Canada occupies all of North America N of the United States (and E of Alaska) except for Greenland and the French islands of through the increasing volume of transactions processed for MONEX and its clients. Conference call, webcast and supplemental financial information The Company will hold a conference call and live webcast today at 8:30 a.m. ET to discuss its financial results for the first quarter of 2005.To participate, interested parties can dial toll-free 1 800 387-6216, and in Toronto Toronto (tərŏn`tō), city (1998 est pop. 2,400,000), provincial capital, S Ont., Canada, on Lake Ontario. Toronto is the largest city in Canada and since the 1970s has been one of the fastest-changing cities in North America, experiencing 416 405-9328.The first quarter 2005 news release, management's discussion and analysis Management's discussion and analysis (MD&A) A report from management to shareholders that accompanies the firm's financial statements in the annual report. It explains the period's financial results and enables management to discuss topics that may not be apparent in the financial , and supplemental information package are posted on www.emergis.com. An instant replay of the conference call will be available for two weeks starting at 10:30 a.m. today. To listen, interested participants should dial toll-free 1 800 408-3053, and from Toronto 416 695-5800.The access code is 3121035#.An archive (1) A file that contains one or more compressed files. Most archive formats are also capable of storing folders in order to reconstruct the file/folder relationship when decompressed. See archive formats. version of the webcast will also be available starting at 10:30 a.m. today at www.emergis.com. About Emergis Emergis powers business interactions, developing and managing solutions that automate To turn a set of manual steps into an operation that goes by itself. See automation. transactions and the secure exchange of information.With expertise in electronic health-related claims processing and management systems, payment enablement, and loan processing, Emergis delivers solutions in Canada to the top six banks, leading health insurance companies, government agencies and some 2,400 pharmacies, and to large enterprises in the U.S. The Company's shares (TSX: EME) are included in the S&P/TSX Composite Index Composite Index A grouping of equities, indexes or other factors combined in a standardized way, providing a useful statistical measure of overall market or sector performance over time. Also known simply as a "composite". . Certain statements made in this news release are forward-looking for·ward-look·ing adj. Concerned with or making provision for the future: forward-looking educators; a forward-looking corporate plan. Adj. 1. and are subject to important risks, uncertainties and assumptions. The results or events predicted in these forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. may differ materially from actual results or events. These statements do not reflect the potential impact of any non-recurring items or of any dispositions, monetizations, mergers, acquisitions, other business combinations or other transactions that may be announced or that may occur after the date hereof here·of adv. Of this. hereof Adverb Formal or law of or concerning this Adv. 1. hereof - of or concerning this; "the twigs hereof are physic" . Other factors that could cause results or events to differ materially from current expectations include, among other things: general economic factors, adoption of eBusiness See e-business. , adoption rate of our solutions by clients, signing government contracts, response to industry's rapid rate of change, competition, pricing, operating results, the change of control following the sale by BCE BCE abbr. 1. Bachelor of Chemical Engineering 2. Bachelor of Civil Engineering BCE Abbreviation for before the Common Era. Inc. of its holdings in Emergis, acquisitions, failure or material change in our strategic relationships including our relationship with Bell Canada Bell Canada Enterprises (TSX: BCE, NYSE: BCE), legally BCE Inc., is a major Canadian telecommunications company. Through its subsidiaries including Bell Canada, Bell Aliant, Northwestel, Télébec, and NorthernTel, it is the incumbent local exchange carrier for , exposure under contract indemnities, defects in software or failures in the processing of transactions, security and privacy breaches, loss of key personnel, our ability to protect intellectual property, infringement The encroachment, breach, or violation of a right, law, regulation, or contract. The term is most frequently used in reference to the invasion of rights secured by Copyright, patent, or trademark. claims on our intellectual property, and industry and government regulation. For additional information with respect to certain of these and other factors, refer to Emergis Inc.'s annual report (management discussion and analysis) and the Emergis Inc. annual information form (risks and uncertainties) filed with the Canadian securities commissions. THE FORWARD-LOOKING STATEMENTS CONTAINED IN THIS PRESS RELEASE REPRESENT THE EXPECTATIONS OF EMERGIS AND ITS SUBSIDIARIES AS AT APRIL 29, 2005 AND, ACCORDINGLY, ARE SUBJECT TO CHANGE AFTER SUCH DATE. HOWEVER, EMERGIS AND ITS SUBSIDIARIES DISCLAIM dis·claim v. dis·claimed, dis·claim·ing, dis·claims v.tr. 1. To deny or renounce any claim to or connection with; disown. 2. To deny the validity of; repudiate. 3. ANY INTENTION OR OBLIGATION TO UPDATE OR REVISE ANY FORWARD-LOOKING STATEMENTS, WHETHER AS A RESULT OF NEW INFORMATION, FUTURE EVENTS OR OTHERWISE
(1) Non-core operations included the distribution agreement with Bell
Canada for legacy products and other non-core and exited
products.
(2) EBITDA used in this news release does not have a meaning under
Canadian Generally Accepted Accounting Principles and therefore
may not be comparable to similar measures presented by other
publicly traded companies. It is defined as earnings before
depreciation, amortization of intangibles, interest, gains or
losses on sales of assets, gains or losses on foreign exchange,
other income or expenses and income taxes. No reconciliation is
provided in the interim consolidated statement of earnings.
EBITDA is presented on a basis that is consistent from period to
period and agrees, on a consolidated basis, with the amount
disclosed as "Earnings (loss) before under-noted items" on the
consolidated statement of earnings.
Consolidated Statements of Earnings
For the three For the three
month period month period
In millions of Canadian dollars, ended ended
except per share data March 31, 2005 March 31, 2004
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(unaudited) (unaudited)
Revenue 39.3 62.1
Direct costs 7.5 15.6
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Gross margin 31.8 46.5
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Income from contract settlements (note 6) 1.2 -
Expenses
Operations 10.8 20.1
Sales and marketing 4.7 6.7
Research and development, net (note 11) 6.6 11.6
General and administrative 5.1 7.9
Restructuring and other charges (note 7) - (6.3)
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27.2 40.0
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Earnings before under-noted items 5.8 6.5
Depreciation 3.5 2.4
Amortization of intangibles 3.1 4.1
Interest income (0.9) (5.2)
Interest on long-term debt 0.4 0.6
Gain on sale of assets (0.1) (0.5)
Loss on foreign exchange 5.2 3.5
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(Loss) income from continuing operations
before income taxes (5.4) 1.6
Income taxes
Current 0.3 0.5
Future (note 10) - 7.8
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0.3 8.3
Loss from continuing operations (5.7) (6.7)
Net income from discontinued operations -
net of income taxes (note 4) - 6.6
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Net loss (5.7) (0.1)
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Basic and diluted loss per share from
continuing operations (0.06) (0.06)
Basic and diluted income per share from
discontinued operations 0,00 0.06
Basic and diluted loss per share (0.06) (0.00)
Weighted-average number of shares outstanding
used in computing basic and diluted
income (loss) per share (in millions) 103.5 103.2
The accompanying notes are an integral part of the interim
consolidated financial statements.
Consolidated Statements of Deficit
For the three For the three
month period month period
ended ended
In millions of Canadian dollars March 31, 2005 March 31, 2004
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(unaudited) (unaudited)
Deficit - beginning of period (1,238.6) (1,176.9)
Net loss (5.7) (0.1)
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Deficit - end of period (1,244.3) (1,177.0)
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The accompanying notes are an integral part of the interim
consolidated financial statements.
Consolidated Balance Sheets
As at As at
March 31, December 31,
In millions of Canadian dollars 2005 2004
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(unaudited) (audited)
Assets
Current
Cash and cash equivalents 155.9 204.8
Accounts receivable 24.0 19.4
Future income taxes 0.2 0.2
Other current assets (notes 11 and 12) 18.5 16.8
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198.6 241.2
Fixed assets 23.8 25.6
Intangible assets 33.0 31.3
Goodwill 56.5 46.6
Other long-term assets 7.4 7.3
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319.3 352.0
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Liabilities
Current
Accounts payable and accrued liabilities 66.9 94.2
Deferred revenue 5.0 6.3
Deferred credits 4.3 5.3
Current portion of long-term debt 7.5 8.3
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83.7 114.1
Deferred credits and other 6.1 5.9
Future income taxes 2.0 2.1
Long-term debt 8.2 8.9
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100.0 131.0
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Shareholders' equity
Capital stock (note 8) 0.1 -
Contributed surplus (note 8) 1,464.6 1,465.1
Deferred stock-based compensation (note 2) (1.2) (0.9)
Deficit (1,244.3) (1,238.6)
Foreign currency translation adjustment 0.1 (4.6)
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219.3 221.0
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319.3 352.0
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The accompanying notes are an integral part of the interim
consolidated financial statements.
Consolidated Statements of Cash Flows
For the three For the three
month period month period
ended ended
In millions of Canadian dollars March 31, 2005 March 31, 2004
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(unaudited) (unaudited)
Operating activities
Net loss from continuing operations (5.7) (6.7)
Depreciation and amortization 6.6 6.5
Gain on sale of assets (0.1) (0.5)
Future income taxes - 7.8
Non-cash foreign exchange loss 4.1 5.0
Non-cash stock-based compensation (note 2) 0.6 0.2
Deferred stock-based compensation (0.3) -
Other 0.3 (3.0)
Changes in working capital (35.7) (23.6)
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Cash flows used for operating activities (30.2) (14.3)
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Investing activities
Additions to fixed and intangible assets (2.8) (6.5)
Acquisitions (note 5) (12.5) (22.0)
Cash acquired on acquisition of businesses 0.1 0.1
Proceeds (costs) related to sale of businesses (0.5) 285.4
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Cash flows (used for) from investing activities (15.7) 257.0
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Financing activities
Repayment of long-term debt (2.3) (4.4)
(Repurchase) issuance of common shares (1.0) 0.3
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Cash flows used for financing activities (3.3) (4.1)
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Foreign exchange gain (loss) on cash held
in foreign currencies 0.3 (3.5)
Cash flows (used for) from continuing
operations (48.9) 235.1
Cash flows from discontinued operations
(note 4) - 2.9
Cash and cash equivalents
(Decrease) increase (48.9) 238.0
Balance, beginning of period 204.8 137.4
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Balance, end of period (1) 155.9 375.4
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Supplemental disclosure of cash flow
information
Interest paid 0.4 0.4
Income taxes paid 0.2 0.1
(1) Includes the following:
Cash and cash equivalents related to:
Continuing operations 155.9 375.2
Discontinued operations (note 4) - 0.2
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155.9 375.4
Non-cash investing and financing activities
Additions to fixed and intangible assets
financed 0.2 3.9
The accompanying notes are an integral part of the interim
consolidated financial statements.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
As at March 31, 2005
In millions of Canadian dollars except per share data (unaudited)
These interim consolidated financial statements Consolidated Financial Statements The combined financial statements of a parent company and its subsidiaries. Notes: Because consolidated financial statements present an aggregated look at the financial position of a parent and its subsidiaries, they enable you to gauge have been prepared in accordance Accordance is Bible Study Software for Macintosh developed by OakTree Software, Inc.[] As well as a standalone program, it is the base software packaged by Zondervan in their Bible Study suites for Macintosh. with Canadian generally accepted accounting principles The standard accounting rules, regulations, and procedures used by companies in maintaining their financial records. Generally accepted accounting principles (GAAP) provide companies and accountants with a consistent set of guidelines that cover both broad accounting , using the same accounting policies as were used for the consolidated financial statements for the year ended December 31, 2004, except as discussed below. These interim consolidated financial statements should be read in conjunction conjunction, in astronomy conjunction, in astronomy, alignment of two celestial bodies as seen from the earth. Conjunction of the moon and the planets is often determined by reference to the sun. with the consolidated financial statements for the year ended December 31, 2004 and the notes thereto there·to adv. 1. To that, this, or it. 2. Archaic In addition to that; furthermore. thereto Adverb Formal 1. to that or it 2. in the 2004 Annual Report. 1. Summary of significant accounting policies Basis of presentation The consolidated financial statements of Emergis Inc. ("Emergis") have been prepared in accordance with Canadian generally accepted accounting principles and include the accounts of all its subsidiaries. Certain prior period figures have been reclassified to conform with the current period's presentation. New accounting standards Consolidation of Variable Interest Entities: In June 2003, the CICA CICA Competition In Contracting Act of 1984 (USA) CICA Canadian Institute of Chartered Accountants CICA Competition In Contracting Act CICA Criminal Injuries Compensation Authority (UK) issued Accounting Guideline guideline Medtalk A series of recommendations by a body of experts in a particular discipline. See Cancer screening guidelines, Cardiac profile guidelines, Gatekeeper guidelines, Harvard guidelines, Transfusion guidelines. 15 (AcG-15), 'Consolidation of Variable Interest Entities'. The guideline addresses consolidation of variable interest entities (VIE) to which the usual condition for consolidation does not apply because the VIE have no voting interests Voting interest in business and accounting is a percentage of voting stock owned. This notion is different from economic interest that refers to a percentage of all the equity issued, including preferred stock, warrants, and so on. or are otherwise not subject to control through ownership of voting interests. It requires existing unconsolidated VIE to be consolidated by the primary beneficiary beneficiary Person or entity (e.g., a charity or estate) that receives a benefit from something (e.g., a trust, life-insurance policy, or contract). A primary beneficiary receives proceeds from a trust or insurance policy before any other. . The guideline is required for annual and interim periods beginning on or after November November: see month. 1, 2004. The adoption of AcG-15 had no material impact on the Company's consolidated financial statements. 2. Stock-based compensation plans Emergis stock options The Company has granted options to its employees to purchase Emergis common shares. Under the Emergis Share Option Plan, the exercise price of the options is set at the market value of the underlying shares on the last trading day Last Trading Day The final day that a futures or options contract may trade or be closed out before delivery of the underlying asset must occur. Notes: If the buying and selling parties do not arrange an alternate agreement, the physical commodity must be delivered from prior to the effective date of the grant. The options granted before December 14, 1999 vest over a five-year period and expire expire /ex·pire/ (ek-spi´er) 1. to exhale. 2. to die. ex·pire v. 1. To breathe one's last breath; die. 2. To exhale. six years after the grant date. Options granted after December 14, 1999 vest over a four-year period starting in the second year after the grant and expire six years after the grant date. Under a new employee compensation policy effective in 2005, annual stock option grants have been replaced by awards of restricted stock or share rights. All outstanding stock options held by employees continue to vest according to according to prep. 1. As stated or indicated by; on the authority of: according to historians. 2. In keeping with: according to instructions. 3. their respective schedules. As at March 31, 2005, a total of 2,311,563 employee stock options were outstanding. The Company employs the prospective application of the fair value-based method for measuring the compensation cost of employee stock options granted in 2003 and beyond. On July 2, 2004, following a $1.45 special cash distribution on June 30, 2004, the Company reduced the exercise price for all outstanding options by $1.47 using a formula requested by the Toronto Stock Exchange Toronto Stock Exchange (TSE) Canada's largest stock exchange, trading approximately 1,200 company stocks and 33 options. .
Stock option plans Options
-------------------------------------------------------------
-------------------------------------------------------------
Stock option plans for common shares at prices 2,311,563
ranging from $0.44 to $93.43 per share and
expiry dates of up to 2010
-------------------------------------------------------------
The table below shows the compensation expense for outstanding
options and the assumptions used in the Black-Scholes option-pricing
model for awards granted during the period.
For the three-month period
ended March 31
2005 2004
---------------------------------------------------------------------
---------------------------------------------------------------------
Compensation expense ($ millions) $0.5 $0.2
Weighted-average grant date fair value ($)(1) N/A $3.19
Weighted-average assumptions:
Dividend yield N/A 0.0%
Expected volatility N/A 60.0%
Risk-free interest rate N/A 3.34%
Expected life (years) N/A 4
---------------------------------------------------------------------
(1) Unadjusted for the reduction of $1.47 in the exercise price as
of July 2, 2004 for all options granted prior to July 2, 2004.
The weighted-average fair value of the reduction of $1.47
amounted to $0.27 for the 965,044 options granted since January
1, 2003 and still outstanding as of July 2, 2004.
The following pro-forma disclosure outlines the impact on the
compensation cost for the Company's stock-based employee compensation
plans had the Company used the fair value based method of accounting
for awards granted in 2002.
For the three-month period
ended March 31
2005 2004
---------------------------------------------------------------------
---------------------------------------------------------------------
Net loss, as reported (5.7) (0.1)
Adjustment to net loss (0.6) (1.4)
---------------------------------------------------------------------
Pro forma net loss (6.3) (1.5)
Pro forma basic and diluted loss per share ($) (0.06) (0.01)
---------------------------------------------------------------------
3. Net income per share
The following securities were excluded from the calculation of
diluted net loss per share and loss from continuing operations per
share as their effect would have been anti-dilutive.
For the three-month period
ended March 31
(number of shares) 2005 2004
---------------------------------------------------------------------
---------------------------------------------------------------------
Options 2,311,563 5,694,688
Warrants - 650,000
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4. Discontinued operations
On December 31, 2003, the Board of Directors approved the Company's
plan to sell its U.S. Health operations. The U.S. Health operations
included the preferred provider organization (PPO) segment and the
care management segment which were part of the Health segment. The
Company completed the sale of the PPO and the care management
segments of its U.S. Health operations in March 2004. Additionally,
in June 2004, the Company completed the sale of its eSecurity
operations and in July 2004, the sale of its webdoxs operations. The
eSecurity and webdoxs operations were originally part of the Finance
segment. Accordingly, the results of operations and cash flows of the
U.S. Health, eSecurity, and webdoxs operations have been segregated
in the accompanying interim consolidated financial statements, and
are reported as discontinued operations as a single line item in the
interim consolidated financial statements.
The results of discontinued operations presented in the accompanying
interim consolidated statements of earnings, were as follows:
For the three-month period ended
March 31, 2005
U.S. Health eSecurity webdoxs Total
---------------------------------------------------------------------
---------------------------------------------------------------------
Revenue - - - -
Direct costs - - - -
---------------------------------------------------------------------
Gross margin - - - -
---------------------------------------------------------------------
Expenses
Operations - - - -
Sales and marketing - - - -
Research and development, net - - - -
General and administrative - - - -
---------------------------------------------------------------------
- - - -
---------------------------------------------------------------------
Earnings (loss) before under
noted items - - - -
Depreciation - - - -
Amortization of intangible
assets - - - -
Interest on long-term debt - - - -
Gain on sale of assets held for
sale - - - -
---------------------------------------------------------------------
Income (loss) before income
taxes - - - -
Income taxes (recovery)
Current - - - -
Future - - - -
---------------------------------------------------------------------
- - - -
Income (loss) from discontinued
operations - - - -
---------------------------------------------------------------------
For the three-month period ended
March 31, 2004
U.S. Health eSecurity webdoxs Total
---------------------------------------------------------------------
---------------------------------------------------------------------
Revenue 25.4 7.5 0.7 33.6
Direct costs 3.0 0.9 0.4 4.3
---------------------------------------------------------------------
Gross margin 22.4 6.6 0.3 29.3
---------------------------------------------------------------------
Expenses
Operations 10.8 2.3 0.4 13.5
Sales and marketing 1.5 0.8 0.3 2.6
Research and development, net 1.3 1.1 (0.3) 2.1
General and administrative 3.6 - - 3.6
---------------------------------------------------------------------
17.2 4.2 0.4 21.8
---------------------------------------------------------------------
Earnings (loss) before under
noted items 5.2 2.4 (0.1) 7.5
Depreciation 0.4 0.9 0.1 1.4
Amortization of intangible
assets 0.3 0.3 0.5 1.1
Interest on long-term debt 0.1 - - 0.1
Gain on sale of assets held for
sale (1.7) - - (1.7)
---------------------------------------------------------------------
Income (loss) before income
taxes 6.1 1.2 (0.7) 6.6
Income taxes (recovery)
Current 0.1 - - 0.1
Future (0.5) 0.4 - (0.1)
---------------------------------------------------------------------
(0.4) 0.4 - -
Income (loss) from discontinued
operations 6.5 0.8 (0.7) 6.6
---------------------------------------------------------------------
The cash flows from discontinued operations presented in the
accompanying interim consolidated statements of cash flows, were as
follows:
For the three-month period
ended March 31
2005 2004
---------------------------------------------------------------------
---------------------------------------------------------------------
Operating activities - 5.4
Investing activities - (1.8)
Financing activities - (0.8)
Foreign exchange gain on cash held in foreign
currencies - 0.1
---------------------------------------------------------------------
Cash flows from discontinued operations - 2.9
---------------------------------------------------------------------
5. Acquisitions
NDC of Canada, Inc.
On March 17, 2005, the Company acquired all the issued and
outstanding shares of NDC of Canada, Inc., representing the Canadian
claims processing business of NDCHealth Corporation for an initial
cash consideration of $12.0 million and a further $3.0 million
payable in June 2005, subject to certain conditions. The Company also
incurred transaction costs in the amount of $0.8 million in
connection with the acquisition, relating mostly to professional
fees. NDC of Canada, Inc. provides specialized network and claims
processing services that support the electronic exchange of drug and
dental insurance claims between health providers and insurance or
adjudication companies. The transaction was accounted for using the
purchase method.
The results of operations of NDC of Canada, Inc. have been included
in the Company's results since March 17, 2005, the date of the
acquisition. The total purchase price of the acquisition was $15.8
million and was preliminarily allocated as follows:
Purchase price allocation
---------------------------------------------------------------------
---------------------------------------------------------------------
Current assets 3.3
Fixed assets 0.5
Current liabilities (0.8)
Deferred revenues (0.4)
Long-term liabilities (0.3)
Allocation of excess of purchase price:
Customer relationships 3.7
Goodwill 9.8
---------------------------------------------------------------------
Cost of acquisition 15.8
---------------------------------------------------------------------
The Company expects to finalize the purchase price allocation during
2005. The allocation of purchase price to customer relationships is
being amortized over a five-year period.
6. Income from contract settlements
On December 27, 2004, the Company received US$3.4 million (C$4.2
million) in settlement of the early termination of a service and
software license agreement signed in 2001 with an eInvoicing customer
and to provide for transition services in 2005. For the three-month
period ended March 31, 2005, the Company recorded $0.9 million in
revenue for transition services and $1.2 million as a contract
settlement. The balance of $2.1 million is included in deferred
revenue and deferred credits and will be realized in the second
quarter of 2005.
7. Restructuring and other charges
In November 2004, the Company undertook a restructuring initiative
involving principally a reduction of headcount and rationalization of
facilities which was designed to continue the streamlining of the
Company's organizational structure and thereby enable the Company to
attain its profitability targets for 2005. A restructuring charge of
$18.7 million was recorded in the fourth quarter of 2004.
In December 2003, the Board of Directors approved the Company's plan
to sell its U.S. Health operations. As a result of this approval, the
Company developed a restructuring program to streamline its
organizational structure and rationalize its overhead in order to
align its cost structure with core revenue going forward. This
resulted in a pre-tax restructuring charge of $38.2 million for the
year ended December 31, 2003.
The table below provides a reconciliation of the balance of the 2004
restructuring provision payable and the combined 2002 and 2003
restructuring provisions payable as at March 31, 2005.
2004 2003 and 2002 Total
---------------------------------------------------------------------
---------------------------------------------------------------------
Balance, as at January 1, 2005 14.2 7.4 21.6
Payments made during the period (7.5) (1.5) (9.0)
---------------------------------------------------------------------
Balance, as at March 31, 2005 6.7 5.9 12.6
---------------------------------------------------------------------
The balance of the restructuring provision as at March 31, 2005 is
$12.6 million, of which $9.7 million is included in accounts payable
and accrued liabilities and $2.9 million is included in long-term
deferred credits and other.
8. Equity components
The stated capital stock as at March 31, 2005 is detailed as follows:
Issued and
Capital stock Number of shares fully paid
---------------------------------------------------------------------
---------------------------------------------------------------------
Balance at January 1, 2005 103,528,224 -
Issue of common shares (a) 4,125 0.1
---------------------------------------------------------------------
Balance at March 31, 2005 103,532,349 0.1
---------------------------------------------------------------------
Contributed surplus
---------------------------------------------------------------------
---------------------------------------------------------------------
Balance at January 1, 2005 1,465.1
Purchase of common shares (b) (1.0)
Amount related to stock-based compensation (c) 0.5
---------------------------------------------------------------------
Balance at March 31, 2005 1,464.6
---------------------------------------------------------------------
(a) 4,125 treasury common shares were issued in connection with the
Employee Share Purchase Plan.
(b) In March 2005, under the terms of a normal course issuer bid, the
Company repurchased 429,500 shares, of which 274,500 were settled
and paid in the current period for consideration of $1.0 million
including related expenses. These shares were cancelled in April
2005. This amount was attributed to contributed surplus.
(c) During the quarter the Company expensed $0.5 million relating to
stock options. This amount was attributed to contributed surplus.
Warrants
The Company has issued warrants in connection with business
arrangements for the use and distribution of certain technology
solutions with strategic partners. Under the terms of such
arrangements, the partners were able to acquire warrants to purchase
shares of the Company on a one-for-one basis. No warrants were
exercised and no amount was recorded in the financial statements as a
result of these arrangements.
The table below summarizes warrant activity.
As at March 31, 2005
---------------------------------------------------------------------
---------------------------------------------------------------------
Number of Number of Weighted-
warrants warrants average
outstanding exercisable exercise price
of warrants
exercisable
($ per share)
---------------------------------------------------------------------
Outstanding, beginning
of period 350,000 3,612 5.78
Warrants terminated (350,000) (3,612) 5.78
---------------------------------------------------------------------
Outstanding,
end of period - - -
---------------------------------------------------------------------
As at March 31, 2004
---------------------------------------------------------------------
---------------------------------------------------------------------
Number of Number of Weighted-
warrants warrants average
outstanding exercisable exercise price
of warrants
exercisable
($ per share)
---------------------------------------------------------------------
Outstanding, beginning
of period 650,000 300,000 47.24
Warrants terminated - - -
---------------------------------------------------------------------
Outstanding,
end of period 650,000 300,000 47.24
---------------------------------------------------------------------
Normal course issuer bid plan
On February 14, 2005, the Company announced its intention to
undertake a normal course issuer bid through the facilities of the
Toronto Stock Exchange.
Purchases made pursuant to the bid will not exceed 7,269,000 common
shares, representing approximately 10% of the public float as at
January 31, 2005. The common shares acquired pursuant to the bid will
be cancelled. All purchases under the bid will be made during the
period from February 16, 2005 to February 15, 2006. During the three-
month period ended March 31, 2005, the Company repurchased 429,500
shares, of which 274,500 were settled and paid in the current period,
for consideration of $1.0 million including related expenses. These
shares were cancelled in April 2005.
9. Operating segment information
In December 2003, the Board of Directors approved the Company's plan
to sell its U.S. Health operations. Additionally, in June and July
2004, the Company completed the sale of its eSecurity and webdoxs
operations, respectively. Accordingly, the Company has classified the
U.S. Health, eSecurity, and webdoxs operations as discontinued
operations. The U.S. Health operations were originally part of the
Health segment, and the eSecurity and webdoxs operations were
originally part of the Finance segment.
Additionally, as of January 1, 2004 the Company modified its
corporate structure to separately disclose non-core operations, which
were originally included in the Finance and Health segments. Non-core
operations included the three-year distribution agreement with Bell
Canada for legacy products extended in September 2001 and
subsequently terminated in June 2004, as well as other non-core and
exited products. The Company has restated comparative results to
reflect this change.
The table below shows the continuing operations and goodwill of each
of the segments:
For the three-month period ended March 31
Health Finance
2005 2004 2005 2004
---------------------------------------------------------------------
---------------------------------------------------------------------
Revenues 21.4 14.4 17.9 26.4
Direct costs 4.6 2.7 2.9 5.0
---------------------------------------------------------------------
Gross margin 16.8 11.7 15.0 21.4
EBITDA (1)
pre-restructuring and
other charges 4.4 1.6 1.4 (5.8)
Restructuring and other
charges - 1.1 - 5.2
---------------------------------------------------------------------
EBITDA (1) 4.4 2.7 1.4 (0.6)
---------------------------------------------------------------------
Goodwill as at March 31 42.4 39.6 14.1 15.1
---------------------------------------------------------------------
For the three-month period ended March 31
Non-core Total
2005 2004 2005 2004
---------------------------------------------------------------------
---------------------------------------------------------------------
Revenues - 21.3 39.3 62.1
Direct costs - 7.9 7.5 15.6
---------------------------------------------------------------------
Gross margin - 13.4 31.8 46.5
EBITDA (1)
pre-restructuring
and other charges - 4.4 5.8 0.2
Restructuring and
other charges - - - 6.3
---------------------------------------------------------------------
EBITDA (1) - 4.4 5.8 6.5
---------------------------------------------------------------------
Goodwill as at March 31 - - 56.5 54.7
---------------------------------------------------------------------
(1) The term EBITDA (earnings before interest, taxes, depreciation
and amortization) does not have any standardized meaning
prescribed by Canadian GAAP and therefore may not be comparable
to similar measures presented by other companies. The Company
defines it as earnings before depreciation, amortization of
intangible assets, interest, gains or losses on sale of assets,
gain or loss on foreign exchange, other income or expenses, and
income taxes. EBITDA is presented on a basis that is consistent
from period to period and agrees, on a consolidated basis, with
the amount disclosed as earnings (loss) before under-noted items
in the consolidated statement of earnings.
There are no inter-segment transactions or significant differences
between segment and corporate accounting policies.
The Company's segments share in the use of its capital asset
infrastructure. As a result, the Company does not disclose a measure
of total assets by segment. In addition, asset allocation is not used
by the Company in its management reporting for decision-making
purposes.
Geographic information
The table below sets out certain geographic information relative to
the Company's revenue from continuing operations:
For the three-month period ended March 31
2005 2004
---------------------------------------------------------------------
---------------------------------------------------------------------
Canada 33.3 85% 50.7 82%
United States 6.0 15% 11.4 18%
---------------------------------------------------------------------
Total 39.3 100% 62.1 100%
---------------------------------------------------------------------
10. Related-party information
On June 16, 2004, BCE Inc. completed the sale of its ownership
interest in the Company. As a result, BCE Inc. and its subsidiaries
are no longer parties related to the Company. No related-party
transactions transpired in the first quarter of 2005.
The following transactions occurred in the normal course of
operations with BCE Inc., the former parent company, and other
companies in the BCE group subject to common control during the first
quarter of 2004 from continuing and discontinued operations. These
transactions were measured at the exchange value, which is the amount
established and agreed to by the related parties:
2004
---------------------------------------------------------------------
---------------------------------------------------------------------
Revenue (a) 16.8
---------------------------------------------------------------------
Direct costs 13.3
Expenses 11.3
Interest income 3.8
---------------------------------------------------------------------
(a) Includes services for resale to third parties and for internal
use.
As part of the exclusive distribution agreement signed in 2001 with
Bell Canada and subsequently terminated in June 2004, the Company
derived revenue from Bell Canada (included in the related-party
amount) and directly from other customers with Bell Canada acting as
a distribution agent (excluded from the related-party amount).
Included in related-party revenue is the amount derived directly from
Bell Canada in the amount of $5.7 million for the three-month period
ended March 31 2004. Under the distribution agreement the amount
derived from other customers with Bell Canada acting as a
distribution agent is $14.4 million for the three-month period
ended March 31, 2004 and is excluded from the related-party amount.
Included in direct costs and expenses is $16.7 million for the three-
month period ended March 31, 2004 related to the extended service
agreement signed with BCE Nexxia in 2001 and subsequently terminated
in June 2004, which includes costs related to the agency revenue.
The balance sheet includes the following balances with BCE Inc. and
other companies in the BCE group subject to common control until June
16, 2004:
As at March 31, 2004
---------------------------------------------------------------------
---------------------------------------------------------------------
Accounts receivable 8.3
Other current assets -
Accounts payable and accrued liabilities 51.1
Deferred revenue 3.0
---------------------------------------------------------------------
Tax loss monetization structure
As part of a tax loss consolidation arrangement, which was terminated
on May 31, 2004, the Company recorded interest income of $13.0
million for the three-month period ended March 31, 2004. The Company
also incurred interest expense of $9.2 million for the three-month
period ended March 31, 2004. For income tax purposes, the $13.0
million in interest income for the three-month period ended March
31,2004 increased the taxable income of the Company and accelerated
the use of the Company's tax attributes resulting in $4.4 million
reductions in future income tax assets in Canada for the three-month
period ended March 31, 2004.
The net interest amounts of $3.8 million for the three-month period
ended March 31, 2004 have been recorded as interest income.
11. Government assistance
In 2004, the Company became eligible to receive a retroactive tax
credit in the amount of $2.2 million from Investissement Quebec
relating to the period from June 23, 2003 to December 31, 2004. For
the three-month period ended March 31, 2005 an additional amount of
$0.3 million was recorded, for a total of $2.5 million receivable as
at March 31, 2005. This credit is with respect to the relocation of
Quebec-based employees performing specified, qualifying activities to
the Carrefour de la nouvelle economie of Longueuil, Quebec. This
amount has been recorded as a reduction of research and development
expenses in the statement of earnings and has been classified under
other current assets on the balance sheet.
12. Derivative financial instruments
The Company periodically uses derivative instruments to manage its
exposure to foreign currency risk. The Company does not use
derivative instruments for speculative purposes. The Company does not
trade actively in derivative instruments, and therefore, is not
exposed to any significant liquidity risks relating to them.
The Company's only derivative instruments at December 31, 2004 were
currency forward contracts relating mainly to a net investment in a
foreign subsidiary. At at March 31, 2005, the Company had no currency
forward contracts outstanding.
The carrying value of all financial instruments approximates fair
value, other than the financial instrument related to options held in
a public company by the Company's former U.S. Health subsidiary which
is carried at a cost of approximately $10.0 million and for which the
fair value was non-determinable as at March 31, 2005. These options
were the subject of a dispute between the Company's former subsidiary
and the grantors of these options (see note 14). The financial
instrument is classified under other current assets on the balance
sheet.
13. Guarantees
In the normal course of business, the Company enters into numerous
agreements that may contain features that meet the Accounting
Guideline AcG-14 "Disclosure of guarantees", definition of a
guarantee. These guarantees or indemnifications are found in
transactions such as business dispositions, the sale of assets, and
the sale of services and licenses.
Business dispositions and sale of assets
In the context of business dispositions or the sale of assets, the
Company may from time to time agree to compensate the purchaser for
costs and losses incurred as a result of various events, including
breaches of representations and warranties, litigation against the
counterparties, valuation differences, resolution of contingent
liabilities of the disposed businesses or assets, or the reassessment
of prior tax filings of the corporations carrying on the business.
The term and amount of such indemnification will generally be limited
by the agreement. The maximum potential exposure under these
guarantees represented a cumulative amount of approximately $156.4
million as at March 31, 2005, except for tax liabilities and certain
other representations for which the agreements do not specify a
maximum amount. However, based on its experience, the Company
believes that any potential payment will not be significant. The
Company's representations and warranties exist for a period ending no
later than December 31, 2005, except for tax and certain other
representations which are in force until the expiry of the applicable
statute of limitations, and for an amount of $0.3 million which exist
for a period ending no later than May 28, 2007. An amount of $0.8
million has been accrued in the consolidated balance sheet as at
March 31, 2005 relating to this type of indemnification or guarantee.
Historically, the Company has not made any significant payments under
these indemnifications or guarantees.
Other indemnification agreements
In addition, the Company provides indemnifications to counterparties
in transactions such as the sale of services and licenses. These
indemnification agreements require the Company to compensate the
counterparties for costs incurred as a result of litigation claims or
statutory sanctions or damages that may be suffered by the
counterparties as a consequence of the agreement. The Company is
unable to make a reasonable estimate of the maximum potential amount
it could be required to pay counterparties. While some of the
agreements specify a maximum potential exposure based on fees paid by
counterparties, some do not specify maximum amounts or limited
periods. The amount also depends on the outcome of future events and
conditions, which cannot be predicted. No amount has been accrued on
the consolidated balance sheet relating to this type of
indemnification or guarantee for the period ended March 31, 2005.
Historically, the Company has not made any significant payments under
such indemnification agreements.
14. Subsequent events
Acquisition of pharmacy systems business
On April 19, 2005, the Company acquired certain assets and assumed
certain liabilities of NDCHealth Corporation's Canadian pharmacy
systems business. The pharmacy systems business, based in Vancouver,
provides pharmacy solutions that automate the prescription
fulfillment process as well as an integrated point-of-service
solution for in-store operations. Total cash consideration, excluding
transaction costs, amounted to $2.25 million, of which $1.8 million
was paid at closing.
Price adjustment to U.S. Health divestiture
The Company has settled its financial instrument related to the
options currently held in a public company by the Company's former
U.S. Health subsidiary for a total cash consideration of up to
US$15.3 million. The former subsidiary held options to purchase
shares in a publicly traded company. While these options remained in
the subsidiary when the Company sold the subsidiary, the sale
agreement included a price adjustment that allowed the Company to
retain the economic benefit associated with the exercise of the
options or the purchase of the options by a third party.
The terms of the agreement concerning the options reached among the
Company, its former subsidiary and the grantors of options include a
first cash payment received on April 26, 2005 of US$9 million and a
second cash payment to be made in April 2006 of the lesser of US$6.3
million and the then market value of a certain number of the
securities underlying the options. The current market value of these
securities is approximately US$12.2 million.
MultiPlan complaint
On April 27, 2005, MultiPlan Inc., the purchaser of the Company's
former U.S. Health subsidiary, filed in federal court in New York a
complaint seeking, among other relief, compensation in excess of
US$64 million for damages allegedly incurred in connection with its
purchase of the U.S. Health business. The complaint alleges a variety
of claims arising from the share purchase agreement.
The Company is of the view that the allegations are without merit and
intends to take all appropriate actions to vigorously defend its
position.
EMERGIS INC. (TSX:EME) |
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