e10vk
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal
year ended December 31,
2009
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Or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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Commission File Number
000-50194
HMS HOLDINGS CORP.
(Exact name of registrant as
specified in its charter)
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New York
(State or other jurisdiction
of incorporation or organization)
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11-3656261
(I.R.S. Employer
Identification No.)
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401 Park Avenue South, New York, NY
(Address of principal
executive offices)
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10016
(Zip Code)
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(212) 725-7965
Registrants telephone
number, including area code
Securities registered pursuant to Section 12(b) of the
Act:
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Title of Each Class
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Name of Each Exchange on Which Registered
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Common Stock $0.01 par value
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NASDAQ Global Select Market
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Securities registered pursuant to section 12(g) of the
Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes þ No o
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Securities
Act. Yes o No þ
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such
files). Yes o No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in Rule
12b-2 of the
Exchange Act. (Check one):
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Large
accelerated
filer þ
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Accelerated
filer o
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Non-accelerated
filer o
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Smaller
reporting
company o
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(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act) Yes o No þ
The aggregate market value of the registrants common stock
held by non-affiliates as of June 30, 2009, the last
business day of the registrants most recently completed
second quarter was $1.04 billion based on the last reported
sale price of the registrants Common Stock on the NASDAQ
Global Select Market on that date.
There were 27,039,565 shares of common stock outstanding as
of February 25, 2010.
Documents Incorporated by Reference
The information required by Part III of this Report, to the
extent not set forth herein, is incorporated herein by reference
from the registrants definitive proxy statement relating
to the Annual Meeting of Shareholders to be held in June 2010,
which definitive proxy statement shall be filed with the
Securities and Exchange Commission within 120 days after
the end of the fiscal year to which this Report relates.
HMS
HOLDINGS CORP. AND SUBSIDIARIES
ANNUAL
REPORT ON
FORM 10-K
TABLE OF
CONTENTS
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Special
Note Regarding Forward-Looking Statements
This Annual Report on
Form 10-K
contains forward-looking statements within the
meaning of the U.S. Private Securities Litigation Reform
Act of 1995. From time to time, we also provide forward-looking
statements in other materials we release to the public, as well
as oral forward-looking statements. Such statements give our
expectations or forecasts of future events; they do not relate
strictly to historical or current facts.
We have tried, wherever possible, to identify such statements
by using words such as anticipate,
estimate, expect, project,
intend, plan, believe,
will, target, seek,
forecast and similar expressions. In particular,
these include statements relating to future actions, business
plans, objects and prospects, future operating or financial
performance or results of current and anticipated services,
acquisitions and the performance of companies we have acquired,
sales efforts, expenses, interest rates, and the outcome of
contingencies, such as financial results.
We cannot guarantee that any forward-looking statement will
be realized. Forward-looking statements are based on our current
expectations and assumptions regarding our business, the economy
and other future conditions. Should known or unknown risks or
uncertainties materialize, or should underlying assumptions
prove inaccurate, actual results could differ materially from
past results and those anticipated, estimated or projected. We
caution you, therefore, against relying on any of these
forward-looking statements. They are neither statements of
historical fact nor guarantees or assurances of future
performance.
Factors that could cause or contribute to such differences
include, but are not limited to, those discussed in this Annual
Report on
Form 10-K,
and in particular, the risks discussed under the heading
Risk Factors in Part I, Item 1A of this
Annual Report on
Form 10-K
and those discussed in other documents we file with the
Securities and Exchange Commission.
Any forward-looking statements made by us in this Report on
Form 10-K
speak only as of the date on which they are made. Factors or
events that could cause actual results to differ may emerge from
time to time and it is not possible for us to predict all of
them. We undertake no obligation to publicly update
forward-looking statements, whether as a result of new
information, future events or otherwise, except as may be
required by law. You are advised, however, to consult any
further disclosures we make on related subjects in our
10-Q and
8-K reports
to the Securities and Exchange Commission.
PART I
Unless the context otherwise indicates, references in this
report to the terms HMS, we,
our and us refer to HMS Holdings Corp.
and its subsidiaries.
General
Overview
We provide a variety of cost containment, coordination of
benefits and program integrity services for government-sponsored
health and human services programs. These services are designed
to help our clients recover amounts due from liable third
parties, reduce costs, ensure regulatory compliance, and
increase operational efficiencies.
Our clients are state Medicaid agencies, government-sponsored
managed care plans, Pharmacy Benefit Managers (PBMs), child
support agencies, the Veterans Health Administration (VHA), the
Centers for Medicare & Medicaid Services (CMS),
commercial plans, self-funded employer plans and other
healthcare payors. We help these payors contain healthcare costs
by identifying third party insurance coverage and recovering
expenditures that were the responsibility of the third party, or
that were paid in error.
In September 2009, we acquired IntegriGuard LLC, or
IntegriGuard, an International Organization for Standardization
(ISO) certified and Utilization Review Accreditation Commission
(URAC) accredited organization, which provides services related
to the prevention and detection of fraud, waste, and abuse in
the healthcare system. IntegriGuard is based in Omaha, Nebraska
and operates as our wholly owned subsidiary. With this
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acquisition, we further expanded our portfolio of program
integrity service offerings for government healthcare programs,
and in particular for the Medicare program. IntegriGuards
services include audit, compliance and education, data and
analysis, eligibility verification, medical review, and
investigation services. In addition to being designated by CMS
as one of twelve Program Safeguard Contractors, IntegriGuard is
also one of eight Qualified Independent Contractors for CMS.
In December 2009, we acquired the assets of Verify Solutions,
LLC, or Verify Solutions, a company based in Alpharetta,
Georgia, specializing in dependent eligibility audit services
for large and mid-market employer-sponsored healthcare plans.
With this acquisition, we moved into the employer-based market
with valuable new services that ensure that dependents covered
by employees are eligible to receive healthcare benefits. Verify
Solutions services provide savings throughout the benefit
cost structure, including medical, prescription drug, dental,
and vision plans.
Our 2009 revenue increased to $229 million,
$45 million or 24% over 2008 revenue, primarily as a result
of the expansion of existing product offerings and acquisitions.
In addition, we have leveraged our expertise to acquire new
clients at the state, federal and employer levels and to expand
our current contracts to provide new services to current clients.
The
Healthcare Environment
In 2009, the cost of healthcare in the United States continued
to rise, placing ever more pressure on patients, insurers,
providers and government healthcare programs. The largest
government healthcare programs are Medicare, the healthcare
program for aged and disabled citizens that is administered by
CMS, and Medicaid, the program that provides medical assistance
to eligible low income persons, which is also regulated by CMS
but administered by state Medicaid agencies. Medicare and
Medicaid combined pay about one-third of the nations
healthcare expenditures and serve over 100 million
beneficiaries. Many of these beneficiaries are enrolled in
managed care plans, which have the responsibility for both
patient care and claim adjudication.
In February 2009, Congress approved an increase in states
federal Medicaid matching funds and allocated $86.6 billion
for this effort. This measure helped states mitigate the
increase in Medicaid expenses during the economic downturn and
helped relieve state funding shortfalls. The funding is set to
expire at the end of 2010, although an effort is underway to
extend this funding for an additional six months. We believe
that demand for our services will remain strong as states seek
to balance their budgets and contain healthcare costs during
this period of high Medicaid enrollment growth and reduced state
revenues.
Dialogue around healthcare reform continues at both the federal
and state level. Policymakers at both levels seek to offer
solutions that will lower the rising number of uninsured
Americans and reduce the escalating costs of our healthcare
system. To date, the Senate, the House of Representatives and
the White House have been unable to reach an agreement on a
final healthcare reform bill, and the debate is complex and
political. Future growth in healthcare spending and enrollment,
however, is more certain. In 2009, CMS reported that healthcare
spending grew 5.7%, and reached $2.5 trillion. According to CMS,
healthcare spending is expected to grow at an average annual
rate of 6.1%, to $4.5 trillion, by 2019.
Medicaid spending in particular will grow significantly. Federal
and state Medicaid spending combined is projected to have grown
9.9% in 2009, the fastest rate of Medicaid growth since 2002.
This means that our primary client base, Medicaid agencies and
Medicaid managed care plans, can expect their beneficiary rolls
to continue to grow regardless of the outcome of healthcare
reform. CMS projects Medicaid spending to double in size by
2019, as a result, we expect a continued increase in the need
for our cost containment and management services.
Under the Title XIX of the Social Security Act, or the
Social Security Act, states are required to take all reasonable
measures to ascertain the legal liability of third
parties for healthcare services provided to Medicaid
recipients. The Deficit Reduction Act (DRA), signed into law in
February 2006, established a Medicaid Integrity Program to
increase the governments capacity to prevent, detect, and
address fraud and abuse in the Medicaid program. The DRA is the
largest dedicated investment the federal government has made in
ensuring the integrity of the Medicaid program. Additionally,
the DRA added new entities, such as self-insured plans, PBMs and
other legally responsible parties to the list of
entities subject to the provisions of the Social Security Act.
To date, at
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least 46 states have enacted legislation in order to comply
with requirements of the DRA. Together, these measures at both
the federal and state level have strengthened our ability to
identify and recover erroneous payments made by our clients.
Principal
Products and Services
The demand for our services arises, in part, from the small but
significant percentage of government funds spent in error, where
another payor was actually responsible for the service, or a
mistake was made in applying complex claim processing rules. In
its 2009 Agency Financial Report, the U.S. Department of
Health and Human Services estimated that improper payments made
by Medicare and Medicaid will total approximately
$50 billion for the 2009 fiscal year. Our services focus on
containing costs by reducing this error rate.
Medicaid is the United States health program for eligible
individuals and families with low incomes and resources. It is a
means tested program that is jointly funded by the states and
federal government, and is managed by the states. By law, the
Medicaid program is intended to be the payor of last resort;
that is, all other available third party resources must meet
their legal obligation to pay claims before the Medicaid program
pays for the care of an individual eligible for Medicaid. States
are required to take all reasonable measures to ascertain the
legal liability of third parties to pay for care and services
being provided under that states plan. Since 1985, we have
provided state Medicaid agencies with services to identify the
other parties with liability for Medicaid claims, and since
2005, we have provided these services to Medicaid managed care
plans.
Our services draw upon proprietary information management and
data mining techniques, and include coordination of benefits,
cost avoidance, and program integrity. In 2009, we recovered
more than $1.0 billion for our clients and provided data to
our clients that assisted them in preventing billions of dollars
more in erroneous payments.
We provide the following services:
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Coordination of benefits services, which route claims
already paid by a government program to the liable third party,
which then reimburses the government payor. The Medicaid and
Medicare programs, including Medicaid and Medicare managed care
organizations, and VHA must all coordinate benefits with other
payors to ensure that claims are paid by the entitlement
program, group health plan or other party that actually bears
responsibility for a particular incident of medical service. By
properly coordinating benefits, these programs are able to
recover dollars spent in error and avoid unnecessary future
costs.
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Cost avoidance services, which provide validated
insurance coverage information that is used by government payors
to reject claims that are the responsibility of a third party,
typically a group health plan sponsored by a beneficiarys
employer. Child support agencies use this information to
identify children who have coverage from either the custodial or
non-custodial parent, as well as to identify children without
coverage. With validated insurance information, healthcare
payors can avoid unnecessary future costs.
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Program integrity services, which are designed to ensure
that medical services are utilized, billed, and paid
appropriately. We identify payment errors, and then recover the
erroneous payments, if appropriate. Our program integrity
services include: data mining; credit balance reviews; clinical
reviews; fraud, waste, and abuse detection; and recoupment
services.
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To perform our services, we aggregate medical claims, health
insurance and other beneficiary data from a variety of sources.
The data is mined to identify instances of health insurance
coverage, or claims that were paid in error for administrative
or clinical reasons. We provide our clients with ways to recover
funds or avoid future errors, including validating primary
insurance coverage, generating electronic claims to liable third
parties, documenting liens that attach to personal injury
litigation and estates, and enrolling children under the
insurance of non-custodial and custodial parents, as appropriate.
Clients
The majority of our clients consist of state Medicaid agencies
and managed care organizations. From 2005 through 2009, we
increased our penetration into the Medicaid managed care market,
as states increased their use of
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contracted health plans. At the conclusion of 2009, we served
39 state Medicaid agencies, and 112 Medicaid health plans
under 48 contracts.
In 2008, we were awarded a Medicaid Integrity Program (MIP) Task
Order in the CMS Dallas jurisdiction and in 2009, we were
awarded a second MIP Task Order in the San Francisco
jurisdiction. Under these task orders, we examine payments to
providers made under the Social Security Act, with the objective
of identifying potential overpayments made as a result of fraud,
waste, or abuse. We are now the CMS Audit Medicaid Integrity
Contractor (Audit MIC) for 22 state and territory
Medicaid programs.
We also provide coordination of benefits and third party
insurance identification services to 21 Veterans Integrated
Service Networks of VHA, and child support agencies in
14 states.
In most cases, clients pay us contingency fees calculated as a
percentage of the amounts recovered, or fixed fees for cost
avoidance data. Most of our contracts have terms of three to
four years.
Our largest client in 2009 was the New York State Office of the
Medicaid Inspector General. This client accounted for 7.8%, 7.9%
and 8.9% of our total revenue in the years ended
December 31, 2009, 2008 and 2007, respectively. The New
York State Office of the Medicaid Inspector General became our
client September 2006, as part of our acquisition of the
Benefits Solutions Practice Area (BSPA) of Public Consulting
Group, Inc. (PCG). We provide services to the New York State
Office of the Medicaid Inspector General pursuant to a contract
awarded in October 2001, which was subsequently re-procured and
extended through January 6, 2015. Our second largest client
in 2009 was the New Jersey Department of Human Services. This
client accounted for 6.2%, 6.6%, and 7.1% of our total revenue
in the years ended December 31, 2009, 2008, and 2007,
respectively. We provide services to this client pursuant to a
three year contract awarded in January 2008, which is renewable
for two additional one year periods, through December 2012. The
loss of either one of these contracts would have a material
adverse effect on our financial position, results of operations
and cash flows.
The list of our ten largest clients changes periodically. For
the years ended December 31, 2009, 2008, and 2007, our ten
largest clients represented 39.5%, 43.5% and 42.5% of our
revenue, respectively. The agreements with these clients expire
between 2010 and 2015. In many instances, we provide our
services pursuant to agreements that may be renewed subject to a
competitive re-procurement process. Many of our contracts,
including those with our ten largest clients, may be terminated
for convenience. We cannot assure you that our contracts,
including those with our ten largest clients, will not be
terminated for convenience or that any of these contracts will
be renewed, and, if renewed, that the fee rates will be equal to
those currently in effect.
Market
Trends/Opportunities
In its 2009 Agency Financial Report, the U.S. Department of
Health and Human Services estimated that improper payments in
Medicare and Medicaid will total approximately $50 billion
in the 2009 fiscal year. Our coordination of benefits services
and program integrity services address the errors that result in
improper payments.
Containing healthcare expenditures presents challenges for the
government due to the number and variety of programs at the
state and federal level, the government appropriations process,
and the rise in the cost of care and number of beneficiaries. At
the same time, a majority of states are experiencing fiscal
stress and are projecting significant budget deficits, making
cost containment a high priority.
Government healthcare programs continue to grow. CMS has
projected that Medicaid and Medicare expenditures will increase
to $1.9 trillion by 2019, regardless of reform.
In 2009 Medicare programs covered approximately 46 million
people and spent approximately $507.1 billion. Medicaid
programs covered approximately 66 million people in 2009
and spent approximately $378.3 billion. Altogether, the
government programs we serve cover approximately
112 million people and spent nearly $885.4 billion in
2009. Healthcare reform initiatives under the Obama
administration are focused on expanding healthcare coverage to a
large portion of the uninsured population by utilizing existing
programs, including Medicaid, Medicare, Childrens Health
Insurance Programs (CHIP), and commercial insurance.
Coordinating benefits among these growing programs, and ensuring
that claims are paid appropriately, represents both an enormous
challenge and opportunity for us.
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Competition
We compete primarily with large business outsourcing and
technology firms, and with small regional firms specializing in
one or more of our services, in addition to the states
themselves, which may elect to perform coordination of benefits
and cost avoidance functions in-house. Against these
competitors, we typically succeed on the basis of our leadership
position in the marketplace, staff expertise, extensive
insurance eligibility database, proprietary systems and
processes, existing relationships, and effectiveness in cost
recoveries and pricing.
Business
Strategy
Over the course of 2010, we expect to grow our business through
a number of strategic objectives or initiatives that may include:
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Drive organic growth. We will continue to tap demand
for our services created by the steadily increasing expenditures
of government-funded healthcare.
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Strengthen regulatory framework. On behalf of our
clients, we will take advantage of congressional and state
legislation reinforcing the ability of government agencies to
implement more rigorous cost-containment programs.
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Expand scope. We will actively seek to expand our
role with existing clients by extending our reach to new
services and claim types, and by providing earlier access to
claim data.
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Improve the quality and effectiveness of our
services. We will continue implementing new technology
and processes to better engineer the services we provide to our
clients, enabling us to increase cost recovery, cost-containment
and client satisfaction.
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Add new clients. We will continue to market to
additional healthcare payors, including CHIP, middle market
Medicaid managed care plans, Medicare Advantage plans,
behavioral health programs, employers, and commercial plans.
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Expand program integrity footprint. We will seek to
acquire new program integrity business at both the state and
federal levels.
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Add new services. Where opportunities exist, we will
continue to add services closely related to cost containment
through internal development
and/or
acquisition.
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Employees
As of December 31, 2009, we had 1,306 employees, of
which 1,263 are full time. Of our total employees, 80 support
selling, general and administrative activities. No employees are
covered by a collective bargaining agreement or are represented
by a labor union. We believe our relations with our employees
are good.
Financial
Information About Industry Segments
Since the beginning of the first quarter of 2007, we have been
managed and operated as one business, with a single management
team that reports to the chief executive officer. We do not
operate separate lines of business with respect to any of our
product lines. Accordingly, we do not prepare discrete financial
information with respect to separate product lines or by
location and do not have separately reportable segments as
defined by the guidance provided by the Financial Accounting
Standards Board (FASB).
Available
Information
We maintain a website (www.hms.com) that contains various
information about us and our services. Through our website, we
make available, free of charge, access to all reports filed with
the U.S. Securities and Exchange Commission (SEC) including
our Annual Reports on
Form 10-K,
our Quarterly Reports on
Form 10-Q,
our Current Reports on
Form 8-K,
and our Proxy Statements, as well as amendments to these reports
or statements, as filed with or furnished to the SEC pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of
1934, as amended, or the Exchange Act, as soon as reasonably
practical after we electronically file such material with, or
furnish it to, the
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SEC. In addition, the SEC maintains a website
(www.sec.gov) that contains reports, proxy and
information statements and other information regarding issuers
that file electronically with the SEC. You may also read and
copy this information, for a copying fee, at the SECs
Public Reference Room at 100 F Street, NE,
Room 1580, Washington, D.C. 20549. Please call the SEC
at 1-900-SEC-0330 to obtain information on the operation of the
Public Reference Room. The content on any website referred to in
this
Form 10-K
is not incorporated by reference into this
Form 10-K
unless expressly noted.
We also make the following documents available on our website
under the About HMS/Corporate Governance
tab: the Audit Committee Charter, the Compensation Committee
Charter, the Nominating Committee Charter, the Compliance
Committee Charter, our Code of Conduct and our Code of Ethics.
You may also obtain a copy of any of the foregoing documents,
free of charge, if you submit a written request to our corporate
office, Attention: Investor Relations, 401 Park Avenue South,
New York, NY 10016.
Corporate
Information
We were incorporated on October 2, 2002 in the state of New
York. On March 3, 2003, we adopted a holding company
structure and assumed the business of our predecessor, Health
Management Systems, Inc. In connection with the adoption of this
structure, Health Management Systems, which began doing business
in 1974, became our wholly owned subsidiary. Our website address
is www.hms.com.
We provide the following cautionary discussion of risks,
uncertainties and possibly inaccurate assumptions relevant to
our business that, individually or in the aggregate, may cause
our actual results to differ materially from expected and
historical results. We note these factors for investors as
permitted by the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. You should
consider these factors, but understand that it is not possible
to predict or identify all such factors. Consequently, you
should not consider the following to be a complete discussion of
all potential risks or uncertainties involved with investing in
our stock. These risk factors should be read in connection with
other information set forth in this Report, including our
Consolidated Financial Statements and the related Notes.
Risks
Relating to Our Business
We face
significant competition for our services and we expect
competition to increase. Our business will be adversely impacted
if we fail to properly manage our growth.
Competition for our services is evident in the markets we serve.
We expect to encounter additional competition as we address new
markets and new competitors enter our existing markets. We
compete with other providers of healthcare information
management and data processing services, as well as healthcare
consulting firms. Our current and prospective clients also
evaluate our capabilities against the merits of their existing
information management and data processing systems and expertise.
In order to remain competitive and expand our business, we must
be able to quickly respond to new or emerging technologies,
changes in client requirements and changes in the political,
economic or regulatory environment in the healthcare industry.
Some of our competitors have formed business alliances with
other competitors that may affect our ability to work with
potential clients. In addition, if some of our competitors
merge, a stronger competitor may result. Many of our competitors
and potential competitors have significantly greater financial,
technical, product development, marketing and other resources,
and market recognition than we have, and accordingly may be in a
position to devote greater resources to the development,
promotion, and sale of their services than we can. If we fail to
design, develop, implement and improve our systems in response
to our clients needs, we may not be able to maintain or
expand our client base, hire and retain new employees, pursue
new business opportunities, complete future acquisitions or
operate our businesses effectively. In addition, services,
solutions and technologies offered by current or future
competitors may make our services or solution offerings
uncompetitive or obsolete. We cannot assure you that we will be
able to compete successfully against our existing or any new
competitors. If, as a result of increased competition, we are
forced to lower our pricing or if demand for our
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services decreases, our business, financial condition, results
of operations and cash flow could be materially adversely
affected.
Our
business could be adversely affected if we lose a major client,
our clients are not satisfied with our services or if they elect
to terminate our contracts before their scheduled expiration
date.
We generate a significant portion of our revenue from a limited
number of large clients. For the years ended December 31,
2009, 2008, and 2007, our three largest clients accounted for
approximately 19%, 20% and 22%, respectively, of our revenue
from continuing operations.
Our business model depends in large part on our ability to
attract new work from our base of existing clients. It also
depends on relationships we develop with our clients so that we
can understand our clients needs and deliver solutions and
services that are tailored to meet those needs. If a client is
not satisfied with the quality of work performed by us, or with
the type of services or solutions delivered, then we could incur
additional costs to address the situation, the profitability of
that work might be impaired, and the clients
dissatisfaction with our services could damage our ability to
obtain additional work from that client. In particular, since
the majority of our contracts are terminable upon short notice
for convenience by either party, clients that are not satisfied
might seek to terminate existing contracts prior to their
scheduled expiration date and could direct future business to
our competitors. Negative publicity related to our client
relationships, regardless of its accuracy, may further damage
our business by affecting our ability to compete for new
contracts with current and prospective clients. We cannot assure
you that a material contract will not be terminated for
convenience in the future.
In addition, some of our contracts contain liquidated damages
provisions and financial penalties related to performance
failures. Although we have liability insurance, the policy
coverage and limits may not be adequate to provide protection
against all potential liabilities. Under the terms of one of our
contracts, we have posted an irrevocable standby letter of
credit for $4.6 million. If a claim is made against this
letter of credit or any similar instrument that we obtain in the
future, we would be required to reimburse the issuer of the
letter of credit for the amount of the claim.
If we were to lose a major client or incur significant costs or
liabilities related to performance failures, our business,
financial condition, results of operations and cash flow could
be materially adversely affected.
Our
operating results are subject to significant fluctuations due to
factors including variability in the timing of when we recognize
contingency fee revenue. As a result, you will not be able to
rely on our operating results in any particular period as an
indication of our future performance.
We have experienced significant variations in our revenue
between reporting periods due to the timing of periodic revenue
recovery projects and the timing and delays in third party
payors claim adjudication and ultimate payment to our
clients where our fees are contingent upon such collections. In
addition, our revenue and consequently our operating results may
vary significantly from period to period as a result of factors
including the terms and progress of contracts, fluctuations in
sales activity given our sales cycle of approximately three to
eighteen months, the commencement, completion or termination of
contracts during any particular quarter, expenses related to
certain contracts which may be incurred in periods prior to
revenue being recognized, the schedules of government agencies
for awarding contracts, the term of awarded contracts, potential
acquisitions, the loss of clients, and general economic
conditions as they affect healthcare providers and payors. For
example, a significant portion of our operating expenses are
fixed. Any inability on our part to reduce spending or to
compensate for any failure to receive anticipated revenues could
magnify the adverse impact of such events on our operating
results. We cannot predict the extent to which future revenue
variations could occur due to these or other factors. As a
result, our results of operations are subject to significant
fluctuation and our results of operations for any particular
quarter or fiscal year may not be indicative of results of
operations for future periods.
9
We are
subject to extensive government regulation and our government
contracts are subject to audit and investigation rights. Any
violation of the laws and regulations applicable to us or a
negative audit or investigation finding could have a material
adverse effect on our business, financial condition, results of
operations and cash flow.
Our business is regulated by the federal government and the
states in which we operate. The laws and regulations governing
our operations are generally intended to benefit and protect
health plan members and providers rather than stockholders. The
government agencies administering these laws and regulations
have broad latitude to enforce them. These laws and regulations,
along with the terms of our government contracts, regulate how
we do business, what services we offer, and how we interact with
our clients, providers and the public. We are subject, on an
ongoing basis, to various governmental reviews, audits and
investigations to verify our compliance with our contracts and
applicable laws and regulations.
In addition, because we receive payments from federal and state
governmental agencies, we are subject to various laws, including
the Federal False Claims Act, which permit the federal
government to institute suits against us for violations and, in
some cases, to seek treble damages, penalties and assessments.
Many states, including states where we currently do business,
likewise have enacted parallel legislation. In addition, private
citizens, acting as whistleblowers, can sue as if they were the
government under a special provision of the False Claims Act.
If the government discovers improper or illegal activities in
the course of audits or investigations, we may be subject to
various civil and criminal penalties and administrative
sanctions, which may include termination of contracts,
forfeiture of profits, suspension of payments, fines and
suspensions and debarment from doing business with the
government. If we are found to be in violation of any applicable
law or regulation, or if we receive an adverse review, audit or
investigation, any resulting negative publicity, penalties or
sanctions could have an adverse affect on our reputation in the
industry, impair our ability to compete for new contracts and
materially adversely affect our business, financial condition,
results of operations and cash flow.
Simplification
of the healthcare payment process could reduce the need for and
the price of our services.
The complexity of the healthcare payment process, and our
experience in offering services that improve the ability of our
clients to recover incremental revenue through that process,
have been contributing factors to the success of our service
offerings. Complexities of the healthcare payment process
include multiple payors, and the coordination and utilization of
clinical, operational, financial
and/or
administrative review instituted by third-party payors in an
effort to control costs and manage care. If the payment
processes associated with the healthcare industry are simplified
significantly, the need for our services, or the price clients
are willing to pay for our services, could be reduced which
could materially adversely affect our business, financial
condition, results of operations, and cash flow.
Changes
in the United States healthcare environment could have a
material negative impact on our business financial condition,
results of operations and cash flow.
The healthcare industry in the United States is subject to
changing political, economic and regulatory influences that may
affect the procurement practices and operations of healthcare
organizations. Our services are designed to function within the
structure of the current healthcare financing and reimbursement
systems currently being used in the United States. During the
past several years, the healthcare industry has been subject to
increasing levels of governmental regulation of, among other
things, reimbursement rates, certain capital expenditures, and
data confidentiality and privacy. From time to time, certain
proposals to reform the healthcare system have been considered
by Congress. These proposals, if enacted, may increase
government involvement in healthcare, lower reimbursement rates
and otherwise change the operating environment for our clients.
Healthcare organizations may react to these proposals and the
uncertainty surrounding such proposals by curtailing or
deferring their retention of service providers such as us,
reducing the demand for our services, which could materially
adversely affect our business, financial condition, results of
operations and cash flow.
10
Budget
deficits and/or fluctuations in the number of requests for
proposals issued by governments and their agencies may adversely
impact our business.
A significant percentage of our fiscal year 2009 revenues were
derived from contracts with federal, state and local governments
and their agencies. Our growth strategy includes aggressively
pursuing new opportunities, leveraging our expertise to acquire
new clients at the state, federal and employer levels and
expanding our current contracts to provide new services to
current clients. From time to time, government clients may face
budget deficits. This is particularly true as a result of the
recent economic conditions. Also, the number of requests for
proposals (RFP) issued by government agencies is subject to
fluctuation. If government budgets were reduced, then the
services we provide could become non-essential, our contracts
could be terminated and future contracting opportunities for
government contracts could be limited. In addition, payments due
to us from government agencies may be delayed due to billing
cycles or as a result of failures to approve governmental
budgets in a timely manner, which would increase our use of
working capital. The failure to receive timely payments, as well
as the loss of existing government contracts and future
contracting opportunities, could materially adversely affect our
business, financial condition, results of operations and cash
flow.
We must
comply with laws and regulations regarding patient privacy and
information security, including taking steps to ensure that our
business associates who obtain access to sensitive patient
information maintain its confidentiality. A failure to comply
with those laws and regulations, whether or not inadvertent,
could subject us to legal actions and negatively impact our
operations.
We process, transmit and store information relating to
identifiable individuals, both in our role as a service provider
and as an employer. The use of individually identifiable data by
our businesses is regulated at the federal and state levels.
These laws and rules are changed frequently by legislation or
administrative interpretation. Various state laws address the
use and disclosure of individually identifiable health data.
Most are derived from the privacy and security provisions in the
federal Gramm-Leach-Bliley Act and the Health Insurance
Portability and Accountability Act of 1996 (HIPAA). HIPAA also
imposes guidelines on our business associates (as this term is
defined in the HIPAA regulations). Even though we take measures
to comply with all applicable regulations and to ensure that our
business associates are in compliance, we still have limited
control over their actions and practices. Compliance with these
proposals, requirements and new regulations may result in cost
increases due to necessary systems changes, the development of
new administrative processes, and the effects of potential
noncompliance by our business associates. Such proposals,
requirements and new regulations also may impose further
restrictions on our use of patient identifiable data that is
housed in one or more of our administrative databases.
We have implemented security systems with the intent of
maintaining the physical security of our facilities and
protecting our, our clients and our suppliers
confidential information and information related to identifiable
individuals against unauthorized access through our information
systems or by other electronic transmission or through the
misdirection, theft or loss of physical media. These include,
for example, the encryption of information. Despite such
efforts, we may become subject to breach of our security systems
which may result in unauthorized access to our facilities
and/or the
information we are trying to protect.
If we fail to comply with applicable laws or if unauthorized
parties gain physical access to one of our facilities or
electronic access to our information systems or such information
is misdirected, lost or stolen during transmission or transport,
any theft or misuse of such information could result in, among
other things, unfavorable publicity, governmental inquiry and
oversight, difficulty in marketing our services, allegations by
our clients that we have not performed our contractual
obligations, litigation by affected parties and possible
financial obligations for damages related to the theft or misuse
of such information, any of which could have a material adverse
effect on our business, financial condition, results of
operations and cash flow.
11
We obtain
a significant portion of our business through competitive
bidding in response to a government RFP. We may not be awarded
contracts through this process on the same level in the future
as in the past. If we fail to accurately estimate the factors
upon which we base our contract pricing, we may generate less
profit than expected or incur losses on those
contracts.
In order to market our services to clients, we are often
required to respond to government RFPs in order to compete for a
contract. This requires that we estimate accurately our cost
structure for servicing a proposed contract, the time required
to establish operations and likely terms of the proposals
submitted by competitors. We must also assemble and submit a
large volume of information within an RFPs rigid
timetable. Our ability to respond successfully to RFPs will
greatly impact our business. We cannot assure you that we will
continue to obtain contracts in response to government RFPs or
that our proposals will result in profitable contracts. In
addition, competitors may protest contracts awarded to us
through the RFP process which may cause the award to be delayed
or overturned or may require the client to reinitiate the RFP
process.
Our pricing is dependent on our internal forecasts and
predictions about our projects and the marketplace, which might
be based on limited data and could turn out to be inaccurate. A
majority of our contracts are contingency fee based. For
contingency fee based offerings, we receive our fee based on
recoveries received by our clients. To earn a profit on a
contingency fee offering, we must accurately estimate costs
involved and assess the probability of completing individual
transactions within the contracted time period. Our contracts
with the federal government generally are cost-plus or time and
material based. Revenue on cost-plus contracts is recognized
based on costs incurred plus an estimate of the negotiated fee
earned. If we do not accurately estimate the costs and timing
for completing projects, or if we encounter increased or
unexpected costs, delays, failures or risks, including those
outside our control, our contracts could prove unprofitable for
us or yield lower profit margins than anticipated. Although we
believe that we have recorded adequate provisions in our
financial statements for losses on our fixed-price and cost-plus
contracts, as required under U.S. generally accepted
accounting principles (U.S. GAAP), we cannot assure you
that our contract loss provisions will be adequate to cover all
actual future losses.
Our
business depends on effective information systems and the
integrity of the data in our information systems.
Our ability to conduct our operations and accurately report our
financial results depends on the integrity of the data in our
information systems. These information systems and applications
require continual maintenance, upgrading, and enhancement to
meet our operational needs and handle our expansion and growth.
As a result of our acquisition activities, we have acquired
additional systems that have to be phased out or integrated with
our current systems. If we encounter a business disruption, if
we find the information we rely upon to run our businesses to be
inaccurate or unreliable, or if we fail to maintain our
information systems and data integrity effectively, we could
suffer operational disruptions, loss of existing clients,
difficulty in attracting new clients or in implementing our
growth strategies, problems establishing appropriate pricing,
disputes with clients, civil or criminal penalties, regulatory
problems, increases in administrative expenses, loss of our
ability to produce timely and accurate financial and other
reports, or other adverse consequences, any of which could have
a material adverse effect on our business, financial condition,
results of operations and cash flow.
We depend
on information suppliers. If we are unable to manage
successfully our relationships with a number of these suppliers,
the quality and availability of our services may be
harmed.
We obtain some of the data used in our services from third party
suppliers and government entities. If a number of suppliers are
no longer able or are unwilling to provide us with certain data,
we may need to find alternative sources. If we are unable to
identify and contract with suitable alternative data suppliers
and integrate these data sources into our service offerings, we
could experience service disruptions, increased costs and
reduced quality of our services. Additionally, if one or more of
our suppliers terminates our existing agreements, we cannot
assure you that we will be able to obtain new agreements with
other suppliers on terms favorable to us, if at all. Loss of
such access or the unavailability of data in the future due to
increased governmental regulation or otherwise could have a
material adverse effect on our business, financial condition,
results of operations and cash flow.
12
We may
rely on subcontractors and partners to provide clients with a
single-source solution.
From time to time, we may engage subcontractors, teaming
partners or other third parties to provide our clients with a
single-source solution. While we believe that we perform
appropriate due diligence on our subcontractors and teaming
partners, we cannot guarantee that those parties will comply
with the terms set forth in their agreements. We may have
disputes with our subcontractors, teaming partners or other
third parties arising from the quality and timeliness of the
their work, client concerns about them or other matters.
Subcontractor performance deficiencies could result in a client
terminating our contract for default. We may be exposed to
liability, and we and our clients may be adversely affected, if
a subcontractor or teaming partner fails to meet its contractual
obligations.
We use
software vendors, utility providers and network providers in our
business, and could be materially adversely affected if they
cannot deliver or perform as expected or if our relationships
with them are terminated or otherwise change.
Our ability to service our clients and deliver and implement
solutions requires that we work with certain third party
providers, including software vendors, utility and network
providers, and depends on their meeting our expectations in a
timely and quality manner. Our business could be materially and
adversely affected and we might incur significant additional
liabilities if the services provided by these third party
providers do not meet our expectations or if they terminate or
refuse to renew their relationships with us or were to offer
their products to us with less advantageous prices and other
terms than we previously had. In addition, while there are
backup systems in many of our operating facilities, an extended
outage of utility or network services may have a material
adverse effect on our business, financial condition, results of
operations and cash flow.
The
federal government may limit or prohibit the outsourcing of
certain programs or may refuse to grant consents and/or waivers
necessary to permit private entities, such as us, to perform
certain elements of government programs.
The federal government could limit or prohibit private
contractors like us from operating or performing elements of
certain government programs. State or local governments could be
required to operate such programs with government employees as a
condition of receiving federal funding. Moreover, under current
law, in order to privatize certain functions of government
programs, the federal government must grant a consent
and/or
waiver to the petitioning state or local agency. If the federal
government does not grant a necessary consent or waiver, the
state or local agency will be unable to outsource that function
to a private entity, such as us. This situation could eliminate
a contracting opportunity or reduce the value of an existing
contract.
We may be
precluded from bidding and performing certain work due to other
work we currently perform.
Various laws and regulations prohibit companies from performing
work for government agencies that might be viewed as an actual
or apparent conflict of interest. These laws may limit our
ability to pursue and perform certain types of work. In
addition, CMS has strict conflict of interest requirements which
can limit our bidding for specific work for CMS. State
governments also have conflict of interest requirements that
could limit our ability to bid for certain work. Conflict of
interest requirements constantly change at the federal, state
and municipal levels and we cannot assure you that we will be
successful in securing new business for entities for which we
are currently conducting or have conducted services. If we are
prevented from expanding our business due to conflicts of
interest, our business could be adversely affected.
If we do
not successfully integrate the businesses that we acquire, our
results of operations could be adversely affected.
Historically, we have made a significant number of acquisitions
that have expanded the products and services we offer, provided
a presence in a complementary business or expanded our
geographic presence. Business combinations involve a number of
factors that affect operations, including:
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diversion of managements attention;
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13
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loss of key personnel;
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entry into unfamiliar markets;
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assumption of unanticipated legal or financial liabilities;
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becoming significantly leveraged as a result of incurring debt
to finance an acquisition;
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unanticipated operating, accounting or management difficulties
in connection with the acquired entities;
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impairment of acquired intangible assets, including
goodwill; and
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dilution to our earnings per share.
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We intend to continue our acquisition strategy. We cannot,
however, make any assurances that we will be able to identify
any potential acquisition candidates or consummate any
additional acquisitions or that any future acquisitions will be
successfully integrated or will be advantageous to us. Entities
we acquire may not achieve the revenue and earnings we
anticipated or their liabilities may exceed our expectations.
Client dissatisfaction or performance problems with an acquired
entity could materially and adversely affect our reputation as a
whole. We may be unable to profitably manage entities that we
have acquired or that we may acquire or we may fail to integrate
them successfully without incurring substantial expenses, delays
or other problems, any of which could adversely affect our
business, financial condition, results of operations and cash
flow.
We may
not be able to realize the entire book value of goodwill and
other intangible assets from acquisitions.
As of December 31, 2009, we have approximately
$91.5 million of goodwill and $16.8 million of
intangible assets. We periodically assess these assets to
determine if they are impaired. We monitor for impairment of
goodwill on past and future acquisitions. We perform our
impairment testing in the second quarter of each year. In the
event that the book value of goodwill is impaired, any such
impairment would be charged to earnings in the period of
impairment. We cannot assure you that future impairment of
goodwill will not have a material adverse effect on our
business, financial condition, results of operations and cash
flow.
We may be
unable to attract and retain sufficient qualified personnel to
properly operate our business.
The ability of our executive officers and our senior managers to
generate business and execute projects successfully is important
to our success. In addition, our delivery of services is
labor-intensive. When we are awarded a contract, we must quickly
hire project leaders and case management personnel. The
additional staff also creates a concurrent demand for increased
administrative personnel. Our success requires that we attract,
develop, motivate and retain experienced and innovative
executive officers; senior managers who have successfully
managed or designed government services programs; and
information technology professionals who have designed or
implemented complex information technology projects.
Innovative, experienced and technically proficient individuals
are in great demand and are likely to remain a limited resource.
There can be no assurance that we will be able to continue to
attract and retain desirable executive officers and senior
managers. Our inability to hire sufficient personnel on a timely
basis or the loss of significant numbers of executive officers,
senior managers or information technology professionals could
adversely affect our business, financial condition, results of
operations and cash flow.
Risks
Related to Our Common Stock
The
market price of our common stock may be volatile.
The market price of our common stock has fluctuated widely and
may continue to do so. For example, during the 52-week period
ended February 19, 2010, the closing price of our common
stock on the NASDAQ Global Select
14
market ranged from a high of $52.06 per share, to a low of
$29.10 per share. We expect our stock price to be subject to
fluctuations as a result of a variety of factors, including
factors beyond our control. Some of these factors are:
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actual or anticipated variations in our results of operations;
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the gain or loss of significant contracts;
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delays in our development and introduction of new services;
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developments in our relationships with current or future clients
and suppliers;
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operating and stock price performance of other companies that
investors deem comparable to our company;
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news reports relating to trends, concerns and other issues in
the healthcare industry;
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perceptions in the marketplace regarding us
and/or our
competitors;
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acquisitions or business combinations, strategic partnerships,
joint ventures or capital commitments by or involving us or our
competitors;
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political developments affecting healthcare at the federal,
state or local level;
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changes in government policies or regulations;
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our failure to integrate acquisitions or realize anticipated
benefits from acquisitions;
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the hiring or departure of key personnel;
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the introduction of new services by us or our competitors;
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changes in estimates of our performance or recommendations by
securities analysts;
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future sales of shares of common stock in the public market;
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securities class action or other litigation; and
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market conditions in the industry and the economy as a whole.
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In addition, the stock market often experiences significant
price and volume fluctuations. These fluctuations are often
unrelated to the operating performance of particular companies.
These broad market fluctuations may adversely affect the market
price of our common stock. When the market price of a
companys stock drops significantly, shareholders often
institute securities class action litigation against that
company. Any litigation against us could cause us to incur
substantial costs, divert the time and attention of our
management and other resources, or otherwise harm our business.
Certain
provisions of our certificate of incorporation could discourage
unsolicited takeover attempts, which could depress the market
price of our common stock.
Our certificate of incorporation authorizes the issuance of up
to 5,000,000 shares of blank check preferred
stock with such designations, rights and preferences as may be
determined by our Board of Directors. Accordingly, our Board of
Directors is empowered, without shareholder approval, to issue
preferred stock with dividend, liquidation, conversion, voting
or other rights, that could adversely affect the voting power or
other rights of holders of our common stock. In the event of
issuance, preferred stock could be utilized, under certain
circumstances, as a method of discouraging, delaying or
preventing a change in control. Although we have no present
intention to issue any shares of preferred stock, we cannot give
assurance that we will not do so in the future. In addition, our
by-laws provide for a classified Board of Directors, which could
also have the effect of discouraging a change of control.
Because
we do not intend to pay dividends, you will benefit from an
investment in our common stock only if it appreciates in
value.
We have paid no cash dividends on any of our capital stock to
date, and we currently intend to retain our future earnings, if
any, to fund the development and growth of our business. As a
result, we do not expect to pay any cash dividends in the
foreseeable future. The success of your investment in our common
stock will likely depend entirely
15
upon any future appreciation. There is no guarantee that our
common stock will appreciate in value or even maintain the price
at which you purchased your shares.
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Item 1B.
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Unresolved
Staff Comments.
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None.
Our New York City corporate headquarters consists of
approximately 87,500 square feet of leased space, of which
35,000 square feet is subleased to other occupants. If not
renewed, the lease for our corporate headquarters will expire in
May 2013. We also lease approximately 84,000 square feet in
Irving, Texas which is the primary center for our operational
activities, the lease for which will expire in July 2019 if not
renewed. As of December 31, 2009, we leased approximately
214,000 square feet of office space in 31 other locations
throughout the United States, the leases for which expire
between 2010 and 2016. See Note 13 of the Notes to
Consolidated Financial Statements for additional information
about our lease commitments. In general, we believe our
facilities are suitable to meet our current and reasonably
anticipated needs.
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Item 3.
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Legal
Proceedings.
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Legal proceedings to which we are a party, in the opinion of our
management, are not expected to have a material adverse effect
on our financial position, results of operations, or liquidity.
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Item 4.
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Submission
of Matters to a Vote of Security Holders.
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No matters were submitted to a vote of our security holders
during the fourth quarter of 2009.
16
PART II
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Item 5.
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Market
for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities.
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Market
Information
Our common stock is included in the NASDAQ Global Select Market,
under the symbol HMSY. The table below summarizes the high and
low sales prices per share for our common stock for the periods
indicated, as reported on the NASDAQ Global Select Market.
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High
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Low
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Year ended December 31, 2009
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Quarter ended December 31, 2009
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$
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50.67
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$
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37.00
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Quarter ended September 30, 2009
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43.00
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34.77
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Quarter ended June 30, 2009
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41.20
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28.21
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Quarter ended March 31, 2009
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36.45
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28.50
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Year ended December 31, 2008
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Quarter ended December 31, 2008
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$
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31.93
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$
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18.91
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Quarter ended September 30, 2008
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27.39
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19.44
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Quarter ended June 30, 2008
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30.05
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18.13
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Quarter ended March 31, 2008
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37.09
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26.97
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Holders
As of the close of business on February 19, 2010, there
were approximately 470 holders of record of our common stock.
Dividends
We have not paid any cash dividends on our common stock and do
not anticipate paying cash dividends in the foreseeable future.
Our current intention is to retain earnings to support the
future growth of our business.
Equity
Compensation Plan Information
The following table summarizes information about our equity
compensation plans as of December 31, 2009. For additional
information about our equity compensation plans see Note 11
of the Notes to Consolidated Financial Statements.
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Number of Securities Remaining
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Number of Securities to
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Weighted-Average
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Available for Future Issuance
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be Issued upon Exercise
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Exercise Price of
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Under Equity Compensation
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of Outstanding Options,
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Outstanding Options,
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Plans (Excluding Securities
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Warrants and Rights
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Warrants, and Rights
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Reflected in Column
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Plan Category
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(a)
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(b)
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(a))(c)
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Equity compensation plans approved by
shareholders(1)
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2,798,432
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$
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19.39
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1,612,314
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Equity compensation plans not approved by
shareholders(2)
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391,250
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$
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8.91
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Total
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3,189,682
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(1)
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This includes stock options to
purchase common stock granted under our 1999 Long-Term Incentive
Plan and our Third Amended and Restated 2006 Stock Plan and
restricted stock awards and restricted stock units granted under
our Third Amended and Restated 2006 Stock Plan.
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(2)
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Options issued under plans not
approved by the shareholders include: (i) 180,000 options
granted in March 2001 to Robert M. Holster, our current Chairman
and former Chief Executive Officer, under the terms of his
employment agreement, (ii) 151,250 options granted in
September 2006 to ten former senior executives of BSPA in
connection with their joining us, and (iii) 60,000 options
granted in July 2007 to Walter D. Hosp, our Chief Financial
Officer, under the terms of his employment agreement.
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17
Comparative
Stock Performance Graph
The graph below compares the cumulative total stockholder return
on our common stock with the cumulative total stockholders
return of the NASDAQ Composite Index, the NASDAQ Computer and
Data Processing Index and the NASDAQ Health Services Index
assuming an investment of $100 on December 31, 2004 and the
reinvestment of dividends through fiscal year ended
December 31, 2009.
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12/31/04
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12/31/05
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12/31/06
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12/31/07
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12/31/08
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12/31/09
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HMS Holdings Corp.
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100.00
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85.00
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168.33
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369.00
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350.22
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541.00
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NASDAQ Composite
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100.00
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101.33
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114.01
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123.71
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73.11
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105.61
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NASDAQ Computer & Data Processing
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100.00
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102.45
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115.69
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138.09
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78.91
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126.06
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NASDAQ Health Services
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100.00
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106.30
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112.25
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113.33
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79.24
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91.44
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Notwithstanding anything to the contrary set forth in any of
our previous or future filings under the Securities Act of 1933,
as amended, or the Securities Exchange Act of 1934, as amended,
that might incorporate by reference this Annual Report on
Form 10-K
or future filings made by us under those statutes, the Stock
Performance Graph is not deemed filed with the Securities and
Exchange Commission, is not deemed soliciting material and shall
not be deemed incorporated by reference into any of those prior
filings or into any future filings we make under those statutes,
except to the extent that we specifically incorporate such
information by reference into a previous or future filing, or
specifically request that such information be treated as
soliciting material, in each case under those statutes.
18
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Item 6.
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Selected
Financial Data
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The following table sets forth selected consolidated financial
data at and for each of the five fiscal years in the period
ended December 31, 2009. It should be read in conjunction
with the Consolidated Financial Statements and Supplementary
Data thereto, included in Item 8 of this Report, and
Managements Discussion and Analysis of Financial Condition
and Results of Operations, included in Item 7 of this
Report.
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Year Ended December 31,
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2009
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2008
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2007
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2006
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2005
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(In thousands, except per share data)
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|
Statement of Operations Data:
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|
|
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|
|
|
|
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Revenue
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$
|
229,237
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|
|
$
|
184,495
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|
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$
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146,651
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|
|
$
|
87,940
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|
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$
|
60,024
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Operating expenses
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|
|
177,369
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|
|
|
147,765
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|
118,370
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|
80,115
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|
52,448
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Operating income
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51,868
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|
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|
36,730
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|
|
|
28,281
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|
|
|
7,825
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|
|
|
7,576
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|
Interest expense
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|
|
(1,080
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)
|
|
|
(1,491
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)
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|
|
(2,207
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)
|
|
|
(1,014
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)
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|
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Interest and other income
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|
|
226
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|
|
|
719
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|
|
|
475
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|
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|
1,686
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|
|
|
1,238
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|
|
|
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Income from continuing operations before income taxes
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51,014
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|
35,958
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|
26,549
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|
|
|
8,497
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|
|
|
8,814
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Income tax expense
|
|
|
20,966
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|
|
|
14,583
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|
11,593
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|
3,588
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|
|
465
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|
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Income from continuing operations
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|
30,048
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|
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|
21,375
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|
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|
14,956
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|
4,909
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|
|
|
8,349
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Discontinued operations:
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Income from discontinued operations, net
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|
|
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416
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839
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|
Loss on disposal of discontinued operations, net
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(1,161
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)
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Income (loss) from discontinued operations
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|
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416
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|
(322
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)
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Net income
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|
$
|
30,048
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|
|
$
|
21,375
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|
|
$
|
14,956
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|
|
$
|
5,325
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|
|
$
|
8,027
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|
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Net Income Per Common Share:
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Basic net income (loss) per common share
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From continuing operations
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$
|
1.15
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|
|
$
|
0.85
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|
|
$
|
0.63
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|
|
$
|
0.23
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|
|
$
|
0.42
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From discontinued operations
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|
|
|
|
|
|
|
|
|
|
|
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|
|
0.02
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|
|
(0.01
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)
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|
|
|
|
|
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|
|
|
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Net income per common share Basic
|
|
$
|
1.15
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|
|
$
|
0.85
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|
|
$
|
0.63
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|
|
$
|
0.25
|
|
|
$
|
0.41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Diluted net income (loss) per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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From continuing operations
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|
$
|
1.09
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|
|
$
|
0.80
|
|
|
$
|
0.57
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|
|
$
|
0.21
|
|
|
$
|
0.37
|
|
From discontinued operations
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.01
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|
|
|
(0.01
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)
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|
|
|
|
|
|
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|
|
|
|
|
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|
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|
|
|
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|
Net income per common share Diluted
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|
$
|
1.09
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|
|
$
|
0.80
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|
|
$
|
0.57
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|
|
$
|
0.22
|
|
|
$
|
0.36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
26,110
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|
|
|
25,048
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|
|
|
23,904
|
|
|
|
21,731
|
|
|
|
19,865
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
27,621
|
|
|
|
26,816
|
|
|
|
26,249
|
|
|
|
23,859
|
|
|
|
22,287
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
2009
|
|
2008
|
|
2007
|
|
2006
|
|
2005
|
|
|
(In thousands)
|
|
Balance Sheet Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
64,863
|
|
|
$
|
49,216
|
|
|
$
|
21,275
|
|
|
$
|
12,527
|
|
|
$
|
41,141
|
|
Working capital
|
|
|
113,967
|
|
|
|
70,753
|
|
|
|
37,110
|
|
|
|
25,264
|
|
|
|
52,535
|
|
Total assets
|
|
|
270,644
|
|
|
|
222,513
|
|
|
|
188,100
|
|
|
|
157,243
|
|
|
|
87,601
|
|
Long-term debt
|
|
|
|
|
|
|
11,025
|
|
|
|
17,325
|
|
|
|
23,625
|
|
|
|
|
|
Shareholders equity
|
|
$
|
238,293
|
|
|
$
|
178,362
|
|
|
$
|
138,749
|
|
|
$
|
106,907
|
|
|
$
|
72,769
|
|
19
Notes to
Selected Consolidated Financial Data
|
|
|
|
|
Discontinued Operations. In 2005, we sold our former subsidiary,
Accordis Inc., or Accordis. This business was previously
presented as a separate reportable segment and represented a
separate class of clients and major business. Accordingly, the
operating results are presented as discontinued operations for
all periods presented.
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|
|
|
In April 2005, FASB issued guidance on stock compensation which
requires that the costs resulting from all share-based payment
transactions be recognized in the financial statements at fair
value. We adopted this guidance on January 1, 2006 using
the modified prospective application method under which the
provisions apply to new awards and to awards modified,
repurchased, or cancelled after the adoption date. Additionally,
compensation cost for the portion of the awards for which the
requisite service has not been rendered that are outstanding as
of the adoption date is recognized in our Consolidated
Statements of Income over the remaining service period after the
adoption date based on the awards original estimate of
fair value. Prior to January 1, 2006, no compensation
expense related to stock option plans was reflected in our
Consolidated Statements of Income as all stock options had an
exercise price equal to the market value of the underlying
common stock on the date of grant. Results for prior periods
have not been restated. See Note 11 of the Notes to
Consolidated Financial Statements for additional information
about our shared-based compensation plans.
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|
|
|
In September 2006, we acquired the assets of the BSPA for
$81.2 million in cash, 1,749,800 shares of our common
stock, then valued at $24.4 million, and a contingent cash
payment of up to $15.0 million payable upon BSPAs
achievement of certain revenue targets for the twelve months
ended June 30, 2007. In September 2007, we paid PCG
$15.0 million of additional consideration as a result of
BSPAs achievement of the revenue targets, which increased
goodwill resulting from this acquisition. BSPA provides a
variety of cost avoidance, insurance verification, recovery
audit and related services to state Medicaid agencies, children
and family services agencies, and the U.S. Department of
Veterans Affairs.
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|
|
|
In October 2007, we purchased the net assets of Peer Review
Systems, Inc., doing business as Permedion (Permedion), for
$0.6 million. Permedion is a healthcare quality review and
improvement organization based in Westerville, Ohio. The
acquisition of Permedion did not have a material effect on our
fiscal year 2009, 2008 and 2007 revenue, earnings, earnings per
share or liquidity. See Note 2 of the Notes to Consolidated
Financial Statements for additional information about our
Permedion acquisition.
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|
|
|
In September 2008, we purchased the net assets of Prudent Rx for
$4.5 million in cash, with additional future payments
contingent upon Prudent Rxs achievement of financial
performance milestones. The additional future payments of up to
$2.3 million ($1.15 million for each of the years
ending December 31, 2009 and 2010) will be made and
recorded as additional goodwill upon Prudent Rxs
achievement of each milestone. Prudent Rx did not achieve the
2009 performance milestone and, as a result, the first
$1.15 million payment will not be made. Prudent Rx is a
pharmacy audit and cost containment company based in Culver
City, California. With this acquisition, we further expanded our
portfolio of program integrity service offerings for government
healthcare programs and managed care organizations, particularly
in the pharmacy arena. The acquisition of Prudent Rx did not
have a material effect on our fiscal year 2009 and 2008 revenue,
earnings, earnings per share or liquidity. See Note 2 of
the Notes to Consolidated Financial Statements for additional
information about our Prudent Rx acquisition.
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|
|
|
In September 2009, we acquired IntegriGuard for
$5.1 million. IntegriGuard provides services for the
prevention and detection of fraud, waste, and abuse in the
healthcare system and is based in Omaha, Nebraska, operating as
our wholly owned subsidiary. With this acquisition, we further
expanded our portfolio of program integrity service offerings
for government healthcare programs, particularly in the Medicare
and Medicaid programs. The acquisition of IntegriGuard did not
have a material effect on our 2009 revenue, earnings, earnings
per share or liquidity.
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|
|
|
In December 2009, we acquired Verify Solutions for
$8.1 million, with additional future payments contingent
upon future financial performance. Verify Solutions specializes
in dependent eligibility audit services for employer-sponsored
healthcare plans and is based in Alpharetta, Georgia. With this
acquisition,
|
20
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|
|
|
|
we moved into the large and mid-market employer-based market.
The acquisition of Verify Solutions did not have a material
effect on our 2009 revenue, earnings, earnings per share or
liquidity.
|
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations.
|
We begin Managements Discussion and Analysis of Financial
Condition and Results of Operations with a discussion of the
critical accounting policies that we believe are important to
understanding the assumptions and judgments incorporated in our
reported financial results. We then present a business overview
followed by a discussion of our results of operations. Lastly,
we provide an analysis of our liquidity and capital resources,
including discussions of our cash flows, sources of capital and
financial commitments.
The following discussions and analysis of financial condition
and results of operations should be read in conjunction with the
other sections of this Report, including the Consolidated
Financial Statements and Supplemental Data thereto appearing in
Part II, Item 8 of this Report, the Risk Factors
appearing in Part I, Item 1A of this Report and the
disclaimer regarding forward-looking statements appearing at the
beginning of Part I, Item 1 of this Report. Historical
results set forth in Part II, Item 6, Item 7 and
Item 8 of this Report should not be taken as necessarily
indicative of our future operations.
Critical
Accounting Policies
Revenue Recognition. A majority of our
contracts are contingency fee based. We recognize revenue on
contingency fee based contracts when third party payors remit
payment to our clients and, consequently, the contingency is
deemed to have been satisfied. For certain contracts, this may
result in revenue being recognized in irregular increments. We
recognize revenue on our general service agreements as work is
performed and amounts are earned. We consider amounts to be
earned once evidence of an arrangement has been obtained,
services are delivered, fees are fixed or determinable, and
collectability is reasonably assured. Our contracts with the
federal government generally are cost-plus or time and material
based. Revenue on cost-plus contracts is recognized based on
costs incurred plus an estimate of the negotiated fee earned.
Revenue on time and materials contracts is recognized based on
hours worked and expenses incurred.
Where contracts have multiple deliverables, we evaluate these
deliverables at the inception of each contract and as each item
is delivered. As part of this evaluation, we consider whether
(i) a delivered item has value to a client on a stand-alone
basis; (ii) there is objective and reliable evidence of the
fair market value of the undelivered items; and
(iii) whether the delivery of the undelivered items is
considered probable and substantially within our control, if a
general right of return exists. Where deliverables, or groups of
deliverables, have all three of these characteristics, we treat
each deliverable item as a separate unit of accounting and apply
the relevant revenue recognition guidance to each deliverable.
Arrangements including implementation and transaction related
revenue are accounted for as a single unit of accounting. Since
implementation services do not carry a standalone value, the
revenue relating to these services is recognized over the term
of the client contract to which it relates.
Expense Classifications: Our cost of services
in our statement of income is presented in the seven categories
set forth below. Each category of cost excludes costs relating
to selling, general and administrative functions, which are
presented separately as a component of total operating expenses.
A description of the primary costs included in each cost of
service category is provided below:
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|
|
|
|
Compensation: Salary, fringe benefits, and bonus.
|
|
|
|
Data processing: Hardware, software and data
communication costs.
|
|
|
|
Occupancy: Rent, utilities, depreciation, office
equipment, repair and maintenance costs.
|
|
|
|
Direct project costs: Variable costs incurred from third
party providers that are directly associated with specific
revenue generating projects.
|
|
|
|
Other operating costs: Professional fees, temporary
staffing, travel and entertainment, insurance and local and
property tax costs.
|
21
|
|
|
|
|
Amortization of intangibles: Amortization cost of
acquisition-related software and intangible assets.
|
|
|
|
Selling, general and administrative: Costs related to
general management, marketing and administration activities
including stock based compensation costs.
|
Accounting for Income Taxes. We file income tax returns
with the federal government and various state jurisdictions. We
are no longer subject to federal income tax examinations by tax
authorities for years before 2006. We operate in a number of
state and local jurisdictions, and as such, are subject to
income tax examinations depending upon the statute of
limitations in each jurisdiction.
At December 31, 2009, we had net operating loss (NOL)
carry-forwards of $0.3 million which are subject to
limitation set forth in the Internal Revenue Code of 1986, as
amended, or the Code, and are available to offset future federal
taxable income. During 2009, we utilized $33.0 million in
tax deductions arising from 2009 stock option exercises, which
resulted in an excess tax benefit of $13.2 million recorded
to capital and an offsetting reduction to taxes payable.
There was no change in our valuation allowance from
December 31, 2008 to 2009. Thus, at December 31, 2009,
our valuation allowance remained at $2.7 million. The sale
of our subsidiary Accordis, in 2005, resulted in a capital loss
of $6.0 million, which can be carried forward for five
years, and produced a deferred tax asset of $2.5 million.
We believe the available objective evidence, principally the
capital loss carry-forward being utilizable to offset only
future capital gains, creates sufficient uncertainty regarding
the realizability of our capital loss carry-forward that it is
more likely than not, that substantially all of the capital loss
carry-forward is not realizable. The remaining valuation
allowance of $0.2 million relates to certain state NOLs.
There is sufficient doubt about our ability to utilize these
NOLs that it is more likely than not that these state NOLs are
not realizable.
At December 31, 2009 and 2008, we had approximately
$1.0 million and $0.5 million of net unrecognized tax
benefits, respectively, for which there is uncertainty about the
allocation and apportionment impacting state taxable income. If
recognized, this amount would impact our effective tax rate;
however, we do not expect any significant change in unrecognized
tax benefits during the next twelve months. We have recognized
interest accrued related to unrecognized tax benefits in
interest expense and penalties in tax expense. The accrued
liabilities related to uncertain tax positions were
$0.4 million and $0.2 million at December 31,
2009 and 2008, respectively. The additions to the accrued
liabilities related to uncertain tax positions taken during 2009
are related to tax positions taken during the year.
As of December 31, 2009 and 2008, our net deferred tax
asset was $0.5 million and $3.7 million, respectively,
net of the valuation allowance of $2.7 million,
Valuation of long lived and intangible assets and
goodwill. Goodwill, representing the excess of
acquisition costs over the fair value of net assets of acquired
businesses, is not amortized but is reviewed for impairment at
least annually at the reporting unit level and written down only
in the periods in which it is determined that the recorded value
is greater than its fair value. The fair values of our reporting
units are substantially in excess of their carrying value.
Accordingly, we have not recorded impairment losses for any of
our acquisitions.
Long-lived assets are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying value may
not be recoverable. Factors that could trigger an impairment
review include the following:
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significant underperformance relative to expected historical or
projected future operating results;
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|
|
significant changes in the manner of our use of the acquired
assets or the strategy for our overall business;
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|
significant negative industry or economic trends;
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|
|
significant decline in our stock price for a sustained
period; and
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|
|
a decrease in our market capitalization relative to our net book
value.
|
We determine the recoverability of the carrying value of our
long-lived assets based on a projection of the estimated
undiscounted future net cash flows expected to result from the
use of the asset. When we determine that the carrying value of
long-lived assets may not be recoverable, we measure any
impairment by comparing the carrying amount of the asset with
the fair value of the asset. For identifiable intangibles, we
determine fair value based on a projected discounted cash flow
method using a discount rate reflective of our cost of funds.
22
Estimating valuation allowances and accrued liabilities, such
as bad debts. The preparation of financial
statements requires our management to make estimates and
assumptions that affect the reported amount of assets and
liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts
of revenue and expenses during the reported period. In
particular, management must make estimates of the probability of
collecting our accounts receivable. When evaluating the adequacy
of the allowance for doubtful accounts, management reviews our
accounts receivable based on an analysis of historical bad
debts, client concentrations, client credit-worthiness, current
economic trends and changes in our client payment terms. As of
December 31, 2009, the accounts receivable balance was
$64.7 million, net of allowance for doubtful accounts of
$0.6 million.
Share-based Compensation. We grant stock
options to purchase our common stock, restricted stock awards
and restricted stock units to our employees and directors under
our Third Amended and Restated 2006 Stock Plan, or the 2006
Plan. Our 2006 Plan was adopted in June 2006 and superseded our
1999 Long-Term Incentive Stock Plan, or the 1999 Plan. There are
options outstanding that were granted under the 1999 Plan. In
addition, there are options outstanding that were granted
outside these plans. The benefits provided under these plans are
subject to the stock compensation standards provided by FASB. We
elected the modified-prospective method, under which prior
periods are not revised for comparative purposes. Under the fair
value recognition provisions of this accounting standard,
share-based compensation cost is measured at the grant date
based on the fair value of the award and is recognized as
expense on a straight-line basis over the requisite service
period, which is generally the vesting period. Stock options
granted under our 2006 or 1999 Plan generally vest over a one to
four year period. The restricted stock awards and restricted
stock units granted under our 2006 Plan vest over a three to
five year period and the related share-based compensation
expense is ratably recognized over those same time periods.
The fair value of each option grant was determined using the
Black-Scholes option pricing model. This model uses the expected
term of the option, the expected volatility of the price of our
common stock, risk free interest rates and expected dividend
yield of our common stock. Expected volatilities are calculated
based on the historical volatility of our stock. Management
monitors stock option exercise and employee termination patterns
to estimate forfeiture rates within the valuation model.
Separate groups of employees that have similar historical
exercise behavior are considered separately for valuation
purposes. The expected holding period of options represents the
period of time that options granted are expected to be
outstanding. The risk-free interest rate for periods within the
contractual life of the option is based on the interest rate of
a 5-year
U.S. Treasury Note in effect on the date of the grant. All
share based payment awards are amortized on a straight-line
basis over the requisite service period of the awards, which is
generally the vesting period.
If factors change and we employ different assumptions for
estimating share-based compensation expense in future periods or
if we decide to use a different valuation model, share-based
compensation in future periods may differ significantly from
what we have recorded in the current period and could materially
affect our operating income, net income and net income per share.
The guidance issued by FASB requires forfeitures to be estimated
at the time of grant and be revised in subsequent periods if
actual forfeitures differ from those estimates. If actual
forfeitures vary from our estimates, we will recognize the
difference in compensation expense in the period the actual
forfeitures occur or at the time of vesting.
See Note 11 of the Notes to Consolidated Financial
Statements for further information regarding our stock-based
compensation plans.
Use of estimates. We prepare our Consolidated
Financial Statements in accordance with U.S. GAAP. In doing
so, we have to make estimates and assumptions that affect our
reported amounts of assets, liabilities, revenue and expenses,
as well as related disclosure of contingent assets and
liabilities. In some cases, we could reasonably have used
different accounting policies and estimates. In some cases,
changes in the accounting estimates are reasonably likely to
occur from period to period. Accordingly, actual results could
differ materially from our estimates. To the extent that there
are material differences between these estimates and actual
results, our financial condition or results of operations will
be affected. We base our estimates on past experience and other
assumptions that we believe are reasonable under the
circumstances, and we evaluate these estimates on an ongoing
basis. We refer to accounting estimates of this type as critical
accounting policies and estimates, which we have discussed
23
further above. We have reviewed our critical accounting policies
and estimates with the audit committee of our board of directors.
The policies described above are not intended to be a
comprehensive list of all of our accounting policies. In many
cases, the accounting treatment of a particular transaction is
specifically dictated by U.S. GAAP, with no need for
managements judgment in their application. There are also
areas in which the audited consolidated financial statements and
notes thereto included in this
Form 10-K
contain accounting policies and other disclosures required by
U.S. GAAP.
Business
Overview
Beginning in the first quarter of 2007, we were managed and
operated as one business, with a single management team that
reports to the chief executive officer. We do not operate
separate lines of business with respect to any of our product
lines. Accordingly, we do not prepare discrete financial
information with respect to separate product lines or by
location and do not have separately reportable segments as
defined by the guidance provided by FASB.
We provide a variety of cost containment, coordination of
benefits and program integrity services for government-sponsored
health and human services programs. These services are designed
to help our clients recover amounts due from liable third
parties, reduce costs, ensure regulatory compliance, and
increase operational efficiencies.
Our clients are state Medicaid agencies, government-sponsored
managed care plans, PBMs, child support agencies, VHA, CMS,
commercial plans, self-funded employer plans and other
healthcare payors. We help these payors contain healthcare costs
by identifying third party insurance coverage and recovering
expenditures that were the responsibility of the third party, or
that were paid in error.
At December 31, 2009, our cash and cash equivalents and net
working capital were $64.9 million and $114.0 million,
respectively. In connection with our BSPA acquisition, we
entered into a credit agreement with several banks and other
financial institutions with JPMorgan Chase Bank, N.A., as
administrative agent, which we refer to as the Credit Agreement.
The Credit Agreement provided for a term loan of
$40 million, which we refer to as the Term Loan, and
revolving credit loans of up to $25 million, which we refer
to as the Revolving Loan. During the year ended
December 31, 2009, we repaid in full the $17.3 million
of debt outstanding under the Term Loan; however, we continue to
have an irrevocable standby letter of credit for
$4.6 million against the Revolving Loan, which we refer to
as the Letter of Credit, as required by a contractual
arrangement with a client. Although we expect that operating
cash flows will continue to be a primary source of liquidity for
our operating needs, we also have the remaining balance of the
Revolving Loan available for future cash flow needs, if
necessary.
Our revenue, most of which is derived from contingency fees, has
increased at an average compounded rate of approximately 35.4%
per year for the last five years. Our 2009 revenue increased to
$229 million, $45 million over 2008 revenue. Our
growth has been attributable to our expansion of existing
product offerings and acquisitions, as well as the increase in
Medicaid costs, which has historically averaged approximately 8%
annually. In addition, state governments have increased their
use of vendors for coordination of benefits and other cost
containment functions, and we have been able to increase our
revenue through these initiatives. Leveraging our work on behalf
of state Medicaid
fee-for-service
programs, we have begun to penetrate the Medicaid managed care
market, into which more Medicaid lives are being shifted. As of
December 31, 2009, we served 39 state Medicaid
agencies and 112 Medicaid health plans under 48 contracts.
To date, we have grown our business through the internal
development of new services and through acquisitions of
businesses whose core services strengthen our overall mission to
help our clients control healthcare costs. In addition, we
leverage our expertise to acquire new clients at the state,
federal and employer levels and to expand our current contracts
to provide new services to current clients.
With the exception of our acquisition of BSPA, to date we have
used internally generated cash to fund our acquisitions.
24
Since 2006, we have acquired the following companies:
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Benefits Solutions Practice Area. In September 2006, we
acquired the assets of BSPA for $81.2 million in cash,
1,749,800 shares of our common stock, then valued at
$24.4 million, and a contingent cash payment of
$15.0 million, which was paid to BSPA upon its achievement
of certain revenue targets for the twelve months ended
June 30, 2007. BSPA provides a variety of cost avoidance,
insurance verification, recovery audit and related services to
state Medicaid agencies, children and family services agencies,
and the U.S. Department of Veterans Affairs.
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Permedion. In October 2007, we purchased the net assets
of Permedion for $0.6 million. Permedion is an independent
healthcare quality review and improvement organization based in
Westerville, Ohio. With this acquisition, we augmented our
portfolio of program integrity service offerings for state
Medicaid agencies and managed care organizations. Permedion
provides independent external medical review on issues of
quality of care, medical necessity and
experimental/investigational treatment to both state government
and private clients across the country. The acquisition of
Permedion did not have a material effect on our fiscal years
2009, 2008 and 2007 revenue, earnings, earnings per share or
liquidity.
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Prudent Rx. In September 2008, we purchased the net
assets of Prudent Rx for $4.5 million in cash, with
additional future payments contingent upon Prudent Rxs
achievement of financial performance milestones. The additional
future payments of up to $2.3 million ($1.15 million
for each of the years ending December 31, 2009 and
2010) will be made and recorded as additional goodwill upon
Prudent Rxs achievement of each milestone. Prudent Rx did
not achieve the 2009 performance milestone and, as a result, the
first $1.15 million payment will not be made. Prudent Rx is
a pharmacy audit and cost containment company based in Culver
City, California. With this acquisition, we further expanded our
portfolio of program integrity service offerings for government
healthcare programs and managed care organizations, particularly
in the pharmacy arena. Prudent Rxs key products and
services include audit programs, program design and benefit
management, as well as general and pharmacy systems consulting.
The acquisition of Prudent Rx did not have a material effect on
our fiscal years 2009 and 2008 revenue, earnings, earnings per
share or liquidity.
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IntegriGuard. In September 2009, we acquired IntegriGuard
for $5.1 million in cash and this purchase was accounted
for under the purchase method of accounting. IntegriGuard
provides services for the prevention and detection of fraud,
waste, and abuse in the healthcare system and is based in Omaha,
Nebraska and operates as our wholly owned subsidiary. With this
acquisition, we further expanded our portfolio of program
integrity service offerings for government healthcare programs,
particularly in the Medicare and Medicaid programs.
IntegriGuards services include audit, compliance and
education, data and analysis, eligibility verification, medical
review, and investigation services. The acquisition of
IntegriGuard did not have a material effect on our 2009 revenue,
earnings, earnings per share or liquidity.
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Verify Solutions. In December 2009, we purchased the net
assets of Verify Solutions for $8.1 million in cash, with
additional future payments contingent upon Verify
Solutions achievement of financial performance milestones.
The additional future payments of up to $5.5 million
($2.7 million and $2.8 million for the years ended
December 31, 2010 and 2011, respectively) will be made and
recorded to compensation expense in the year in which the
milestones are achieved. Verify Solutions specializes in
dependent eligibility audit services for employer-sponsored
healthcare plans and is based in Alpharetta, Georgia. With this
acquisition, we moved into the large and mid-market
employer-based market. The acquisition of Verify Solutions did
not have a material effect on our 2009 revenue, earnings,
earnings per share or liquidity.
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25
Years
Ended December 31, 2009 and 2008
The following table sets forth, for the periods indicated,
certain items in our Consolidated Statements of Income expressed
as a percentage of revenue:
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Years Ended
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|
December 31,
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2009
|
|
|
2008
|
|
|
Revenue
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
Cost of service
|
|
|
|
|
|
|
|
|
Compensation
|
|
|
33.7
|
%
|
|
|
32.8
|
%
|
Data processing
|
|
|
6.0
|
%
|
|
|
6.0
|
%
|
Occupancy
|
|
|
4.7
|
%
|
|
|
5.5
|
%
|
Direct project costs
|
|
|
12.4
|
%
|
|
|
15.3
|
%
|
Other operating costs
|
|
|
6.1
|
%
|
|
|
5.9
|
%
|
Amortization of intangibles
|
|
|
2.2
|
%
|
|
|
2.6
|
%
|
|
|
|
|
|
|
|
|
|
Total cost of services
|
|
|
65.1
|
%
|
|
|
68.1
|
%
|
Selling general and administrative expenses
|
|
|
12.3
|
%
|
|
|
12.0
|
%
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
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|
77.4
|
%
|
|
|
80.1
|
%
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
22.6
|
%
|
|
|
19.9
|
%
|
Interest expense
|
|
|
(0.5
|
)%
|
|
|
(0.8
|
)%
|
Net interest income
|
|
|
0.1
|
%
|
|
|
0.4
|
%
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
22.2
|
%
|
|
|
19.5
|
%
|
Income taxes
|
|
|
(9.1
|
)%
|
|
|
(7.9
|
)%
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
13.1
|
%
|
|
|
11.6
|
%
|
|
|
|
|
|
|
|
|
|
Operating
Results
Revenue for the year ended December 31, 2009 was
$229.2 million, an increase of $44.7 million or 24.3%
from revenue of $184.5 million for the year ended
December 31, 2008. This increase reflects the organic
growth in existing client accounts, the addition of new clients,
including those gained through acquisitions, and changes in the
yield and scope of client projects.
Compensation expense as a percentage of revenue was 33.7% for
the year ended December 31, 2009, compared to 32.8% for the
prior year and compensation expense was $77.2 million for
2009, an increase of $16.6 million, or 27.5% from the prior
year compensation expense of $60.6 million. This increase
reflects $12.5 million in additional salary expense,
$1.7 million in additional variable compensation and
$2.4 million in additional expense related to employee
benefits. For the year ended December 31, 2009, we averaged
980 employees, a 24.8% increase over the year ended
December 31, 2008, during which we averaged
785 employees. The increase reflects the addition of new
staff as a result of our acquisition of Prudent Rx during the
third quarter of 2008, our acquisition of IntegriGuard during
the third quarter of 2009, and the addition of staff in the
areas of client support, technical support and operations during
2009.
Data processing expense as a percentage of revenue was 6.0% in
both fiscal 2009 and 2008 and data processing expense was
$13.7 million for 2009, an increase of $2.7 million or
24.7% from the prior year data processing expense of
$11.0 million. Revenue growth drove the need for increased
capacity in our data processing environment. Expenses increased
by $1.7 million relating to software leases and
maintenance, $0.8 million relating to depreciation and
amortization of equipment and software, and $0.2 million
relating to network communications as required by business
expansion.
Occupancy expense as a percentage of revenue was 4.7% for the
year ended December 31, 2009, compared to 5.5% for the
prior year and occupancy expense was $10.9 million for
2009, an increase of $0.8 million or 7.9% from
26
the prior year occupancy expense of $10.1 million. This
increase reflected $0.5 million of additional equipment
expense, rental and maintenance, $0.5 million of additional
utilities and common area maintenance charges, and
$0.2 million of additional depreciation of leasehold
improvements, furniture and fixtures and telephone systems. Rent
and other occupancy expenses decreased by $0.4 million due
to the migration of operational support to our Irving, Texas
location and the savings associated with subleasing one of the
floors in our New York City location.
Direct project expense as a percentage of revenue was 12.4% for
the year ended December 31, 2009, compared to 15.3% for the
prior year and direct project expense for 2009 remained the same
as the prior fiscal year expense of $28.4 million. Direct
project expense increased at a rate lower than revenue growth
due to our efforts to reduce subcontractor utilization by
bringing work in-house, savings related to efficiencies and
economies of scale, and the content of revenue earned during the
year.
Other operating expenses as a percentage of revenue were 6.1%
for the year ended December 31, 2009, compared to 5.9% for
the prior year and other operating expenses for 2009 were
$14.0 million, an increase of $3.2 million or 29.5%
from the prior year expense of $10.8 million. This increase
represents a $1.2 million increase in professional fees,
including consulting, subcontractor, and temporary help, an
increase of $1.2 million in travel expenses, and
$0.8 million for supplies, printing, postage, delivery,
management meetings and training expenditures within our
operational departments as a result of the expansion of our
business.
Amortization of acquisition-related software and intangibles as
a percentage of revenue was 2.2% for the year ended
December 31, 2009, compared to 2.6% for the prior year and
amortization of acquisition-related software and intangibles
expenses for 2009 was $5.1 million, an increase of
$0.4 million or 7.5% compared to the prior year expense of
$4.7 million. This expense consists primarily of
amortization of client relationships, trade names and software.
The increase in amortization of acquisition-related software and
intangibles expense compared to last year is a result of our
acquisitions of Prudent Rx in 2008 and IntegriGuard in 2009.
Selling, general, and administrative expenses as a percentage of
revenue were 12.3% for the year ended December 31, 2009,
compared to 12.0% for the prior year and selling, general and
administrative expenses for 2009 were $28.1 million, an
increase of $6.0 million or 26.9%, compared to the prior
year expense of $22.1 million. During the year ended
December 31, 2009, we averaged 73 employees in the
sales, general and administrative group, a 17.7% increase over
our average of 62 employees in that group during the year
ended December 31, 2008. Compensation increased by
$4.5 million due to a $2.9 million increase in stock
compensation expense, a $0.7 million increase due to
headcount additions and annual salary increases, a
$0.7 million increase for variable compensation, and a
$0.2 million increase due to fringe benefits. Occupancy
expense increased by $0.6 million related to square footage
utilization of the sales, general and administrative group.
Other expenses increased by $1.0 million, of which
$0.4 million represented transaction costs related to the
IntegriGuard and Verify Solutions acquisitions,
$0.3 million represented consulting and other professional
fees and $0.3 million represented employee-related
expenses. Data processing expenses decreased by
$0.1 million related to the expiration of software leases.
Operating income for the year ended December 31, 2009 was
$51.9 million or 22.6% of revenue compared to
$36.7 million or 19.9% of revenue for the prior year. This
increase was primarily the result of increased revenue, which
was partially offset by incremental operating costs incurred
during the year ended December 31, 2009.
Interest expense was $1.1 million for the year ended
December 31, 2009 compared to $1.5 million for the
same period in 2008. In both periods, interest expense was
attributable to borrowings under the Term Loan and amortization
of deferred financing costs. We repaid the Term Loan in full in
2009. As a result, the decrease in interest expense is due to
both lower variable interest rates and a reduction in the
principal balance of the Term Loan for the year ended
December 31, 2009 compared to the same prior in 2008,
partially offset by the full amortization of deferred financing
costs upon our repayment of the Term Loan. Interest income was
$226,000 for the year ended December 31, 2009, compared to
interest income of $719,000 for the year ended December 31,
2008, principally due to lower interest rates, which were
partially offset by higher cash balances.
Income tax expense of $21.0 million was recorded for the
year ended December 31, 2009, an increase of
$6.4 million compared to the same period in 2008. Our
effective tax rate increased to 41.1% in 2009 from 40.6% for
27
the year ended December 31, 2008 primarily due to a change
in state apportionments. The principal difference between the
statutory tax rate and our effective tax rate is state taxes.
During 2009, we utilized $33.0 million in tax deductions
arising from 2009 stock option exercises, which resulted in an
excess tax benefit of $13.2 million recorded to capital and
an offsetting reduction to taxes payable.
Net income of $30.0 million for the year ended
December 31, 2009 represents an increase of
$8.7 million over net income for the same period in 2008 of
$21.4 million.
Years
Ended December 31, 2008 and 2007
The following table sets forth, for the periods indicated,
certain items in our Consolidated Statements of Operations
expressed as a percentage of revenue:
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|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
Revenue
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
Cost of service
|
|
|
|
|
|
|
|
|
Compensation
|
|
|
32.8
|
%
|
|
|
31.5
|
%
|
Data processing
|
|
|
6.0
|
%
|
|
|
6.3
|
%
|
Occupancy
|
|
|
5.5
|
%
|
|
|
5.7
|
%
|
Direct project costs
|
|
|
15.3
|
%
|
|
|
15.5
|
%
|
Other operating costs
|
|
|
5.9
|
%
|
|
|
4.5
|
%
|
Amortization of intangibles
|
|
|
2.6
|
%
|
|
|
3.2
|
%
|
|
|
|
|
|
|
|
|
|
Total cost of services
|
|
|
68.1
|
%
|
|
|
66.7
|
%
|
Selling general and administrative expenses
|
|
|
12.0
|
%
|
|
|
14.0
|
%
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
80.1
|
%
|
|
|
80.7
|
%
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
19.9
|
%
|
|
|
19.3
|
%
|
Interest expense
|
|
|
(0.8
|
)%
|
|
|
(1.5
|
)%
|
Net interest income
|
|
|
0.4
|
%
|
|
|
0.3
|
%
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
19.5
|
%
|
|
|
18.1
|
%
|
Income taxes
|
|
|
(7.9
|
)%
|
|
|
(7.9
|
)%
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
|
11.6
|
%
|
|
|
10.2
|
%
|
|
|
|
|
|
|
|
|
|
Operating
Results
Revenue for the year ended December 31, 2008 was
$184.5 million, an increase of $37.8 million or 25.8%
from revenue of $146.7 million for the year ended
December 31, 2007. This increase reflected the organic
growth in existing client accounts, the addition of new clients,
including those gained through acquisition, changes in the yield
and scope of client projects, and differences in the timing of
when client projects were completed compared to the prior year.
Compensation expense as a percentage of revenue was 32.8% for
the year ended December 31, 2008, compared to 31.5% for the
same period in the prior year and compensation expense was
$60.6 million for 2008, an increase of $14.4 million,
or 31.1% from the prior year compensation expense of
$46.2 million. This increase reflected $12.5 million
in additional salary expense and $1.9 million in additional
expense related to employee benefits. For the year ended
December 31, 2008, we averaged 785 employees, a 29.5%
increase over the year ended December 31, 2007, during
which we averaged 606 employees. The increase reflects the
addition of new staff as a result of our acquisition of the
business of Permedion during the fourth quarter of 2007, our
acquisition of Prudent Rx during the third quarter of 2008, and
the addition of staff in the areas of client support, technical
support and operations during 2008.
28
Data processing expense as a percentage of revenue was 6.0% for
the year ended December 31, 2008, compared to 6.3% for the
same period in 2007 and data processing expense was
$11.0 million for 2008, an increase of $1.7 million or
18.3% compared to the prior year data processing expense of
$9.3 million. Revenue growth drove the need for increased
capacity in our mainframe environment. Expenses increased by
$0.5 million relating to depreciation and amortization of
equipment and software, $0.5 million relating to software
leases and maintenance, $0.3 million relating to equipment
rental and maintenance, $0.3 million relating to network
communications and $0.1 million for data processing
supplies as required by business expansion.
Occupancy expense as a percentage of revenue was 5.5% for the
year ended December 31, 2008, compared to 5.7% for the
prior year and occupancy expense was $10.1 million for
2008, an increase of $1.6 million or 19.5% from the prior
year expense of $8.4 million. This increase reflected
$1.1 million of additional rent and facilities expense, and
$0.5 million of additional depreciation of leasehold
improvements, furniture and fixtures and telephone systems.
Increases totaling $0.3 million in utilities, building
services and moving expenses were offset by decreases in fixed
assets disposals of $0.3 million.
Direct project expense as a percentage of revenue was 15.3% for
the year ended December 31, 2008, compared to 15.5% for the
prior year and direct project expense was $28.4 million for
2008, an increase of $5.7 million or 24.8% from the prior
fiscal year expense of $22.8 million. This increase
resulted from revenue growth for the period, and is within our
usual 14%-17% range for direct costs as a percentage of revenue.
Other operating expenses as a percentage of revenue were 5.9%
for the year ended December 31, 2008, compared to 4.5% for
the prior year and other operating expenses were
$10.8 million for 2008, an increase of $4.3 million or
65.6% compared to the prior year expense of $6.5 million.
This increase resulted from a $2.4 million increase in
temporary help and consultants, a $0.8 million increase in
travel expenses, and a $0.4 million increase in legal
expenses associated with operational departments. Additionally,
$0.4 million of relocation expense was incurred relating to
shifting staff to our Texas service center. Supplies, printing,
postage, delivery and training expenditures within our
operational departments increased by $0.3 million.
Amortization of acquisition-related software and intangibles as
a percentage of revenue was 2.6% for the year ended
December 31, 2008 compared to 3.2% for the prior year, an
increase of $0.1 million or 1.6% compared to prior year
expense. Amortization of software and intangibles expense of
$4.7 million consists primarily of amortization of client
relationships and software in both periods. The increase in
amortization of acquisition-related software and intangibles
expense compared to the prior year resulted from our
acquisitions of Permedion in 2007 and Prudent Rx in 2008.
Selling, general, and administrative expenses as a percentage of
revenue were 12.0% for the year ended December 31, 2008
compared to 14.0% for the prior year and selling, general, and
administrative expenses were $22.1 million for 2008, an
increase of $1.6 million or 8.0%, compared to the prior
year expense of $20.5 million. The $1.6 million
increase reflected a $2.3 million increase in compensation
cost and a $0.3 million increase in data processing
charges, which were partially offset by a $1.0 million
decrease in professional fees primarily associated with reduced
usage of temporary help and consultants.
Operating income for the year ended December 31, 2008 was
$36.7 million or 19.9% of revenue compared to
$28.3 million or 19.3% of revenue for the prior year. This
increase was primarily the result of increased revenue,
partially offset by incremental operating costs incurred during
the year ended December 31, 2008.
Interest expense was $1.5 million for the year ended
December 31, 2008 compared to $2.2 million for the
prior year. In both periods, interest expense was attributable
to borrowings under the Term Loan and amortization of deferred
financing costs. Interest income was $0.7 million for the
year ended December 31, 2008, compared to interest income
of $0.5 million for the same period in 2007 as a result of
higher cash balances in 2008.
Income tax expense of $14.6 million was recorded for the
year ended December 31, 2008, an increase of approximately
$3.0 million compared to 2007. Our effective tax rate
decreased to 40.6% in 2008 from 43.7% for 2007, primarily due to
a change in state apportionments and utilization of NOLs from
prior periods. Our tax provision in 2008 principally reflects a
current tax provision for which we utilized NOLs from stock
option exercises to reduce our current tax payable. The
principal difference between the statutory tax rate and our
effective tax rate is state taxes.
29
During 2008, we recorded a tax benefit of $10.5 million
related to the exercise of stock options by reducing income tax
payable and crediting capital. We utilized $13.1 million in
tax deductions arising from 2008 stock option exercises and
utilized $13.5 million of NOLs from stock options
carry-forwards from 2007 to recognize this tax benefit.
Net income of $21.4 million for the year ended
December 31, 2008 represents a $6.4 million increase
over net income for the same period in 2007 of
$15.0 million.
Off-Balance
Sheet Arrangements
Other than our Letter of Credit, we do not have any off-balance
sheet arrangements.
Liquidity
and Capital Resources
Our principal source of funds has been operations and we believe
that we have sufficient cash and cash equivalents to support our
operating needs through at least the next 12 months. At
December 31, 2009, our cash and cash equivalents and net
working capital were $64.9 million and $114.0 million,
respectively. Although we expect that operating cash flows will
continue to be a primary source of liquidity for our operating
needs, we also have $20.4 million available under our
Revolving Loan for future cash flow needs. There are currently
no loans outstanding under the Revolving Loan; however, we have
a $4.6 million Letter of Credit that reduces the
availability under the Revolving Loan.
Net cash provided by operating activities was $32.8 million
in 2009 compared to $30.9 million in 2008 and
$26.6 million in 2007. The increase in cash provided by
operating activities in 2009 compared to 2008 resulted from an
$8.7 million increase in net income, together with
increases in accounts payable, accrued expenses and other
liabilities, deferred tax assets, share-based compensation, and
depreciation and amortization. Largely offsetting these were
increases in accounts receivable, and in prepaid and other
current assets.
Net cash used in investing activities during 2009 was
$23.2 million compared to $11.4 million in 2008 and
$24.8 million in 2007. Cash used in investing activities in
2009 included investments in property, equipment and software of
$10.6 million, the acquisition of IntegriGuard for
$5.0 million and the acquisition of Verify Solutions for
$7.5 million. Capital expenditures in 2009, 2008 and 2007
were $10.6 million, $6.9 million, and
$9.2 million, respectively. Cash used for acquisitions in
2009, 2008 and 2007 was $12.5 million, $4.5 million
and $15.6 million, respectively. In 2008, we acquired
Prudent Rx for $4.5 million. In 2007, we made an additional
payment of $15.0 million relating to the 2006 acquisition
of BSPA and acquired Permedion for $0.6 million.
Net cash provided by financing activities during 2009 was
$6.0 million compared to $8.5 million in 2008 and
$7.0 million in 2007. In 2009, proceeds of
$10.1 million from stock option exercises and the excess
tax benefit of $13.2 million from stock option exercises
were partially offset by the full payment of our Term Loan of
$17.3 million. Proceeds from stock option exercises in
2009, 2008 and 2007 were $10.1 million, $4.2 million
and $6.6 million, respectively. The excess tax benefits
from stock option exercises in 2009, 2008, and 2007 were
$13.2 million, $10.5 million and $8.3 million,
respectively. Repayment of debt in 2009, 2008, and 2007 was
$17.3 million, $6.3 million, and $7.9 million,
respectively. We had no debt outstanding at December 31,
2009.
The net increase in cash and cash equivalents of
$15.6 million in 2009 compared to $27.9 million in
2008 and $8.7 million in 2007.
The number of days sales outstanding at December 31, 2009
increased to 88 days compared to 78 days at
December 31, 2008 due to delays in payment from several
customers.
Operating cash flows could be adversely affected by a decrease
in demand for our services. The majority of our client
relationships have been in place for several years, and as a
result, we do not expect any decrease in the demand for our
services in the near term.
30
Contractual
Obligations
The table below does not include contingent consideration that
may be paid pursuant to asset purchases or business combinations
(in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
|
|
|
Less than 1
|
|
|
|
|
|
|
|
|
More than 5
|
|
Contractual Obligations
|
|
Total
|
|
|
Year
|
|
|
1-3 Years
|
|
|
3-5 Years
|
|
|
Years
|
|
|
Operating leases
|
|
$
|
56,752
|
|
|
$
|
13,603
|
|
|
$
|
24,167
|
|
|
$
|
10,535
|
|
|
$
|
8,447
|
|
Interest
expense(1)
|
|
|
165
|
|
|
|
94
|
|
|
|
71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
56,917
|
|
|
$
|
13,697
|
|
|
$
|
24,238
|
|
|
$
|
10,535
|
|
|
$
|
8,447
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Interest expense represents the
commitment fee due on the Credit Agreement and the interest due
on the Letter of Credit. See Note 7 of the Notes to
Consolidated Financial Statements for additional information
regarding the Credit Agreement.
|
We have entered into sublease arrangements for some of our
facility obligations and expect to receive the following rental
payments in connection with those arrangements (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than
|
|
|
|
|
|
More than
|
|
|
Total
|
|
1 Year
|
|
1-3 Years
|
|
3-5 Years
|
|
5 Years
|
|
|
|
$
|
4,872
|
|
|
$
|
1,501
|
|
|
$
|
2,807
|
|
|
$
|
564
|
|
|
$
|
|
|
On May 28, 1997 the Board of Directors authorized us to
repurchase such number of shares of our common stock that have
an aggregate purchase price not to exceed $10.0 million. On
February 24, 2006 our Board of Directors increased the
aggregate purchase price to an amount not to exceed
$20.0 million. During the years ended December 31,
2009, 2008, and 2007, we did not repurchase any shares of our
common stock. Since the inception of the repurchase program, we
have repurchased 1,662,846 shares of our common stock for
an aggregate purchase price of $9.4 million.
Recent
Accounting Pronouncements
In September 2006, the FASB issued new accounting guidance on
fair value measurements. This guidance establishes a common
definition for fair value to be applied to U.S. GAAP
requiring use of fair value, establishes a framework for
measuring fair value, and expands disclosure about such fair
value measurements. It is effective for financial assets and
financial liabilities for fiscal years beginning after
November 15, 2007. A FASB staff position issued in February
2008 removed leasing transactions from the scope of the new fair
value guidance. Also in February 2008, the FASB issued
authoritative guidance deferring the effective date of the fair
value guidance for all nonfinancial assets and nonfinancial
liabilities to fiscal years beginning after November 15,
2008.
Effective January 1, 2008, we adopted this guidance on fair
value measurement and have applied its provisions to financial
assets and liabilities that are recognized or disclosed at fair
value on a recurring basis at least annually. Beginning
January 1, 2009, we adopted this guidance as it related to
nonfinancial assets and liabilities. We applied the provisions
of this guidance in our accounting for the 2009 acquisitions of
IntegriGuard and Verify Solutions.
In September 2009, the FASB issued additional guidance on
measuring the fair value of liabilities effective for the first
reporting period beginning after its issuance.
Prior to its expiration on September 30, 2009, our interest
rate swap contract (see Note 8 of the Notes to Consolidated
Financial Statements) was being carried at fair value and
measured on a recurring basis. Fair value is determined through
the use of models that consider various assumptions, including
time value, yield curves, as well as other relevant economic
measures, which are inputs that are classified as Level 2
in the valuation hierarchy. As of December 31, 2009, no
such nonfinancial assets and liabilities requiring fair value
determination under this guidance were recognized or disclosed.
In January 2010, the FASB issued guidance that requires
reporting entities to make new disclosures about recurring or
nonrecurring fair-value measurements, including significant
transfers into and out of Level 1 and Level 2 fair
value measurements and information on purchases, sales,
issuances, and settlements on a gross basis in
31
the reconciliation of Level 3 fair value measurements. The
guidance is effective for annual reporting periods beginning
after December 15, 2009, except for Level 3
reconciliation disclosures, which are effective for annual
periods beginning after December 15, 2010. We do not expect
the adoption of this guidance to have a material impact on our
consolidated financial statements.
In April 2008, the FASB issued guidance that permits entities to
choose to measure many financial instruments and certain other
items at fair value. This guidance also establishes presentation
and disclosure requirements designed to facilitate comparisons
between entities that choose different measurement attributes
for similar types of assets and liabilities. Unrealized gains
and losses on items for which the fair value option is elected
would be reported in earnings. We adopted this guidance in 2008
and elected not to measure any additional financial instruments
and other items at fair value.
In December 2007, the FASB issued new guidance related to
accounting for business combinations. This guidance, which
establishes requirements for the recognition and measurement of
acquired assets, liabilities, goodwill and non-controlling
interests and provides disclosure requirements related to
business combinations, is effective for fiscal years beginning
after December 15, 2008. We adopted this guidance effective
January 1, 2009. We have applied the provisions of this
standard to our 2009 acquisitions of IntegriGuard and Verify
Solutions, as discussed in Note 2 of the Notes to
Consolidated Financial Statements.
In November 2008, the FASB ratified an issue providing guidance
for accounting for defensive intangible assets subsequent to the
acquisition of such assets in accordance with the new business
combination and fair value standards, including the estimated
useful life that should be assigned to such assets. The new
guidance is effective for intangible assets acquired on or after
December 15, 2008. We have applied the provisions of this
standard to our 2009 acquisitions of IntegriGuard and Verify
Solutions, as discussed in Note 2 of the Notes to
Consolidated Financial Statements.
In May 2009, the FASB issued guidance establishing general
standards for accounting for and disclosure of events that occur
after the balance sheet date, but before financial statements
are issued or are available to be issued. This guidance, among
other things, sets forth the period after the balance sheet date
during which management should evaluate events or transactions
that may occur for potential recognition or disclosure in the
financial statements, the circumstances under which an entity
should recognize such events or transactions in its financial
statements, and the disclosures an entity should make about such
events or transactions. We adopted this guidance effective with
the issuance of our financial statements for the quarter ended
June 30, 2009. The disclosures required by this guidance
are included in Note 1 to the Notes to Consolidated
Financial Statements, Summary of Significant Accounting
Policies.
In August 2009, the FASB issued new accounting guidance on the
measurement of liabilities at fair value. Specifically, when a
quoted price in an active market for the identical liability is
not available, the new standard requires that the fair value of
a liability be measured using one or more of the valuation
techniques that maximize the use of relevant observable inputs
and minimize the use of unobservable inputs. In addition, an
entity is not required to include a separate input or adjustment
to other inputs relating to the existence of a restriction that
prevents the transfer of a liability. Our adoption of this
guidance in the fourth quarter of 2009 did not have a material
impact on our consolidated financial statements.
In October 2009, the FASB issued new accounting guidance related
to the recognition of revenue for multiple-deliverable
arrangements. Under the new guidance, revenue may be allocated
to the different elements in an arrangement based on relative
estimated sales prices. Also in October 2009, the FASB issued
new accounting guidance altering the scope of revenue
recognition for software deliverables to exclude items sold that
include hardware with software that is essential to the
hardwares functionality. This new guidance will be
effective prospectively for revenue arrangements entered into or
materially modified in fiscal years beginning on or after
June 15, 2010. Early adoption is permitted. We have
determined that this new guidance will not currently impact our
existing accounting over our multiple element arrangements
described in Note 1 to the Notes to Consolidated Financial
Statements.
|
|
Item 7A.
|
Quantitative
and Qualitative Disclosures About Market Risks.
|
None.
32
|
|
Item 8.
|
Financial
Statements and Supplementary Data.
|
The information required by Item 8 is found on page 37
to 63 of this report.
|
|
Item 9.
|
Changes
in and Disagreements with Accountants and Financial
Disclosure.
|
None.
|
|
Item 9A.
|
Controls
and Procedures.
|
Conclusion
Regarding the Effectiveness of Disclosure Controls and
Procedures
We maintain disclosure controls and procedures (as defined in
Rule 13a-15(e)
under the Exchange Act ) that are designed to ensure that
information required to be disclosed by us in reports that we
file under the Exchange Act is recorded, processed, summarized
and reported as specified in the SECs rules and forms and
that such information required to be disclosed by us in reports
that we file under the Exchange Act is accumulated and
communicated to our management, including our Chief Executive
Officer and our Chief Financial Officer to allow timely
decisions regarding required disclosure.
As required by
Rule 13a-15(b)
under the Exchange Act, management, with the participation of
our Chief Executive Officer and Chief Financial Officer,
performed an evaluation of the effectiveness of our disclosure
controls and procedures as of December 31, 2009. Based on
that evaluation, our Chief Executive Officer and Chief Financial
Officer concluded that our disclosure controls and procedures
were effective as of the end of the period covered by this
annual report.
Managements
Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting and for the
assessment of the effectiveness of internal control over
financial reporting. As defined by
Rule 13a-15(f)
of the Exchange Act, internal control over financial reporting
is a process designed by, or under the supervision of our Chief
Executive Officer and our Chief Financial Officer and effected
by our Board of Directors, management and other personnel, to
provide reasonable assurance regarding the reliability of
financial reporting and the preparation of the consolidated
financial statements for external purposes in accordance with
U.S. GAAP.
Our internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect our transactions and dispositions of our assets;
(2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of the consolidated
financial statements in accordance with generally accepted
accounting principles, and that our receipts and expenditures
are being made only in accordance with authorizations of our
management and directors; and (3) provide reasonable
assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of our assets that
could have a material effect on the consolidated financial
statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In connection with the preparation of our annual consolidated
financial statements, management has undertaken an assessment of
the effectiveness of our internal control over financial
reporting as of December 31, 2009, based on criteria
established in Internal Control Integrated Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission, or the COSO Framework. Managements
assessment included an evaluation of the design of our internal
control over financial reporting and testing of the operational
effectiveness of those controls.
Based on this assessment, management has concluded that as of
December 31, 2009, our internal control over financial
reporting was effective in providing reasonable assurance
regarding the reliability of financial reporting and the
preparation of the consolidated financial statements for
external purposes in accordance with U.S. GAAP.
33
KPMG LLP, the independent registered public accounting firm that
audited our consolidated financial statements included in this
report, has issued an attestation report on our assessment of
our internal control over financial reporting, a copy of which
is appears on page 39.
Changes
in Internal Control Over Financial Reporting
There have been no changes in our internal control over
financial reporting identified in connection with the evaluation
of our controls performed during the quarter ended
December 31, 2009 that have materially affected, or are
reasonably likely to materially affect, our internal control
over financial reporting.
|
|
Item 9B.
|
Other
Information.
|
None.
34
PART III
|
|
Item 10.
|
Directors,
Executive Officers and Corporate Governance.
|
Pursuant to Paragraph G(3) of the General Instructions to
Form 10-K,
the information required by Part III (Items 10, 11,
12, 13 and 14) is being incorporated by reference herein
from our definitive proxy statement (or an amendment to our
Annual Report on
Form 10-K)
to be filed with the SEC within 120 days of the end of the
fiscal year ended December 31, 2009 in connection with our
2010 Annual Meeting of Shareholders.
|
|
Item 11.
|
Executive
Compensation.
|
See Item 10.
|
|
Item 12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters.
|
See Item 10.
|
|
Item 13.
|
Certain
Relationships and Related Transactions, and Director
Independence.
|
See Item 10.
|
|
Item 14.
|
Principal
Accountant Fees and Services.
|
See Item 10.
PART IV
|
|
Item 15.
|
Exhibits
and Financial Statement Schedules.
|
1. Financial Statements.
The financial statements are listed in the Index to Consolidated
Financial Statements on page 37.
2. Financial Statement Schedules.
Financial Statement Schedule II Valuation and
Qualifying Accounts is set forth on page 63. All other
financial statement schedules have been omitted as they are
either not required, not applicable, or the information is
otherwise included.
3. Exhibits.
The Exhibits are set forth on the Exhibit Index on
page 64 and incorporated herein by reference.
35
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, Registrant has duly caused this
annual report to be signed on its behalf by the undersigned,
thereunto duly authorized.
HMS Holdings Corp.
(Registrant)
William C. Lucia
Chief Executive Officer
(Principal Executive Officer)
Date: February 26, 2010
Pursuant to the requirements of the Securities Exchange Act of
1934, this annual report has been signed below by the following
persons on behalf of the registrant and in the capacities and on
the dates indicated.
|
|
|
|
|
|
|
Signatures
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ Robert
M. Holster
Robert
M. Holster
|
|
Chairman, Board of Directors
|
|
February 26, 2010
|
|
|
|
|
|
/s/ William
C. Lucia
William
C. Lucia
|
|
Chief Executive Officer, Director
(Principal Executive Officer)
|
|
February 26, 2010
|
|
|
|
|
|
/s/ Walter
D. Hosp
Walter
D. Hosp
|
|
Chief Financial Officer
(Principal Financial and
Accounting Officer)
|
|
February 26, 2010
|
|
|
|
|
|
/s/ James
T. Kelly
James
T. Kelly
|
|
Director
|
|
February 26, 2010
|
|
|
|
|
|
/s/ William
F. Miller III
William
F. Miller III
|
|
Director
|
|
February 26, 2010
|
|
|
|
|
|
/s/ William
S. Mosakowski
William
S. Mosakowski
|
|
Director
|
|
February 26, 2010
|
|
|
|
|
|
/s/ William
W. Neal
William
W. Neal
|
|
Director
|
|
February 26, 2010
|
|
|
|
|
|
/s/ Galen
D. Powers
Galen
D. Powers
|
|
Director
|
|
February 26, 2010
|
|
|
|
|
|
/s/ Ellen
A. Rudnick
Ellen
A. Rudnick
|
|
Director
|
|
February 26, 2010
|
|
|
|
|
|
/s/ Michael
A. Stocker, M.D.
Michael
A. Stocker, M.D.
|
|
Director
|
|
February 26, 2010
|
|
|
|
|
|
/s/ Richard
H. Stowe
Richard
H. Stowe
|
|
Director
|
|
February 26, 2010
|
36
HMS
HOLDINGS CORP. AND SUBSIDIARIES
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
Page
|
Consolidated Financial
Statements:
|
|
Number
|
|
|
|
|
38
|
|
|
|
|
40
|
|
|
|
|
41
|
|
|
|
|
42
|
|
|
|
|
43
|
|
|
|
|
44
|
|
|
|
|
|
|
Financial Statement Schedule:
|
|
|
|
|
|
|
|
63
|
|
37
Report of
Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
HMS Holdings Corp.:
We have audited the accompanying consolidated balance sheets of
HMS Holdings Corp. and subsidiaries (the Company) as of
December 31, 2009 and 2008, and the related consolidated
statements of income, shareholders equity and
comprehensive income, and cash flows for each of the years in
the three-year period ended December 31, 2009. In
connection with our audits of the consolidated financial
statements, we also have audited financial statement
schedule II. These consolidated financial statements and
financial statement schedule are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these consolidated financial statements and financial
statement schedule based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of HMS Holdings Corp. and subsidiaries as of
December 31, 2009 and 2008, and the results of their
operations and their cash flows for each of the years in the
three-year period ended December 31, 2009, in conformity
with U.S. generally accepted accounting principles. Also in
our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
Companys internal control over financial reporting as of
December 31, 2009, based on criteria established in
Internal Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
(COSO), and our report dated February 26, 2010 expressed an
unqualified opinion on the effectiveness of the Companys
internal control over financial reporting.
KPMG LLP
New York, New York
February 26, 2010
38
Report of
Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
HMS Holdings Corp.:
We have audited HMS Holdings Corps internal control over
financial reporting as of December 31, 2009, based on
criteria established in Internal Control Integrated
Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission (COSO). HMS Holdings Corp. management is
responsible for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness
of internal control over financial reporting, included in the
accompanying Managements Report on Internal Control over
Financial Reporting. Our responsibility is to express an opinion
on the Companys internal control over financial reporting
based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, and testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk. Our audit also included performing such other
procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our
opinion.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, HMS Holdings Corp. maintained, in all material
respects, effective internal control over financial reporting as
of December 31, 2009, based on criteria established in
Internal Control-Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO).
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of HMS Holdings Corp. as of
December 31, 2009 and 2008, and the related consolidated
statements of income, shareholders equity and
comprehensive income, and cash flows for each of the years in
the three-year period ended December 31, 2009, and our
report dated February 26, 2010, expressed an unqualified
opinion on those consolidated financial statements.
KPMG LLP
New York, New York
February 26, 2010
39
HMS
HOLDINGS CORP. AND SUBSIDIARIES
(In
thousands, except share and per share amounts)
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
64,863
|
|
|
$
|
49,216
|
|
Accounts receivable, net of allowance of $614 and $664 at
December 31, 2009 and 2008, respectively
|
|
|
64,750
|
|
|
|
45,155
|
|
Prepaid expenses
|
|
|
9,956
|
|
|
|
3,825
|
|
Other current assets, including net deferred tax assets of $804
and $1,697 at December 31, 2009 and 2008, respectively
|
|
|
872
|
|
|
|
1,716
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
140,441
|
|
|
|
99,912
|
|
Property and equipment, net
|
|
|
20,902
|
|
|
|
17,757
|
|
Goodwill, net
|
|
|
91,520
|
|
|
|
82,342
|
|
Deferred income taxes, net
|
|
|
|
|
|
|
2,040
|
|
Intangible assets, net
|
|
|
16,798
|
|
|
|
19,823
|
|
Other assets
|
|
|
983
|
|
|
|
639
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
270,644
|
|
|
$
|
222,513
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable, accrued expenses and other liabilities
|
|
$
|
26,474
|
|
|
$
|
22,859
|
|
Current portion of long-term debt
|
|
|
|
|
|
|
6,300
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
26,474
|
|
|
|
29,159
|
|
|
|
|
|
|
|
|
|
|
Long-term liabilities:
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
|
|
|
|
11,025
|
|
Accrued deferred rent
|
|
|
3,675
|
|
|
|
3,257
|
|
Other liabilities
|
|
|
2,202
|
|
|
|
710
|
|
|
|
|
|
|
|
|
|
|
Total long-term liabilities
|
|
|
5,877
|
|
|
|
14,992
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
32,351
|
|
|
|
44,151
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity:
|
|
|
|
|
|
|
|
|
Preferred stock $0.01 par value;
5,000,000 shares authorized; none issued
|
|
|
|
|
|
|
|
|
Common Stock $0.01 par value;
45,000,000 shares authorized;
|
|
|
|
|
|
|
|
|
28,533,406 shares issued and 26,870,560 shares
outstanding at December 31, 2009;
|
|
|
|
|
|
|
|
|
27,174,875 shares issued and 25,512,029 shares
outstanding at December 31, 2008;
|
|
|
285
|
|
|
|
272
|
|
Capital in excess of par value
|
|
|
175,795
|
|
|
|
146,145
|
|
Retained earnings
|
|
|
71,610
|
|
|
|
41,562
|
|
Treasury stock, at cost; 1,662,846 shares at
December 31, 2009 and December 31, 2008
|
|
|
(9,397
|
)
|
|
|
(9,397
|
)
|
Accumulated other comprehensive loss
|
|
|
|
|
|
|
(220
|
)
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
238,293
|
|
|
|
178,362
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$
|
270,644
|
|
|
$
|
222,513
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
40
HMS
HOLDINGS CORP. AND SUBSIDIARIES
(In
thousands, except share and per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
|
|
|
Year
|
|
|
Year
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Revenue
|
|
$
|
229,237
|
|
|
$
|
184,495
|
|
|
$
|
146,651
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of services:
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation
|
|
|
77,208
|
|
|
|
60,571
|
|
|
|
46,185
|
|
Data processing
|
|
|
13,717
|
|
|
|
10,999
|
|
|
|
9,298
|
|
Occupancy
|
|
|
10,877
|
|
|
|
10,079
|
|
|
|
8,431
|
|
Direct project costs
|
|
|
28,384
|
|
|
|
28,429
|
|
|
|
22,774
|
|
Other operating costs
|
|
|
14,019
|
|
|
|
10,831
|
|
|
|
6,540
|
|
Amortization of acquisition related software and intangibles
|
|
|
5,066
|
|
|
|
4,714
|
|
|
|
4,642
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of services
|
|
|
149,271
|
|
|
|
125,623
|
|
|
|
97,870
|
|
Selling, general and administrative expenses
|
|
|
28,098
|
|
|
|
22,142
|
|
|
|
20,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
177,369
|
|
|
|
147,765
|
|
|
|
118,370
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
51,868
|
|
|
|
36,730
|
|
|
|
28,281
|
|
Interest expense
|
|
|
(1,080
|
)
|
|
|
(1,491
|
)
|
|
|
(2,207
|
)
|
Interest income
|
|
|
226
|
|
|
|
719
|
|
|
|
475
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
51,014
|
|
|
|
35,958
|
|
|
|
26,549
|
|
Income taxes
|
|
|
20,966
|
|
|
|
14,583
|
|
|
|
11,593
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
30,048
|
|
|
$
|
21,375
|
|
|
$
|
14,956
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share basic
|
|
$
|
1.15
|
|
|
$
|
0.85
|
|
|
$
|
0.63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share diluted
|
|
$
|
1.09
|
|
|
$
|
0.80
|
|
|
$
|
0.57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
26,110
|
|
|
|
25,048
|
|
|
|
23,904
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
27,621
|
|
|
|
26,816
|
|
|
|
26,249
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
41
HMS
HOLDINGS CORP. AND SUBSIDIARIES
(In
thousands, except share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
Capital In
|
|
|
Earnings/
|
|
|
Other
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
# of Shares
|
|
|
Par
|
|
|
Excess of
|
|
|
Accumulated
|
|
|
Comprehensive
|
|
|
Treasury Stock
|
|
|
Shareholders
|
|
|
|
Issued
|
|
|
Value
|
|
|
Par Value
|
|
|
Deficit
|
|
|
Income/(Loss)
|
|
|
# of Shares
|
|
|
Amount
|
|
|
Equity
|
|
|
Balance at December 31, 2006
|
|
|
25,027,865
|
|
|
$
|
250
|
|
|
$
|
110,876
|
|
|
$
|
5,231
|
|
|
$
|
(53
|
)
|
|
|
1,662,846
|
|
|
$
|
(9,397
|
)
|
|
$
|
106,907
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,956
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,956
|
|
Current period net changes in hedging transactions, net of tax
of $83
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(139
|
)
|
|
|
|
|
|
|
|
|
|
|
(139
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,817
|
|
Share-based compensation cost
|
|
|
|
|
|
|
|
|
|
|
2,173
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,173
|
|
Exercise of stock options
|
|
|
1,381,170
|
|
|
|
14
|
|
|
|
6,563
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,577
|
|
Excess tax benefit from exercise of stock options
|
|
|
|
|
|
|
|
|
|
|
8,275
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,275
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
|
26,409,035
|
|
|
$
|
264
|
|
|
$
|
127,887
|
|
|
$
|
20,187
|
|
|
$
|
(192
|
)
|
|
|
1,662,846
|
|
|
$
|
(9,397
|
)
|
|
$
|
138,749
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,375
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,375
|
|
Current period net changes in hedging transactions, net of tax
$18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(28
|
)
|
|
|
|
|
|
|
|
|
|
|
(28
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,347
|
|
Share-based compensation cost
|
|
|
|
|
|
|
|
|
|
|
3,498
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,498
|
|
Exercise of stock options
|
|
|
765,840
|
|
|
|
8
|
|
|
|
4,218
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,226
|
|
Excess tax benefit from exercise of stock options
|
|
|
|
|
|
|
|
|
|
|
10,542
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,542
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
|
27,174,875
|
|
|
$
|
272
|
|
|
$
|
146,145
|
|
|
$
|
41,562
|
|
|
$
|
(220
|
)
|
|
|
1,662,846
|
|
|
$
|
(9,397
|
)
|
|
$
|
178,362
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,048
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,048
|
|
Current period net changes in hedging transactions, net of tax
$147
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
220
|
|
|
|
|
|
|
|
|
|
|
|
220
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,268
|
|
Share-based compensation cost
|
|
|
|
|
|
|
|
|
|
|
6,373
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,373
|
|
Exercise of stock options
|
|
|
1,358,531
|
|
|
|
13
|
|
|
|
10,054
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,067
|
|
Excess tax benefit from exercise of stock options
|
|
|
|
|
|
|
|
|
|
|
13,223
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,223
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
|
28,533,406
|
|
|
$
|
285
|
|
|
$
|
175,795
|
|
|
$
|
71,610
|
|
|
$
|
|
|
|
|
1,662,846
|
|
|
$
|
(9,397
|
)
|
|
$
|
238,293
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
42
HMS
HOLDINGS CORP. AND SUBSIDIARIES
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
|
|
|
Year
|
|
|
Year
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
30,048
|
|
|
$
|
21,375
|
|
|
$
|
14,956
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on disposal of fixed assets
|
|
|
70
|
|
|
|
90
|
|
|
|
370
|
|
Depreciation and amortization
|
|
|
13,567
|
|
|
|
11,967
|
|
|
|
10,558
|
|
Share-based compensation expense
|
|
|
6,373
|
|
|
|
3,498
|
|
|
|
2,173
|
|
Decrease in deferred tax asset
|
|
|
3,111
|
|
|
|
32
|
|
|
|
3,445
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in accounts receivable
|
|
|
(16,593
|
)
|
|
|
(4,531
|
)
|
|
|
(8,197
|
)
|
Increase in prepaid expenses and other current assets
|
|
|
(6,101
|
)
|
|
|
(504
|
)
|
|
|
(1,185
|
)
|
Increase in other assets
|
|
|
(218
|
)
|
|
|
(21
|
)
|
|
|
(171
|
)
|
Increase/(decrease) in accounts payable, accrued expenses and
other liabilities
|
|
|
2,585
|
|
|
|
(1,037
|
)
|
|
|
4,649
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
32,842
|
|
|
|
30,869
|
|
|
|
26,598
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(8,979
|
)
|
|
|
(5,988
|
)
|
|
|
(8,594
|
)
|
Acquisition of Verify Solutions
|
|
|
(7,500
|
)
|
|
|
|
|
|
|
|
|
Acquisition of IntegriGuard
|
|
|
(5,024
|
)
|
|
|
|
|
|
|
|
|
Acquisition of Prudent Rx
|
|
|
|
|
|
|
(4,496
|
)
|
|
|
|
|
Acquisition of Permedion
|
|
|
|
|
|
|
|
|
|
|
(627
|
)
|
Acquisition of BSPA
|
|
|
|
|
|
|
|
|
|
|
(15,000
|
)
|
Investment in capitalized software
|
|
|
(1,657
|
)
|
|
|
(912
|
)
|
|
|
(606
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(23,160
|
)
|
|
|
(11,396
|
)
|
|
|
(24,827
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayment of debt
|
|
|
(17,325
|
)
|
|
|
(6,300
|
)
|
|
|
(7,875
|
)
|
Proceeds from exercise of stock options
|
|
|
10,067
|
|
|
|
4,226
|
|
|
|
6,577
|
|
Excess tax benefit from exercised stock options
|
|
|
13,223
|
|
|
|
10,542
|
|
|
|
8,275
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
5,965
|
|
|
|
8,468
|
|
|
|
6,977
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
15,647
|
|
|
|
27,941
|
|
|
|
8,748
|
|
Cash and cash equivalents at beginning of year
|
|
|
49,216
|
|
|
|
21,275
|
|
|
|
12,527
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
64,863
|
|
|
$
|
49,216
|
|
|
$
|
21,275
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for income taxes
|
|
$
|
8,517
|
|
|
$
|
3,823
|
|
|
$
|
56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
734
|
|
|
$
|
1,299
|
|
|
$
|
1,945
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of noncash investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Tenant improvement allowance
|
|
$
|
1,011
|
|
|
$
|
208
|
|
|
$
|
1,635
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued property and equipment purchases
|
|
$
|
1,365
|
|
|
$
|
1,898
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
43
HMS
HOLDINGS CORP. AND SUBSIDIARIES
|
|
1.
|
Summary
of Significant Accounting Policies
|
(a) Organization
and Business
We were incorporated on October 2, 2002 in the state of New
York. On March 3, 2003, we adopted a holding company
structure and assumed the business of our predecessor, Health
Management Systems, Inc. In connection with the adoption of this
structure, Health Management Systems, which began doing business
in 1974, became our wholly owned subsidiary. Unless the context
otherwise indicates, references in these Notes to Consolidated
Financial Statements to the terms HMS,
we, our, and us refer to HMS
Holdings Corp. and its subsidiaries.
We provide a variety of cost containment, coordination of
benefits and program integrity services for government-sponsored
health and human services programs. These services are designed
to help our clients recover amounts due from liable third
parties, reduce costs, ensure regulatory compliance, and
increase operational efficiencies.
|
|
(b)
|
Basis of
Presentation and Principles of Consolidation
|
|
|
(i)
|
Principles
of Consolidation
|
The consolidated financial statements include our accounts and
transactions and those of our wholly owned subsidiaries. All
significant intercompany balances and transactions have been
eliminated in consolidation.
|
|
(c)
|
Cash and
Cash Equivalents
|
For purposes of financial reporting, all highly liquid
investments purchased with an original maturity of three months
or less are considered to be cash equivalents.
|
|
(d)
|
Depreciation
and Amortization of Property and Equipment
|
Property and equipment are recorded at cost. Depreciation is
provided over the estimated useful lives of the assets utilizing
the straight-line method. We provide amortization of leasehold
improvements on a straight-line basis over the shorter of a
5 year period or the term of the related lease. The
estimated useful lives are as follows:
|
|
|
Equipment
|
|
2-3 years
|
Leasehold improvements
|
|
5 years
|
Furniture and fixtures
|
|
5 years
|
|
|
(e)
|
Software
and Software Development Cost
|
Certain software development costs related to software that is
developed for internal use while in the application development
stage are capitalized. All other costs to develop software for
internal use, either in the preliminary project stage or post
implementation stage, are expensed as incurred. Amortization of
software and software development costs is calculated on a
straight-line basis over the expected economic life of the
product, generally estimated to be between 3-5 years.
Goodwill, representing the excess of acquisition costs over the
fair value of net assets of acquired businesses, is not
amortized but is reviewed for impairment at least annually. Fair
value is based on a projection of the estimated discounted
future net cash flows expected to be achieved from a reporting
unit using a discount rate reflective of our cost of funds. The
fair value of the reporting unit is compared with the
assets recorded value. If the recorded value is less than
the fair value of the reporting unit, no impairment is
indicated. If the fair value of the reporting unit is less than
the recorded value, an impairment charge is recognized for the
difference between the carrying value and the
44
HMS
HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
fair value. We perform our annual goodwill impairment testing in
the second quarter of each year. No impairment losses have been
recorded in any of the periods presented.
Long-lived assets are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. Recoverability of assets to be
held and used is measured by a comparison of the carrying value
of its asset group to the estimated undiscounted future net cash
flows expected to be generated by the asset. If such assets are
considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying value of the asset
group exceeds the fair value of the assets, which amount is
charged to earnings. Fair value is based on a projection of the
estimated discounted future net cash flows expected to result
from the asset group, using a discount rate reflective of our
cost of funds. Assets to be disposed of are reported at the
lower of the carrying amount or fair value, less the cost to
sell.
The purchase method of accounting requires companies to assign
values to assets and liabilities acquired based upon their fair
value. In most instances there is not a readily defined or
listed market price for individual assets and liabilities
acquired in connection with a business, including intangible
assets. The determination of fair value for individual assets
and liabilities in many instances requires a high degree of
estimation. The valuation of intangible assets, in particular,
is very subjective. The use of different valuation techniques
and assumptions could change the amounts and useful lives
assigned to the assets and liabilities acquired, including
goodwill and other intangible assets and related amortization
expense.
Income taxes are accounted for under the asset and liability
method. Under the asset and liability method, deferred tax
assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities
and their respective tax bases. This method also requires the
recognition of future tax benefits for net operating loss (NOL)
carry-forwards. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in
the years in which those temporary differences are expected to
be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized as income in
the period that includes the enactment date. A valuation
allowance is provided against deferred tax assets to the extent
their realization is not more likely than not.
In June 2006, the Financial Accounting Standards Board (FASB)
issued guidance for accounting for uncertainty in income taxes,
which establishes a single model to address accounting for
uncertain tax positions. The guidance clarifies the accounting
for income taxes by prescribing a minimum recognition threshold
a tax position is required to meet before being recognized in
the financial statements. The guidance also provides guidance on
derecognition, measurement classification, interest and
penalties, accounting in interim periods, disclosure and
transition.
Basic income per share is calculated by dividing net income by
the weighted average number of common shares outstanding during
the period. Diluted income per share is calculated by dividing
net income by the weighted average number of common shares and
dilutive common share equivalents outstanding during the period.
Our common share equivalents consist of stock options and
restricted stock awards.
45
HMS
HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table reconciles the basic to diluted weighted
average shares outstanding (shares in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Weighted average shares outstanding basic
|
|
|
26,110
|
|
|
|
25,048
|
|
|
|
23,904
|
|
Potential shares exercisable under stock option plans
|
|
|
1,500
|
|
|
|
1,768
|
|
|
|
2,345
|
|
Potential issuable restricted stock awards
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding diluted
|
|
|
27,621
|
|
|
|
26,816
|
|
|
|
26,249
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended December 31, 2009, 2008 and 2007,
91,419, 758,190 and 234,195 stock options, respectively, were
not included in the diluted earnings per share calculation
because the effect would have been antidilutive.
A majority of our contracts are contingency fee based. We
recognize revenue on contingency fee based contracts when third
party payors remit payment to our clients and, consequently, the
contingency is deemed to have been satisfied. For certain
contracts, this may result in revenue being recognized in
irregular increments. We recognize revenue on our general
service agreements as work is performed and amounts are earned.
We consider amounts to be earned once evidence of an arrangement
has been obtained, services are delivered, fees are fixed or
determinable, and collectability is reasonably assured. Our
contracts with the federal government generally are cost-plus or
time and material based. Revenue on cost-plus contracts is
recognized based on costs incurred plus an estimate of the
negotiated fee earned. Revenue on time and materials contracts
is recognized based on hours worked and expenses incurred.
Where contracts have multiple deliverables, we evaluate these
deliverables at the inception of each contract and as each item
is delivered. As part of this evaluation, we consider whether
(i) a delivered item has value to a client on a stand-alone
basis; (ii) there is objective and reliable evidence of the
fair market value of the undelivered items; and
(iii) whether the delivery of the undelivered items is
considered probable and substantially within our control, if a
general right of return exists. Where deliverables, or groups of
deliverables, have all three of these characteristics, we treat
each deliverable item as a separate unit of accounting and apply
the relevant revenue recognition guidance to each deliverable.
Arrangements including implementation and transaction related
revenue are accounted for as a single unit of accounting. Since
implementation services do not carry a standalone value, the
revenue relating to these services is recognized over the term
of the client contract to which it relates.
|
|
(l)
|
Stock-Based
Compensation
|
The cost of share-based compensation is recognized in our
Consolidated Statements of Income based on the fair value of all
awards granted using the Black-Scholes method of valuation. The
fair value of each award is determined and the compensation cost
is recognized over the service period required to obtain full
vesting. Compensation cost to be recognized reflects an estimate
of the number of awards expected to vest after taking into
consideration an estimate of award forfeitures based on actual
experience. The cash flows resulting from tax benefits
recognized for those options (excess tax benefits) are
classified as financing cash flows.
Total share-based compensation expense recorded in our
Consolidated Statements of Income was $6.4 million,
$3.5 million and $2.2 million for the years ended
December 31, 2009, 2008 and 2007, respectively.
|
|
(m)
|
Fair
Value of Financial Instruments
|
The carrying amounts for our cash equivalents, accounts
receivable, accounts payable and accrued expense approximate
fair value due to their short-term nature.
46
HMS
HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
FASB accounting standards require all derivative instruments be
recorded at fair value on the balance sheets. The accounting for
changes in the fair value (i.e., gains or losses) of a
derivative instrument depends on whether it has been designated
and qualifies as part of a hedging relationship and further, on
the type of hedging relationship. Those derivative instruments
that are designated and qualify as hedging instruments must be
designated, based on the exposure being hedged, as either a fair
value hedge or a cash flow hedge. At December 31, 2008, we
had a cash flow hedge.
For derivative instruments that are designated and qualify as a
cash flow hedge (i.e., hedging the exposure to variability in
expected future cash flows that is attributable to a particular
risk, such as interest rate risk), FASB accounting standards
require that the effective portion of the gain or loss on the
derivative instrument be reported as a component of
comprehensive income and reclassified into earnings in the same
period or periods during which the hedged transaction affects
earnings. The remaining gain or loss on the derivative
instrument in excess of the cumulative change in the present
value of the future cash flows of the hedged item, if any, is
recognized in current earnings during the period of change.
Prior to its expiration on September 30, 2009, our interest
rate swap contract (see Note 8 of the Notes to Consolidated
Financial Statements) was being carried at fair value and
measured on a recurring basis. Fair value is determined through
the use of models that consider various assumptions, including
time value, yield curves, as well as other relevant economic
measures, which are inputs that are classified as Level 2
in the valuation hierarchy. For the year ended December 31,
2009, no such nonfinancial assets and liabilities requiring fair
value determination under FASB accounting standards were
recognized or disclosed on a non-recurring basis.
Other comprehensive income recorded includes all changes in
derivative instruments which are carried at fair value and
included as a component of equity.
The preparation of the consolidated financial statements in
conformity with accounting principles generally accepted in the
United States (U.S. GAAP) requires management to make
estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the consolidated financial statements
and the reported amounts of revenue and expenses during the
reported period. Our actual results could differ from those
estimates.
We account for our lease agreements at their inception as either
operating or capital leases, depending on certain defined
criteria. We recognize lease costs on a straight-line basis
without regard to deferred payment terms, such as rent holidays,
that defer the commencement date of required payments.
Additionally, incentives we receive, such as tenant improvement
allowances, are capitalized and are treated as a reduction of
our rental expense over the term of the lease agreement.
|
|
(q)
|
Recent
Accounting Pronouncement
|
In September 2006, the FASB issued new accounting guidance on
fair value measurements. This guidance establishes a common
definition for fair value to be applied to U.S. GAAP
requiring use of fair value, establishes a framework for
measuring fair value, and expands disclosure about such fair
value measurements. It is effective for financial assets and
financial liabilities for fiscal years beginning after
November 15, 2007. A FASB staff position issued in February
2008 removed leasing transactions from the scope of the new fair
value guidance. Also in February 2008, the FASB issued
authoritative guidance deferring the effective date of the fair
value guidance for all nonfinancial assets and nonfinancial
liabilities to fiscal years beginning after November 15,
2008.
47
HMS
HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Effective January 1, 2008, we adopted this guidance on fair
value measurement and have applied its provisions to financial
assets and liabilities that are recognized or disclosed at fair
value on a recurring basis at least annually. Beginning
January 1, 2009, we adopted this guidance as it related to
nonfinancial assets and liabilities. We applied the provisions
of this guidance in our accounting for the 2009 acquisitions of
IntegriGuard and Verify Solutions.
In September 2009, the FASB issued additional guidance on
measuring the fair value of liabilities effective for the first
reporting period beginning after its issuance.
Prior to the expiration of our interest rate swap contract on
September 30, 2009, our interest rate swap contract (see
Note 8 of these Notes to Consolidated Financial Statements)
was being carried at fair value and measured on a recurring
basis. Fair value is determined through the use of models that
consider various assumptions, including time value, yield
curves, as well as other relevant economic measures, which are
inputs that are classified as Level 2 in the valuation
hierarchy. As of December 31, 2009, no such nonfinancial
assets and liabilities requiring fair value determination under
this guidance were recognized or disclosed.
In January 2010, the FASB issued guidance that requires
reporting entities to make new disclosures about recurring or
nonrecurring fair-value measurements, including significant
transfers into and out of Level 1 and Level 2 fair
value measurements and information on purchases, sales,
issuances, and settlements on a gross basis in the
reconciliation of Level 3 fair value measurements. The
guidance is effective for annual reporting periods beginning
after December 15, 2009, except for Level 3
reconciliation disclosures, which are effective for annual
periods beginning after December 15, 2010. We do not expect
the adoption of this guidance to have a material impact on our
consolidated financial statements.
In April 2008, the FASB issued guidance that permits entities to
choose to measure many financial instruments and certain other
items at fair value. This guidance also establishes presentation
and disclosure requirements designed to facilitate comparisons
between entities that choose different measurement attributes
for similar types of assets and liabilities. Unrealized gains
and losses on items for which the fair value option is elected
would be reported in earnings. We adopted this guidance in 2008
and elected not to measure any additional financial instruments
and other items at fair value.
In December 2007, the FASB issued new guidance related to
accounting for business combinations. This guidance, which
establishes requirements for the recognition and measurement of
acquired assets, liabilities, goodwill and non-controlling
interests and provides disclosure requirements related to
business combinations, is effective for fiscal years beginning
after December 15, 2008. We adopted this guidance effective
January 1, 2009. We have applied the provisions of this
standard to our 2009 acquisitions of IntegriGuard and Verify
Solutions, as discussed in Note 2 of the Notes to
Consolidated Financial Statements.
In November 2008, the FASB ratified an issue providing guidance
for accounting for defensive intangible assets subsequent to the
acquisition of such assets in accordance with the new business
combination and fair value standards, including the estimated
useful life that should be assigned to such assets. The new
guidance is effective for intangible assets acquired on or after
December 15, 2008. We have applied the provisions of this
standard to our 2009 acquisitions of IntegriGuard and Verify
Solutions, as discussed in Note 2 of the Notes to
Consolidated Financial Statements.
In May 2009, the FASB issued guidance establishing general
standards for accounting for and disclosure of events that occur
after the balance sheet date, but before financial statements
are issued or are available to be issued. This guidance, among
other things, sets forth the period after the balance sheet date
during which management should evaluate events or transactions
that may occur for potential recognition or disclosure in the
financial statements, the circumstances under which an entity
should recognize such events or transactions in its financial
statements, and the disclosures an entity should make about such
events or transactions. We adopted this guidance effective with
the issuance of our financial statements for the quarter ended
June 30, 2009. We have evaluated subsequent events after
December 31, 2009, through the date and time these
financial statements were issued on
48
HMS
HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
February 26, 2010. No subsequent events occurred during
this reporting period that require recognition or disclosure in
the filing.
In August 2009, the FASB issued new accounting guidance on the
measurement of liabilities at fair value. Specifically, when a
quoted price in an active market for the identical liability is
not available, the new standard requires that the fair value of
a liability be measured using one or more of the valuation
techniques that maximize the use of relevant observable inputs
and minimize the use of unobservable inputs. In addition, an
entity is not required to include a separate input or adjustment
to other inputs relating to the existence of a restriction that
prevents the transfer of a liability. Our adoption of this
guidance in the fourth quarter of 2009 did not have a material
impact on our consolidated financial statements.
In October 2009, the FASB issued new accounting guidance related
to the recognition of revenue for multiple-deliverable
arrangements. Under the new guidance, revenue may be allocated
to the different elements in an arrangement based on relative
estimated sales price. Also in October 2009, the FASB issued new
accounting guidance altering the scope of revenue recognition
for software deliverables to exclude items sold that include
hardware with software that is essential to the hardwares
functionality. This new guidance will be effective prospectively
for revenue arrangements entered into or materially modified in
fiscal years beginning on or after June 15, 2010. Early
adoption is permitted. We have determined that this new guidance
will not currently impact our existing accounting over our
multiple element arrangements described above in Note 1(k)
of these Notes to Consolidated Financial Statements as the other
separate unit of accounting criteria of the standard have not
been met.
Benefits
Solutions Practice Area
In September 2006, we acquired the assets of the Benefits
Solutions Practice Area (BSPA) of Public Consulting Group, Inc.
(PCG) for $81.2 million in cash, 1,749,800 shares of
our common stock, then valued at $24.4 million, and a
contingent cash payment of up to $15.0 million payable upon
BSPAs achievement of certain revenue targets for the
twelve months ended June 30, 2007. In September 2007, we
paid PCG $15.0 million of additional consideration as a
result of BSPAs achievement of the revenue targets, which
increased goodwill resulting from this acquisition. BSPA
provides a variety of cost avoidance, insurance verification,
recovery audit and related services to state Medicaid agencies,
children and family services agencies, and the
U.S. Department of Veterans Affairs.
Permedion
In October 2007, we purchased the net assets of Peer Review
Systems, Inc., doing business as Permedion, which we refer to
herein as Permedion, for $0.6 million in cash. Permedion is
a healthcare quality review and improvement organization based
in Westerville, Ohio. Permedion provides independent external
medical review on issues of quality of care, medical necessity
and experimental/investigational treatment to both state
government and private clients across the country. The
acquisition of Permedion did not have a material effect on our
fiscal year 2009, 2008 and 2007 revenue, earnings, earnings per
share or liquidity.
Prudent
Rx
In September 2008, we purchased the net assets of Prudent Rx, a
pharmacy audit and cost containment company based in Culver
City, California. With this acquisition, we further expanded our
portfolio of program integrity service offerings for government
healthcare programs and managed care organizations, particularly
in the pharmacy arena. Prudent Rxs key products and
services include audit programs, program design and benefit
management, as well as general and pharmacy systems consulting.
49
HMS
HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The purchase price of Prudent Rxs net assets was
$4.5 million and was accounted for under the asset purchase
accounting model. Additional future payments of
$2.3 million ($1.15 million for each of the years
ending December 31, 2009 and 2010) will be made and
recorded as additional goodwill upon Prudent Rxs
achievement of financial performance milestones. Prudent Rx did
not achieve the 2009 performance milestone, as a result, the
first $1.15 million payment will not be made. The
acquisition of Prudent Rx did not have a material effect on our
fiscal year 2009 and 2008 revenue, earnings, earnings per share
or liquidity.
The allocation of the purchase price of Prudent Rx was based
upon estimates of the fair value of its assets and liabilities.
The acquisition of Prudent Rx was based on managements
consideration of past and expected future performance as well as
the potential strategic fit with our long-term goals. The
expected long-term growth, market position and expected
synergies to be generated by Prudent Rx were the primary factors
that gave rise to an acquisition price that resulted in the
recognition of goodwill.
The allocation of the aggregate purchase price of the Prudent Rx
acquisition is as follows (in thousands):
|
|
|
|
|
Goodwill
|
|
$
|
2,100
|
|
Identifiable intangible assets
|
|
|
1,432
|
|
Net assets acquired
|
|
|
964
|
|
|
|
|
|
|
Total purchase price
|
|
$
|
4,496
|
|
|
|
|
|
|
Identifiable intangible assets principally include client
relationships and Prudent Rxs trade name (See Note 4
of the Notes to Consolidated Financial Statements).
IntegriGuard
LLC
In September 2009, we acquired IntegriGuard LLC, or
IntegriGuard, for $5.1 million in cash. This acquisition
was accounted for under the purchase method of accounting and
did not have a material effect on our 2009 revenue, earnings,
earnings per share or liquidity. IntegriGuard, which is based in
Omaha Nebraska, provides services for the prevention and
detection of fraud, waste, and abuse in the healthcare system
and operates as our wholly owned subsidiary. With this
acquisition, we further expanded our portfolio of program
integrity service offerings for government healthcare programs,
particularly in the Medicare and Medicaid programs.
The allocation of the purchase price for IntegriGuard was based
upon the fair value estimate of its assets and liabilities. The
acquisition of IntegriGuard was based on managements
consideration of past and expected future performance as well as
the potential strategic fit with our long-term goals. The
expected long-term growth, market position and expected
synergies to be generated by IntegriGuard were the primary
factors that gave rise to an acquisition price that resulted in
the recognition of unidentified intangible assets.
The allocation of the aggregate purchase price of the
IntegriGuard acquisition is as follows (in thousands):
|
|
|
|
|
Goodwill
|
|
$
|
1,777
|
|
Net assets acquired
|
|
|
1,712
|
|
Identifiable intangible assets
|
|
|
1,405
|
|
Capitalized software
|
|
|
240
|
|
|
|
|
|
|
Total purchase price
|
|
$
|
5,134
|
|
|
|
|
|
|
Identifiable intangible assets principally include client
relationships and IntegriGuards trade name (See
Note 4 of the Notes to Consolidated Financial Statements).
As part of the IntegriGuard acquisition, we entered into a
twelve month Intercompany Services Agreement (ISA) with the
seller, Lumetra, to allow each party to perform contractual
transition services. Services performed
50
HMS
HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
under the ISA are billed at pre-determined rates that are
specified in the ISA. For the year ended December 31, 2009,
we incurred expenses of $140,000 for services rendered by
Lumetra under the ISA.
Verify
Solutions, LLC
In December 2009, we acquired the assets of Verify Solutions,
LLC, or Verify Solutions, an Alpharetta, Georgia-based company
specializing in dependent eligibility audit services for
employer-sponsored healthcare plans. With this acquisition, we
move into the employer-based market, providing services which
include Dependent Eligibility Reviews for large and mid-market
employers.
The purchase price for Verify Solutions was $8.1 million,
with additional future payments contingent upon Verify
Solutions achievement of financial performance milestones.
The additional future payments of up to $5.5 million
($2.7 million and $2.8 million for the years ended
December 31, 2010 and 2011, respectively) will be made and
recorded to compensation expense in the year in which the
milestones are achieved.
The acquisition of Verify Solutions did not have a material
effect on our 2009 revenue, earnings, earnings per share or
liquidity and was accounted for under the purchase method of
accounting.
Since the acquisition of Verify Solutions was completed on
December 31, 2009, we have not had adequate time to
complete the valuation of the assets acquired, and, accordingly
we have not finalized the purchase price allocation. Therefore,
the aggregate purchase price allocation of this acquisition is
subject to adjustment. Until the valuation of assets is
completed, which we expect to occur in 2010, the total excess
purchase price over the net assets acquired has been reflected
within goodwill at December 31, 2009.
The preliminary allocation of the aggregate purchase price of
the Verify Solutions acquisition is as follows (in thousands):
|
|
|
|
|
Unidentified goodwill and intangible assets
|
|
$
|
7,401
|
|
Identifiable intangible assets
|
|
|
|
|
Net assets acquired
|
|
|
747
|
|
|
|
|
|
|
Total purchase price
|
|
$
|
8,148
|
|
|
|
|
|
|
|
|
3.
|
Property
and Equipment
|
Property and equipment as of December 31, 2009 and 2008
consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Equipment
|
|
$
|
29,005
|
|
|
$
|
26,045
|
|
Leasehold improvements
|
|
|
7,514
|
|
|
|
6,204
|
|
Furniture and fixtures
|
|
|
7,858
|
|
|
|
6,127
|
|
Capitalized software
|
|
|
8,916
|
|
|
|
6,783
|
|
|
|
|
|
|
|
|
|
|
|
|
|
53,293
|
|
|
|
45,159
|
|
Less accumulated depreciation and amortization
|
|
|
(32,391
|
)
|
|
|
(27,402
|
)
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
20,902
|
|
|
$
|
17,757
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense related to property and
equipment charged to operations for the years ended
December 31, 2009, 2008 and 2007 was $8.2 million,
$7.1 million and $5.6 million, respectively. In
connection with our operating leases for our facilities in
Texas, Massachusetts, New York, and Connecticut, we recorded
tenant improvement allowances totaling $1.0 million in
2009. This amount is included in our leasehold improvements and
furniture and fixtures balances as of December 31, 2009. In
connection with the operating leases
51
HMS
HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
for our facilities in Texas and Ohio, we recorded tenant
improvement allowances totaling $1.8 million in 2008. This
amount is included in our leasehold improvements and furniture
and fixtures balances as of December 31, 2008.
Intangible assets as of December 31, 2009 and 2008 are as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
Asset
|
|
|
Amortization
|
|
|
Net
|
|
|
Useful Life
|
|
|
Client relationships
|
|
$
|
29,547
|
|
|
$
|
13,349
|
|
|
$
|
16,198
|
|
|
|
7 - 10 years
|
|
Other
|
|
|
6,034
|
|
|
|
5,434
|
|
|
|
600
|
|
|
|
1-5 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
$
|
35,581
|
|
|
$
|
18,783
|
|
|
$
|
16,798
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Client relationships
|
|
$
|
28,580
|
|
|
$
|
9,227
|
|
|
$
|
19,353
|
|
|
|
7 years
|
|
Other
|
|
|
726
|
|
|
|
256
|
|
|
|
470
|
|
|
|
1-5 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
$
|
29,306
|
|
|
$
|
9,483
|
|
|
$
|
19,823
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of intangibles is as follows (in thousands):
|
|
|
|
|
Year Ending December 31,
|
|
|
|
|
2010
|
|
$
|
4,486
|
|
2011
|
|
|
4,300
|
|
2012
|
|
|
4,276
|
|
2013
|
|
|
2,899
|
|
2014 and thereafter
|
|
|
837
|
|
|
|
|
|
|
Total
|
|
$
|
16,798
|
|
|
|
|
|
|
The changes in the carrying amount of goodwill for the years
ended December 31, 2009 and 2008 are as follows (in
thousands):
|
|
|
|
|
Balance at December 31, 2007
|
|
$
|
80,242
|
|
Prudent Rx, Inc. acquisition
|
|
|
2,100
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
|
82,342
|
|
IntegriGuard acquisition
|
|
|
1,777
|
|
Verify Solutions acquisition
|
|
|
7,401
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
$
|
91,520
|
|
|
|
|
|
|
52
HMS
HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
5.
|
Accounts
Payable, Accrued Expenses and Other Liabilities
|
Accounts payable, accrued expenses and other liabilities as of
December 31, 2009 and 2008 consisted of the following (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Accounts payable, trade
|
|
$
|
8,981
|
|
|
$
|
9,654
|
|
Accrued compensation
|
|
|
11,457
|
|
|
|
7,880
|
|
Accrued direct project costs
|
|
|
1,470
|
|
|
|
2,038
|
|
Accrued other expenses
|
|
|
4,566
|
|
|
|
3,287
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
26,474
|
|
|
$
|
22,859
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009 and 2008, $3.7 million and
$3.3 million, respectively, were included in other
liabilities (long-term) related to the recognition of rental
expenses and tenant improvement allowances as facility leases on
a straight-line basis (See Note 13 of the Notes to
Consolidated Financial Statements).
The income tax expense for the years ended December 31,
2009, 2008 and 2007 is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Current tax expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
13,211
|
|
|
$
|
11,242
|
|
|
$
|
7,546
|
|
State
|
|
|
4,644
|
|
|
|
3,309
|
|
|
|
1,874
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,855
|
|
|
|
14,551
|
|
|
|
9,420
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
2,959
|
|
|
|
(255
|
)
|
|
|
100
|
|
State
|
|
|
152
|
|
|
|
287
|
|
|
|
2,073
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,111
|
|
|
|
32
|
|
|
|
2,173
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax expense
|
|
$
|
20,966
|
|
|
$
|
14,583
|
|
|
$
|
11,593
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A reconciliation of the income tax expense calculated using the
applicable federal statutory rates to the actual income tax
expense for the years ended December 31, 2009, 2008 and
2007 is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
%
|
|
|
2008
|
|
|
%
|
|
|
2007
|
|
|
%
|
|
|
Computed at federal statutory rate
|
|
$
|
17,855
|
|
|
|
35.0
|
|
|
$
|
12,585
|
|
|
|
35.0
|
|
|
$
|
9,279
|
|
|
|
35.0
|
|
State and local tax expense, net of federal benefit
|
|
|
3,117
|
|
|
|
6.1
|
|
|
|
2,337
|
|
|
|
6.5
|
|
|
|
2,566
|
|
|
|
9.7
|
|
Municipal interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(113
|
)
|
|
|
(0.5
|
)
|
Write(up)/down of deferred tax asset
|
|
|
|
|
|
|
|
|
|
|
(465
|
)
|
|
|
(1.3
|
)
|
|
|
|
|
|
|
|
|
Other, net
|
|
|
(6
|
)
|
|
|
|
|
|
|
126
|
|
|
|
0.4
|
|
|
|
(139
|
)
|
|
|
(0.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax expense
|
|
$
|
20,966
|
|
|
|
41.1
|
|
|
$
|
14,583
|
|
|
|
40.6
|
|
|
$
|
11,593
|
|
|
|
43.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes are recognized for the future tax
consequences of temporary differences between the financial
statement and tax bases of assets and liabilities. The tax
effect of temporary differences that give rise to a
53
HMS
HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
significant portion of the deferred tax assets and deferred tax
liabilities at December 31, 2009 and 2008 were as follows
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts and deferred revenue
|
|
$
|
620
|
|
|
$
|
1,729
|
|
Property and equipment
|
|
|
|
|
|
|
149
|
|
Restructuring cost
|
|
|
233
|
|
|
|
305
|
|
Goodwill and other intangibles
|
|
|
3,765
|
|
|
|
2,824
|
|
Software
|
|
|
44
|
|
|
|
136
|
|
Minimum tax credit
|
|
|
|
|
|
|
500
|
|
Federal and state net operating loss carry forwards
|
|
|
183
|
|
|
|
279
|
|
Capital loss carry forward
|
|
|
2,466
|
|
|
|
2,466
|
|
Deferred stock compensation
|
|
|
3,325
|
|
|
|
2,072
|
|
Deferred rent
|
|
|
855
|
|
|
|
992
|
|
Other
|
|
|
284
|
|
|
|
244
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets before valuation allowance
|
|
|
11,775
|
|
|
|
11,696
|
|
Less valuation allowance
|
|
|
(2,666
|
)
|
|
|
(2,666
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets after valuation allowance
|
|
|
9,109
|
|
|
|
9,030
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Goodwill, BSPA
|
|
|
6,682
|
|
|
|
4,517
|
|
Capitalized software cost
|
|
|
1,266
|
|
|
|
776
|
|
Property and equipment
|
|
|
683
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
8,631
|
|
|
|
5,293
|
|
|
|
|
|
|
|
|
|
|
Total net deferred tax assets
|
|
$
|
478
|
|
|
$
|
3,737
|
|
|
|
|
|
|
|
|
|
|
Net current deferred tax assets
|
|
$
|
804
|
|
|
$
|
1,697
|
|
Net non-current deferred tax assets/(liability)
|
|
|
(326
|
)
|
|
|
2,040
|
|
|
|
|
|
|
|
|
|
|
Total net deferred tax assets
|
|
$
|
478
|
|
|
$
|
3,737
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2009, we had NOLs of $0.3 million
which were subject to limitation set forth in the Internal
Revenue Code of 1986, as amended, and were available to offset
future federal and state and local taxable income. During 2009,
we utilized $33.0 million in tax deductions arising from
2009 stock option exercises, which resulted in an excess tax
benefit of $13.2 million recorded to capital and an
offsetting reduction to taxes payable.
There was no change in the valuation allowance in 2009 and 2008.
At December 31, 2008, the valuation allowance was at
$2.7 million. The sale of Accordis in 2005 resulted in a
capital loss of $6.0 million, which can be carried forward
for five years and produced a deferred tax asset of
$2.5 million. We believe the available objective evidence,
principally the capital loss carry forward being utilizable to
offset only future capital gains, creates sufficient uncertainty
regarding the realizability of our capital loss carry forward,
that it is more likely than not, that substantially all of the
capital loss carry forward is not realizable.
The remaining valuation allowance of $0.2 million relates
to certain state NOLs where we currently do not operate and
there is sufficient doubt about our ability to utilize these
NOLs, that it is more likely than not that this portion of the
state NOLs is not realizable.
54
HMS
HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
At December 31, 2009 and 2008, we had approximately
$1.0 million and $0.5 million of net unrecognized tax
benefits, respectively, for which there is uncertainty about the
allocation and apportionment impacting state taxable income. If
recognized, this amount would impact our effective tax rate;
however, we do not expect any significant change in unrecognized
tax benefits during the next twelve months. We have recognized
interest accrued related to unrecognized tax benefits in
interest expense and penalties in tax expense. The accrued
liabilities related to uncertain tax positions were
$0.4 million and $0.2 million at December 31,
2009 and 2008, respectively. The additions to the accrued
liabilities related to uncertain tax positions taken during 2009
are related to tax positions taken during the year.
In connection with our BSPA acquisition, we entered into a
credit agreement with several banks and other financial
institutions with JPMorgan Chase Bank, N.A. (JPMCB), as
administrative agent, which we refer to as the Credit Agreement.
The Credit Agreement provided for a term loan of
$40 million, which we refer to as the Term Loan, and
revolving credit loans of up to $25 million, which we refer
to as the Revolving Loan. During the year ended
December 31, 2009, we repaid in full the $17.3 million
of debt outstanding under the Term Loan; however, we continue to
have an irrevocable standby letter of credit for
$4.6 million against the Revolving Loan, which we refer to
as the Letter of Credit, as required by a contractual
arrangement with a client.
We secured the Term and Revolving Loans with the grant of a
security interest, covering our assets and subsidiaries, in
favor of the lenders. Interest on borrowings under the Credit
Agreement is calculated, at our option, at either
(i) LIBOR, including statutory reserves, plus a variable
margin based on our leverage ratio, or (ii) the higher of
(a) the prime lending rate of JPMCB, and (b) the
Federal Funds Effective Rate plus 0.50%, in each case plus a
variable margin based on our leverage ratio. In connection with
the Revolving Loan, we agreed to pay a commitment fee on the
unused portion of the Revolving Loan, payable quarterly in
arrears, at a variable rate based on our leverage ratio.
Commitments under the Credit Agreement will be reduced and
borrowings are required to be repaid with the net proceeds of,
among other things, sales or issuances of equity (excluding
equity issued under employee benefit plans and equity issued to
sellers as consideration in acquisitions), sales of assets and
any incurrence of indebtedness by us, subject, in each case, to
limited exceptions. Our obligations under the Credit Agreement
may be accelerated upon the occurrence of an event of default
under the Credit Agreement, which encompasses customary events
of default including, without limitation, payment defaults,
defaults in the performance of affirmative and negative
covenants, the inaccuracy of representations or warranties,
bankruptcy and insolvency related defaults, defaults relating to
such matters as ERISA, uninsured judgments and the failure to
pay certain indebtedness, and a change of control default.
In addition, the Credit Agreement contains affirmative, negative
and financial covenants customary for financings of this type.
The negative covenants include restrictions on indebtedness,
liens, fundamental changes, dispositions of property,
investments, dividends and other restricted payments. The
financial covenants include a consolidated fixed charge coverage
ratio, as defined, of not less than 1.75 to 1.0 and a
consolidated leverage ratio, as defined, not to exceed 3.0 to
1.0, through December 31, 2009. We are currently in full
compliance with these covenants.
There have been no borrowings under the Revolving Loan; however,
as a result of the Letter of Credit, the amount available under
the Revolving Loan was reduced by $4.6 million, to
$20.4 million, at December 31, 2009. Fees and expenses
incurred in 2006 of $0.9 million related to the Credit
Agreement have been recorded as deferred financing costs
(included in other assets, non-current) and are amortized to
interest expense over the five-year life of the Credit Agreement
using the effective interest method. Since the Term Loan was
repaid in 2009, the remaining deferred financing costs of
$224,000 as of October 2009 have been written off to interest
expense.
55
HMS
HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In December 2006, we entered into a three-year interest rate
swap agreement to hedge the fluctuations in variable interest
rates, which matured on September 30, 2009, and was
accounted for as a cash flow hedge. The swap agreement
effectively converted $12.0 million of our variable rate
debt to fixed-rate debt, reducing our exposure to changes in
interest rates. Under the swap agreement, we received an average
variable LIBOR rate of 1.11% and paid a LIBOR fixed rate of
5.295% for the period from December 31, 2008 to
September 30, 2009. The LIBOR interest rates exclude the
applicable interest rate spread under our Credit Agreement. We
have recognized, net of tax, a reduction to accumulated
comprehensive loss of $220,000 for the year ended
December 31, 2009. As a result of the expiration of the
swap agreement as of September 30, 2009, there were no fair
value or cumulative unrealized gains and losses at
December 31, 2009. The reduction in accumulated loss for
the year relates to the change in the derivatives fair
value and reclassification of such derivatives gains and
losses to interest expense as a yield adjustment of the hedged
interest payouts in the same period in which the related
interest affected earnings.
The fair value of this swap, a liability of $0.4 million at
December 31, 2008 is recorded on our Consolidated Balance
Sheets as other current liability, with changes in its fair
value included in other comprehensive income.
We do not use derivative instruments for speculative purposes.
On May 28, 1997, the Board of Directors authorized the
repurchase of such number of shares of our common stock that
have an aggregate purchase price not to exceed $10 million.
On February 24, 2006, the Board of Directors increased the
authorized aggregate purchase price to an amount not to exceed
$20 million. We are authorized to repurchase these shares
from
time-to-time
on the open market or in negotiated transactions at prices
deemed appropriate by our management. Repurchased shares are
deposited in the treasury and used for general corporate
purposes. During the years ended December 31, 2009, 2008
and 2007, we did not repurchase any shares of common stock.
Since the inception of the repurchase program in June 1997, we
have repurchased 1,662,846 shares of common stock at an
average price of $5.65 per share and for an aggregate purchase
price of $9.4 million.
Our certificate of incorporation, as amended, authorizes the
issuance of up to 5,000,000 shares of blank
check preferred stock with such designations, rights and
preferences as may be determined by our Board of Directors. As
of December 31, 2009, no preferred stock had been issued.
|
|
10.
|
Employee
Benefit Plan
|
We sponsor a benefit plan to provide retirement benefits for our
employees, which is known as the HMS Holdings Corp. 401(k) Plan,
or the 401(k) Plan. Participants may make voluntary
contributions to the 401(k) Plan of up to 60% of their annual
base pre-tax compensation not to exceed the federally determined
maximum allowable contribution. The 401(k) Plan permits us to
make discretionary contributions. These contributions are not in
the form of our common stock.
Participants are permitted to invest their contributions in our
common stock. For the years ended December 31, 2009, 2008
and 2007, we contributed $1,596,000, $1,268,000 and $950,000,
respectively, to the 401(k) Plan.
56
HMS
HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
11.
|
Stock-Based
Compensation Plans
|
|
|
(a)
|
Third
Amended and Restated 2006 Stock Plan
|
As of December 31, 2009, we had one stock-based
compensation plan, our Third Amended and Restated 2006 Plan, or
the 2006 Plan. The 2006 Plan permits the granting of incentive
stock options, non-qualified stock options, stock appreciation
rights (SARs), restricted stock awards and restricted stock
units, performance shares and performance units, share awards
and phantom stock awards.
Our 2006 Stock Plan was approved by our shareholders in June
2006. The purpose of the 2006 Plan is to furnish a material
incentive to our employees and non-employee directors by making
available to them the benefits of a larger common stock
ownership through stock options and awards. We believe that
these increased incentives stimulate the efforts of employees
and non-employee directors towards our continued success, as
well as assist in the recruitment of new employees and
non-employee directors.
A total of 4,000,000 shares have been authorized for
issuance under the 2006 Plan. Any shares issued in connection
with awards other than stock options and SARs are counted
against the 4,000,000 share limit as one and eighty-five
hundredths (1.85) of a share for every one share issued in
connection with such award or by which the award is valued by
reference.
All of our employees as well as our non-employee directors are
eligible to participate in the 2006 Plan. However, only our
employees are eligible to receive incentive stock options. The
exercise price of stock options granted under the 2006 Plan may
not be less than fair market value of a share of stock on the
grant date, as measured by the closing price of our common stock
on The NASDAQ Global Select Market and the term of a stock
option may not exceed seven years.
During the fourth quarter of 2009, the Compensation Committee of
the Board of Directors approved stock option grants to purchase
an aggregate of 349,000 shares of common stock to our
directors, executive officers and employees under the 2006 Plan
at an average exercise price of $38.13 per share, the average of
the high and low trading prices or our common stock on the date
of the grant. Half of the stock options granted vest in
one-third increments over a period of three and a quarter years
commencing on December 31, 2009. The remainder vests on
December 31, 2012, provided certain pre-defined performance
and service conditions are satisfied.
During the year ended December 31, 2009, stock options to
purchase an aggregate of 359,000 shares of common stock,
127,918 restricted stock awards and 25,272 restricted stock
units were granted under the 2006 Plan, leaving
1,612,314 shares of common stock available for grant under
the 2006 Plan. As of December 31, 2009, options to purchase
1,766,969 shares of common stock, 127,918 restricted stock
awards and 25,272 restricted stock units were outstanding under
the 2006 Plan.
|
|
(b)
|
1999
Long-Term Incentive Plan
|
Our 1999 Long-Term Incentive Stock Plan, or the 1999 Plan, was
approved by our shareholders in March 1999. The 1999 Plan was
terminated upon approval of the 2006 Plan by our shareholders in
June 2006 and, accordingly, no additional awards options may be
granted thereunder. As of December 31, 2009, stock options
to purchase 878,273 shares of common stock were outstanding
under the 1999 Plan.
|
|
(c)
|
Options
Issued Outside the Plans
|
As of December 31, 2009, there were stock options to
purchase an aggregate of 391,250 shares of our common stock
outstanding that were not granted under the 2006 Plan or the
1999 Plan. These stock options are as follows: (i) 180,000
options granted in March 2001 to Robert M. Holster, our current
Chairman and former Chief Executive Officer, under the terms of
his employment agreement, (ii) 151,250 options granted in
September 2006 to ten former senior executives of BSPA in
connection with their joining us, and (iii) 60,000 options
granted in July 2007 to Walter D. Hosp, our Chief Financial
Officer, under the terms of his employment agreement.
57
HMS
HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Presented below is a summary of our stock option activity for
the year ended December 31, 2009 (shares in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
Shares
|
|
|
Price
|
|
|
Terms
|
|
|
Value
|
|
|
Outstanding at January 1, 2009
|
|
|
4,066
|
|
|
$
|
12.26
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
359
|
|
|
|
38.03
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(1,358
|
)
|
|
|
7.41
|
|
|
|
|
|
|
|
|
|
Forfeitures
|
|
|
(30
|
)
|
|
|
21.12
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(1
|
)
|
|
|
25.45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2009
|
|
|
3,036
|
|
|
|
17.39
|
|
|
|
4.88
|
|
|
$
|
96,565
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested or expected to vest at December 31, 2009
|
|
|
2,929
|
|
|
|
16.99
|
|
|
|
0.68
|
|
|
$
|
94,325
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2009
|
|
|
1,535
|
|
|
$
|
9.73
|
|
|
|
4.18
|
|
|
$
|
60,590
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The fair value of each option grant was estimated using the
Black-Scholes option pricing model. Expected volatilities are
calculated based on the historical volatility of the stock.
Management monitors share option exercise and employee
termination patterns to estimate forfeiture rates within the
valuation model. Separate groups of employees that have similar
historical exercise behavior are considered separately for
valuation purposes. The expected holding period of options
represents the period of time that options granted are expected
to be outstanding. The risk-free interest rate for periods
within the contractual life of the option is based on the
interest rate of a
5-year
U.S. Treasury note in effect on the date of the grant.
As of December 31, 2009, there was approximately
$10.7 million of total unrecognized compensation cost
related to stock options outstanding at December 31, 2009.
That cost is expected to be recognized over a weighted-average
period of 1.48 years. No compensation cost related to stock
options was capitalized for the year ended December 31,
2009.
The total intrinsic value of options exercised during the years
ended December 31, 2009, 2008, and 2007 was
$37.2 million, $14.9 million, and $26.3 million,
respectively.
Total compensation cost for shared-based payments arrangements
charged against income was $6.4 million, $3.5 million,
and $2.2 million for the years ended December 31,
2009, 2008, and 2007, respectively. The total income tax benefit
recognized in the income statement for shared-based arrangements
was $2.6 million for the year ended December 31, 2009
and $1.4 million and $1.0 million for the years ended
December 31, 2008, and 2007, respectively.
The weighted-average grant-date fair value per share of the
stock options granted during the years ended December 31,
2009, 2008 and 2007 was $14.62, $8.47 and $8.76, respectively.
We estimated the fair value of options granted using a
Black-Scholes option pricing model with the following
assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Expected dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
Risk-free interest rate
|
|
|
2.32
|
%
|
|
|
2.96
|
%
|
|
|
4.36
|
%
|
Expected volatility
|
|
|
45.8
|
%
|
|
|
40.08
|
%
|
|
|
38.1
|
%
|
Expected life
|
|
|
4.0 years
|
|
|
|
4.0 years
|
|
|
|
4.1 years
|
|
58
HMS
HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table summarizes information for stock options
outstanding at December 31, 2009 (in thousands, except
per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
Range of
|
|
Number Outstanding
|
|
|
Weighted Average
|
|
|
Weighted
|
|
|
|
|
|
Average
|
|
Exercise
|
|
as of December 31,
|
|
|
Remaining
|
|
|
Average
|
|
|
Number
|
|
|
Exercise
|
|
Prices
|
|
2009
|
|
|
Contractual Life
|
|
|
Exercise Price
|
|
|
Exercisable
|
|
|
Price
|
|
|
$ 1.07 2.92
|
|
|
368
|
|
|
|
2.04
|
|
|
$
|
1.88
|
|
|
|
368
|
|
|
$
|
1.88
|
|
3.05 6.42
|
|
|
324
|
|
|
|
3.55
|
|
|
|
3.96
|
|
|
|
324
|
|
|
|
3.96
|
|
6.95 9.44
|
|
|
366
|
|
|
|
5.72
|
|
|
|
7.94
|
|
|
|
312
|
|
|
|
7.68
|
|
10.98 14.04
|
|
|
388
|
|
|
|
6.57
|
|
|
|
12.17
|
|
|
|
164
|
|
|
|
11.17
|
|
14.66 22.29
|
|
|
147
|
|
|
|
7.25
|
|
|
|
18.69
|
|
|
|
62
|
|
|
|
17.11
|
|
23.99 23.99
|
|
|
571
|
|
|
|
5.75
|
|
|
|
23.99
|
|
|
|
125
|
|
|
|
23.99
|
|
24.79 24.79
|
|
|
5
|
|
|
|
5.69
|
|
|
|
24.79
|
|
|
|
1
|
|
|
|
24.79
|
|
25.45 25.45
|
|
|
479
|
|
|
|
2.75
|
|
|
|
25.45
|
|
|
|
168
|
|
|
|
25.45
|
|
25.70 34.51
|
|
|
39
|
|
|
|
5.35
|
|
|
|
28.95
|
|
|
|
4
|
|
|
|
28.46
|
|
37.82 48.69
|
|
|
349
|
|
|
|
6.76
|
|
|
|
38.13
|
|
|
|
7
|
|
|
|
37.82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ 1.07 48.69
|
|
|
3,036
|
|
|
|
4.88
|
|
|
$
|
17.39
|
|
|
|
1,535
|
|
|
$
|
9.73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(e)
|
Restricted
Stock Units
|
In October 2009, certain employees received restricted stock
units under the 2006 Plan. The fair value of restricted stock
units is estimated based on the closing sale price of our common
stock on the NASDAQ Global Select Market on the date of
issuance. The total number of restricted stock units expected to
vest is adjusted by estimated forfeiture rates. As of
December 31, 2009, there was approximately
$0.9 million of unamortized compensation cost related to
restricted stock units which is expected to be recognized over
the remaining weighted-average vesting period of 2.5 years.
For the year ended December 31, 2009, share-based
compensation expense related to restricted stock units was
$0.1 million. The total intrinsic value of restricted stock
units outstanding at December 31, 2009 was
$0.3 million based on our closing stock price on that date.
A summary of the status of our restricted stock units as of
December 31, 2009 and of changes in restricted stock units
outstanding under the 2006 Plan for the year ended
December 31, 2009 is as follows (in thousands, except for
weighted average grant date fair value per unit):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
Number of
|
|
|
Grant Date Fair
|
|
|
|
Units
|
|
|
Value per Unit
|
|
|
Restricted stock units outstanding at December 31, 2008
|
|
|
|
|
|
|
|
|
Restricted stock units granted
|
|
|
25,272
|
|
|
$
|
37.85
|
|
Restricted stock units cancelled
|
|
|
|
|
|
|
|
|
Restricted stock units converted into common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock units outstanding at December 31, 2009
|
|
|
25,272
|
|
|
$
|
37.85
|
|
|
|
|
|
|
|
|
|
|
|
|
(f)
|
Restricted
Stock Awards
|
Our executive officers have received grants of restricted stock
awards under the 2006 Plan. The vesting of restricted stock
awards is subject to the executive officers continued
employment with us. Recipients of restricted stock awards are
not required to provide us with any consideration other than
rendering service. Holders of restricted stock are permitted to
vote and to receive dividends.
59
HMS
HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The stock-based compensation expense for restricted stock awards
is determined based on the closing market price of our common
stock on the grant date of the awards applied to the total
number of awards that are anticipated to fully vest. At
December 31, 2009, there was unrecognized stock-based
compensation of $3.3 million related to restricted stock
awards, which is expected to be recognized over the
weighted-average period of 4.1 years for these restricted
stock awards.
A summary of the status of our restricted stock awards as of
December 31, 2009 and of changes in restricted stock awards
outstanding under the 2006 Plan for the year ended
December 31, 2009 is as follows (in thousands, except for
weighted average grant date fair value per unit):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
|
Grant Date Fair
|
|
|
|
Shares
|
|
|
Value per Share
|
|
|
Unvested shares under restricted stock awards at
December 31, 2008
|
|
|
|
|
|
|
|
|
Restricted stock awards granted
|
|
|
127,918
|
|
|
$
|
31.27
|
|
Restricted stock awards vested
|
|
|
|
|
|
|
|
|
Restricted stock awards forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested shares under restricted stock awards at
December 31, 2009
|
|
|
127,918
|
|
|
$
|
31.27
|
|
|
|
|
|
|
|
|
|
|
|
|
12.
|
Transactions
with Officers, Related Parties, and Others
|
|
|
(a)
|
Public
Consulting Group, Inc.
|
One of our directors is the President, Chief Executive Officer,
controlling stockholder and a member of the Board of Directors
of PCG. Since the acquisition of BSPA in 2006, we have entered
into subcontractor agreements with PCG, pursuant to which we
provide cost containment services. For the years ended
December 31, 2009, 2008 and 2007, amounts we recognized as
revenue under subcontractor agreements with PCG were
$2.8 million, $2.3 million and $1.4 million,
respectively. For the years ended December 31, 2009, 2008
and 2007, accounts receivable outstanding related to these
subcontractor agreements with PCG were $2.9 million,
$1.1 million and $0.7 million, respectively.
In addition, as part of the acquisition of BSPA in 2006, we
subleased office space from PCG. For the years ended
December 31, 2009, 2008 and 2007, amounts we recognized as
expense under such sublease arrangement with PCG were
approximately $110,000, $110,000 and $129,000, respectively. In
connection with the BSPA acquisition, we entered into an
Intercompany Services Agreement (ISA) with PCG to allow each
party to perform services for the other, such as information
technology support and contractual transition services. Services
performed under the ISA are billed at pre-determined rates
specified in the ISA. For the year ended December 31, 2009,
services rendered by PCG under the ISA were valued at
approximately $122,000 and our services rendered to PCG were
valued at approximately $184,000. For the year ended
December 31, 2008, services rendered by PCG under the ISA
were valued at approximately $33,000 and our services rendered
to PCG were valued at approximately $58,000. For the year ended
December 31, 2007, services rendered by PCG under the ISA
were valued at approximately $74,000 and our services rendered
to PCG were valued at approximately $131,000.
Since the BSPA acquisition, amounts collected by or paid on our
behalf by PCG are reimbursed to PCG at cost. At
December 31, 2009, 2008 and 2007, $170,000, $72,000 and
$4,000, respectively was owed to PCG and was classified as a
current liability.
|
|
(b)
|
Employment
Agreements
|
Two of our executive officers have employment agreements with us
that expire in February 2011. Under the terms of those
agreements, we are obligated to provide salary and benefit
continuation in the event either employee is terminated without
cause or his employment ceases because of death or
disability or within 45 days of a change of control. For
one of these employees the maximum period of salary and benefit
continuation is through February 2011, and for the other it is
24 months after his termination.
60
HMS
HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In addition, under the terms of the employment of our two other
executive officers, in the event that either officer is
terminated without cause, they will be entitled to a
continuation of salary and benefits for a period of six months.
|
|
13.
|
Commitments
and Contingencies
|
Lease
commitments
We lease office space, data processing equipment and software
licenses under operating leases that expire at various dates
through 2013. The lease agreements provide for rent escalations.
Lease expense, exclusive of sublease income, for the years ended
December 31, 2009, 2008 and 2007, was $10.7 million,
$9.2 million and $8.2 million, respectively. Sublease
income was $484,000, $40,000 and $161,000, for the years ended
December 31, 2009, 2008, and 2007, respectively.
Minimum annual lease payments to be made and sublease payments
to be received for each of the next five years ending December
31 and thereafter are as follows (in thousands):
|
|
|
|
|
|
|
|
|
Year
|
|
Payments
|
|
|
Sublease Receipts
|
|
|
2010
|
|
$
|
13,603
|
|
|
$
|
1,501
|
|
2011
|
|
|
12,812
|
|
|
|
1,353
|
|
2012
|
|
|
11,355
|
|
|
|
1,454
|
|
2013
|
|
|
7,548
|
|
|
|
564
|
|
2014
|
|
|
2,987
|
|
|
|
|
|
Thereafter
|
|
|
8,447
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
56,752
|
|
|
$
|
4,872
|
|
|
|
|
|
|
|
|
|
|
|
|
14.
|
Segments
and Geographical Information
|
Since the beginning of the first quarter of 2007, we have been
managed and operated as one business with a single management
team that reports to the Chief Executive Officer. We do not
operate separate lines of business with respect to any of our
product lines. Accordingly, we do not prepare discrete financial
information with respect to separate product lines or by
location and do not have separately reportable segments as
defined by the guidance provided by FASB.
|
|
(b)
|
Geographic
Information
|
We operate within the continental United States.
Our largest client in 2009 was the New York State Office of the
Medicaid Inspector General. This client accounted for 7.8%, 7.9%
and 8.9% of our total revenue in the years ended
December 31, 2009, 2008 and 2007, respectively. The New
York State Office of the Medicaid Inspector General became our
client September 2006, as part of our acquisition of BSPA. We
provide services to this customer pursuant to a contract awarded
in October 2001, which was subsequently re-procured and extended
through January 6, 2015. Our second largest client in 2009
was the New Jersey Department of Human Services. This client
accounted for 6.2%, 6.6% and 7.1% of our total revenue in the
years ended December 31, 2009, 2008 and 2007, respectively.
We provide services to this client pursuant to a three year
contract awarded in January 2008, which is renewable for two
additional one year periods, through December 2012.
61
HMS
HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
(d)
|
Concentration
of Revenue
|
The list of our ten largest clients changes periodically. For
the years ended December 31, 2009, 2008, and 2007, the
concentration of revenue from our ten largest clients
represented 39.5%, 43.5% and 42.5% of our revenue, respectively.
Our three largest clients accounted for approximately 19%, 20%
and 22% of our revenue for each of the years ended
December 31, 2009, 2008 and 2007, respectively. The
agreements with our ten current largest clients expire between
2010 and 2015. In many instances, we provide our services
pursuant to agreements that may be renewed subject to a
competitive re-procurement process. Many of our contracts,
including those with our ten largest clients, may be terminated
for convenience. We cannot assure you that our contracts,
including those with our ten largest clients, will not be
terminated for convenience or that any of these contracts will
be renewed, and, if renewed, that the fee rates will be equal to
those currently in effect.
|
|
15.
|
Quarterly
Financial Data (unaudited)
|
The table below summarizes our unaudited quarterly operating
results for the last two fiscal years (in thousands, except per
share amounts).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Year Ended December 31,
2009(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
49,941
|
|
|
$
|
53,814
|
|
|
$
|
59,164
|
|
|
$
|
66,317
|
|
Operating income
|
|
|
9,860
|
|
|
|
11,440
|
|
|
|
14,361
|
|
|
|
16,205
|
|
Net income
|
|
|
5,705
|
|
|
|
6,638
|
|
|
|
8,379
|
|
|
|
9,325
|
|
Basic net income per share
|
|
|
0.22
|
|
|
|
0.26
|
|
|
|
0.32
|
|
|
|
0.35
|
|
Diluted net income per share
|
|
|
0.21
|
|
|
|
0.24
|
|
|
|
0.30
|
|
|
|
0.33
|
|
Year ended December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
38,943
|
|
|
$
|
44,183
|
|
|
$
|
48,965
|
|
|
$
|
52,404
|
|
Operating income
|
|
|
5,689
|
|
|
|
8,842
|
|
|
|
10,771
|
|
|
|
11,428
|
|
Net income
|
|
|
3,173
|
|
|
|
5,001
|
|
|
|
6,143
|
|
|
|
7,058
|
|
Basic net income per share
|
|
|
0.13
|
|
|
|
0.20
|
|
|
|
0.24
|
|
|
|
0.28
|
|
Diluted net income per share
|
|
|
0.12
|
|
|
|
0.19
|
|
|
|
0.23
|
|
|
|
0.26
|
|
|
|
|
(1)
|
|
The summation of the above
quarterly results may not agree to the full year 2009 reported
results as amounts have been rounded for presentation purposes.
|
62
HMS
HOLDINGS CORP. AND SUBSIDIARIES
For the years ended December 31, 2009, 2008 and 2007
|
|
|
|
|
|
Allowance for doubtful accounts (In thousands):
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2006
|
|
$
|
512
|
|
Provision
|
|
|
169
|
|
Recoveries
|
|
|
|
|
Charge-offs
|
|
|
(19
|
)
|
|
|
|
|
|
Balance, December 31, 2007
|
|
$
|
662
|
|
Provision
|
|
|
|
|
Recoveries
|
|
|
2
|
|
Charge-offs
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2008
|
|
$
|
664
|
|
Provision
|
|
|
|
|
Recoveries
|
|
|
|
|
Charge-offs
|
|
|
(50
|
)
|
|
|
|
|
|
Balance, December 31, 2009
|
|
$
|
614
|
|
|
|
|
|
|
63
HMS
Holdings Corp. and Subsidiaries
Exhibit Index
Where an exhibit is filed by incorporation by reference to a
previously filed registration statement or report, such
registration statement or report is identified after the
description of the exhibit.
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
2
|
.1
|
|
Agreement and Plan of Merger, dated as of December 16,
2002, among Health Management Systems, Inc., HMS Holdings Corp.
and HMS Acquisition Corp. Incorporated by reference to
Exhibit A to HMS Holdings Corp.s Prospectus and Proxy
Statement, File
No. 333-100521,
filed with the SEC on January 24, 2003.
|
|
3
|
.1
|
|
Restated Certificate of Incorporation of HMS Holdings Corp.
Incorporated by reference to Exhibit 3.1 to Amendment
No. 1 to HMS Holdings Corp.s Registration Statement
on
Form S-4,
File
No. 333-100521,
filed with the SEC on December 10, 2002.
|
|
3
|
.2
|
|
Certificate of Amendment to the Certificate of Incorporation of
HMS Holdings Corp. Incorporated by reference to
Exhibit 3.1(a) to HMS Holdings Corp.s Registration
Statement on
Form S-8,
File No. 333-108436,
filed with the SEC on September 2, 2003.
|
|
3
|
.3
|
|
By-laws of HMS Holdings Corp. Incorporated by reference to
Exhibit 3.2 to HMS Holdings Corp.s Registration
Statement on
Form S-4,
File
No. 333-100521,
filed with the SEC on October 11, 2002.
|
|
*4
|
.1
|
|
Specimen Common Stock Certificate.
|
|
4
|
.2
|
|
See Exhibits 3.1, 3.2 and 3.3 for provisions defining the
rights of holders of common stock of HMS Holdings Corp.
|
|
10
|
.1
|
|
HMS Holdings Corp. 1999 Long-Term Incentive Stock Plan, as
amended. Incorporated by reference to Exhibit 4 to HMS
Holdings Corp.s Registration Statement on
Form S-8,
File
No. 333-108436,
filed with the SEC on September 2, 2003.
|
|
10
|
.2
|
|
Form of Incentive Stock Option Agreement under the 1999
Long-Term Incentive Stock Plan. Incorporated by reference to
Exhibit 10.1 to HMS Holdings Corp.s Current Report on
Form 8-K,
filed with the SEC on December 14, 2004.
|
|
10
|
.3
|
|
Form of Non-Qualified Stock Option Agreement under the 1999 Long
Term Incentive Stock Plan. Incorporated by reference to
Exhibit 10. to HMS Holdings Corp.s Current Report on
Form 8-K,
filed with the SEC on December 14, 2004.
|
|
10
|
.4
|
|
HMS Holdings Corp. Third Amended and Restated 2006 Stock Plan.
Incorporated by reference to Annex 1 of HMS Holdings
Corp.s Definitive Proxy Statement filed with the SEC on
April 30, 2009.
|
|
10
|
.5
|
|
Form of Incentive Stock Option Agreement under the 2006 Stock
Plan. Incorporated by reference to Exhibit 4.6(i) to HMS
Holdings Corp.s Registration Statement on
Form S-8,
File
No. 333-139025,
filed with the SEC on November 30, 2006.
|
|
10
|
.6
|
|
Form of Non-Qualified Stock Option Agreement under the 2006
Stock Plan. Incorporated by reference to Exhibit 4.6(ii) to
HMS Holdings Corp.s Registration Statement on
Form S-8,
File
No. 333-139025,
filed with the SEC on November 30, 2006.
|
|
10
|
.7
|
|
Form of Restricted Stock Agreement under the Third Amended and
Restated Stock 2006 Stock Plan. Incorporated by reference to
Exhibit 10.1 to HMS Holding Corp.s Current Report on
Form 8-K,
filed with the SEC on April 29, 2009.
|
|
10
|
.8
|
|
Form Non-Qualified
Stock Option Agreement under the Third Amendment and Restated
2006 Stock Plan. Incorporated by reference Exhibit 10.1 to
HMS Holding Corp.s Quarterly Report on
Form 10-Q
for the quarter ended September 30, 2009, filed with the
SEC on November 6, 2009.
|
|
10
|
.9
|
|
Form Restricted Stock Unit Agreement under the Third
Amendment and Restated 2006 Stock Plan. Incorporated by
reference Exhibit 10.2 to HMS Holding Corp.s
Quarterly Report on
Form 10-Q
for the quarter ended September 30, 2009, filed with the
SEC on November 6, 2009.
|
|
10
|
.10
|
|
Amended and Restated Employment Agreement between HMS Holdings
Corp. and Robert M. Holster dated as of March 1, 2009.
Incorporated by reference to Exhibit 10.1 to HMS Holdings
Corp.s Current Report on
Form 8-K,
filed with the SEC on March 6, 2009.
|
64
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
10
|
.11
|
|
Form of Stock Option Agreement dated as of March 30, 2001
by and between Health Management Systems, Inc. and Robert M.
Holster. Incorporated by reference to Exhibit 10.2(ii) to
Health Management Systems, Inc.s Quarterly Report on
Form 10-Q
for the quarter ended April 30, 2001, filed with the SEC on
June 14, 2001.
|
|
10
|
.12
|
|
Amended and Restated Employment Agreement between William C.
Lucia and HMS Holdings Corp. dated as of March 1, 2009.
Incorporated by reference to Exhibit 10.2 to HMS Holdings
Corp.s Current Report on
Form 8-K,
filed with the SEC on March 6, 2009.
|
|
10
|
.13
|
|
Lease, dated July 31, 2007, between Equastone High Point,
LP and Health Management Systems, Inc. Incorporated by reference
to Exhibit 10.8 to HMS Holdings Corp.s Annual Report
on
Form 10-K
for the year ended December 31, 2008, filed with the SEC on
March 14, 2008.
|
|
10
|
.14
|
|
Form of First Amendment, dated as of July 29, 2009, between
Highpoint Irving, LLC and HMS Business Services Inc.
Incorporated by reference to Exhibit 10.1 to HMS Holdings
Corp.s Current Report on
Form 8-K,
filed with the SEC on August 4, 2009.
|
|
10
|
.15
|
|
Leases, dated September 24, 1981, September 24, 1982,
and January 6, 1986, as amended, between 401 Park Avenue
South Associates and Health Management Systems, Inc.
(Incorporated by reference to Exhibit 10.13 to Health
Management Systems, Inc.s Registration Statement on
Form S-1,
File
No. 33-46446,
dated June 9, 1992 and to Exhibit 10.5 to Health
Management Systems, Inc.s Quarterly Report on
Form 10-Q
for the quarter ended January 31, 1994).
|
|
10
|
.16
|
|
Fifth Amendment, dated May 30, 2000 to the lease for the
entire eighth, ninth, and tenth floors and part of the eleventh
and twelfth floor between 401 Park Avenue South Associates, LLC
and Health Management Systems, Inc. Incorporated by reference to
Exhibit 10.1 to Health Management Systems, Inc.s
Quarterly Report on
Form 10-Q
for the quarter ended July 31, 2000, filed with the SEC on
September 14, 2000.
|
|
10
|
.17
|
|
Sixth Amendment, dated May 1, 2000 to the lease for the
entire eighth, ninth, and tenth floors and part of the eleventh
and twelfth floor between 401 Park Avenue South Associates, LLC
and Health Management Systems, Inc. Incorporated by reference to
Exhibit 10.2 to Health Management Systems, Inc.s
Quarterly Report on
Form 10-Q
for the quarter ended July 31, 2000, filed with the SEC on
September 14, 2000.
|
|
10
|
.18
|
|
Seventh Amendment, dated April 1, 2001 to the lease for the
entire eighth, ninth, and tenth floors and part of the eleventh
floor between 401 Park Avenue South Associates, LLC and Health
Management Systems, Inc. Tenant. Incorporated by reference to
Exhibit 10.1(v) to Health Management Systems, Inc.s
Quarterly Report on
Form 10-Q
for the quarter ended April 30, 2001, filed with the SEC on
June 14, 2001.
|
|
10
|
.19
|
|
Third Amendment, dated May 30, 2000 to the lease for a
portion of the eleventh floor between 401 Park Avenue South
Associates, LLC and Health Management Systems, Inc. Incorporated
by reference to Exhibit 10.3 to Health Management Systems,
Inc.s Quarterly Report on
Form 10-Q
for the quarter ended July 31, 2000, filed with the SEC on
September 14, 2000.
|
|
10
|
.20
|
|
Fourth Amendment, dated May 1, 2000 to the lease for a
portion of the eleventh floor between 401 Park Avenue South
Associates, LLC and Health Management Systems, Inc.
(Incorporated by reference to Exhibit 10.4 to Health
Management Systems, Inc.s Quarterly Report on
Form 10-Q
for the quarter ended July 31, 2000, filed with the SEC on
September 14, 2000.
|
|
10
|
.21
|
|
Fifth Amendment, dated May 1, 2003 to the lease for a
portion of the eleventh floor between 401 Park Avenue South
Associates, LLC and Health Management Systems, Inc. Incorporated
by reference to Exhibit 10.1(vi) to Health Management
Systems, Inc.s Quarterly Report on
Form 10-Q
for the quarter ended April 30, 2001, filed with the SEC on
June 14, 2001.
|
|
10
|
.22
|
|
Fifth Amendment, dated May 30, 2000 to the lease for the
fourth floor and the penthouse between 401 Park Avenue South
Associates, LLC and Health Management Systems, Inc. Incorporated
by reference to Exhibit 10.7 to Health Management Systems,
Inc.s Quarterly Report on
Form 10-Q
for the quarter ended July 31, 2000, filed with the SEC on
September 14, 2000.
|
|
10
|
.23
|
|
Sixth Amendment, dated May 1, 2000 to the lease for the
fourth floor and the penthouse between 401 Park Avenue South
Associates, LLC and Health Management Systems, Inc. Incorporated
by reference to Exhibit 10.8 to Health Management Systems,
Inc.s Quarterly Report on
Form 10-Q
for the quarter ended July 31, 2000, filed with the SEC on
September 14, 2000.
|
65
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
10
|
.24
|
|
Seventh Amendment, dated March 1, 2001 to the lease for the
fourth floor and the penthouse between 401 Park Avenue South
Associates, LLC and Health Management Systems, Inc. Incorporated
by reference to Exhibit 10.1(iv) to Health Management
Systems, Inc.s Quarterly Report on
Form 10-Q
for the quarter ended April 30, 2001, filed with the SEC on
June 14, 2001.
|
|
10
|
.25
|
|
Sublease Agreement, dated as of January 2003, between Health
Management Systems, Inc. and Vitech Systems Group, Inc.
Incorporated by reference to Exhibit 10.17 to HMS Holdings
Corp.s Annual Report on
Form 10-K
for the year ended December 31, 2002, filed with the SEC on
March 31, 2003.
|
|
10
|
.26
|
|
Data Services Agreement, dated June 4, 2007, between HMS
Business Services, Inc. and Zavata, Inc. Incorporated by
reference to Exhibit 10.12 to HMS Holdings Corp.s
Annual Report on
Form 10-K
for the year ended December 31, 2008, filed with the SEC on
March 14, 2008.
|
|
10
|
.27
|
|
Data Services Agreement, dated July 31, 2007, between HMS
Business Services, Inc. and Accordis Holding Corp. Incorporated
by reference to Exhibit 10.13(i) to HMS Holdings
Corp.s Annual Report on
Form 10-K
for the year ended December 31, 2008, filed with the SEC on
March 14, 2008.
|
|
10
|
.28
|
|
Amendment, dated October 16, 2008 to Data Services
Agreement to provide Zavata certain processing, data storage and
other services between HMS Business Services, Inc. and Apollo
Health Street, Inc. Incorporated by reference to
Exhibit 10.13(ii) to HMS Holdings Corp.s Annual
Report on
Form 10-K
for the year ended December 31, 2008, filed with the SEC on
March 14, 2008.
|
|
10
|
.29
|
|
Accordis Holding Corp. Subordinated Promissory Note dated
August 31, 2005. Incorporated by reference to
Exhibit 99.4 to HMS Holdings Corp.s Current Report on
Form 8-K,
filed with the SEC on September 7, 2005.
|
|
10
|
.30
|
|
Non-Compete Agreement, dated as of August 31, 2005, among
HMS Holdings Corp., Health Management Systems, Inc., HMS
Business Services, Inc., Accordis Holding Corp., and Accordis
Inc. Incorporated by reference to Exhibit 99.5 to HMS
Holdings Corp.s Current Report on
Form 8-K,
filed with the SEC on September 7, 2005.
|
|
10
|
.31
|
|
Subcontracting Agreement, made the 31st day of August 2005, by
and between Accordis Inc. and Reimbursement Services Group Inc.
Incorporated by reference to Exhibit 99.8 to HMS Holdings
Corp.s Current Report on
Form 8-K,
filed with the SEC on September 7, 2005.
|
|
10
|
.32
|
|
Software License Agreement, dated as of August 31, 2005
between Accordis, Inc. and Health Management Systems, Inc.
Incorporated by reference to Exhibit 99.9 to HMS Holdings
Corp.s Current Report on
Form 8-K,
filed with the SEC on September 7, 2005.
|
|
10
|
.33
|
|
Stock Purchase Agreement, dated August 31, 2005, between
HMS Holdings Corp. and Accordis Holding Corp. Incorporated by
reference to Exhibit 99.2 to HMS Holdings Corp.s
Current Report on
Form 8-K/A,
filed with the SEC on September 8, 2005.
|
|
10
|
.34
|
|
Asset Purchase Agreement, dated as of June 22, 2006, by and
among HMS Holdings Corp., Health Management Systems, Inc., and
Public Consulting Group, Inc. Incorporated by reference to
Exhibit 99.1 to HMS Holdings Corp.s Current Report on
Form 8-K,
filed with the SEC on June 26, 2006.
|
|
10
|
.35
|
|
Amendment No. 1 to Asset Purchase Agreement, dated as of
September 13, 2006, by and among HMS Holdings Corp., Health
Management Systems, Inc., and Public Consulting Group, Inc.
Incorporated by reference to Exhibit 99.1 to HMS Holdings
Corp.s Current Report on
Form 8-K,
filed with the SEC on September 14, 2006.
|
|
10
|
.36
|
|
Master Teaming Agreement, dated as of September 13, 2006,
by and between Health Management Systems, Inc. and Public
Consulting Group, Inc. Incorporated by reference to
Exhibit 99.2 to HMS Holdings Corp.s Current Report on
Form 8-K,
filed with the SEC on September 14, 2006.
|
|
10
|
.37
|
|
Credit Agreement, dated as of September 13, 2006, among HMS
Holdings Corp., the Guarantors named therein, the Lenders named
therein, JPMorgan Chase Bank, N.A., as administrative agent,
J.P. Morgan Securities, Inc., as sole lead arranger and
sole bookrunner, Bank of America, N.A., as syndication agent and
Citizens Bank of Massachusetts, as documentation agent.
Incorporated by reference to Exhibit 99.3 to HMS Holdings
Corp.s Current Report on
Form 8-K,
filed with the SEC on September 14, 2006.
|
|
*21
|
.1
|
|
List of Subsidiaries of HMS Holdings Corp.
|
|
*23
|
.1
|
|
Consent of Independent Registered Public Accounting Firm
|
66
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
*31
|
.1
|
|
Rule 13a-14(a)/15d-14(a)
Certification of the Principal Executive Officer of HMS Holdings
Corp. , as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
|
|
*31
|
.2
|
|
Rule 13a-14(a)/15d-14(a)
Certification of the Principal Financial Officer of HMS Holdings
Corp. , as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
|
|
32
|
.1
|
|
Section 1350 Certification of the Principal Executive
Officer of HMS Holdings Corp. , as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
|
|
32
|
.2
|
|
Section 1350 Certification of the Principal Financial
Officer of HMS Holdings Corp. , as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
|
|
|
|
|
|
Indicates a management contract or compensatory plan, contract
or arrangement |
|
* |
|
Filed herewith |
|
|
|
Furnished herewith |
67