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BCE Emergis Announces Solid Third Quarter Results (Part 2 of 2) Montreal, Quebec, Wednesday, October 24, 2001, 06:01 EDT --
Consolidated Statements of Earnings
For the For the For the For the
three three nine nine
month month month month
(millions of period period period period
dollars, ended ended ended ended
except loss per Septem- Septem- Septem- Septem-
share and ber 30, ber 30, ber 30, ber 30,
number 2001 2000 2001 2000
of shares) (unaudited) (unaudited) (unaudited) (unaudited)
Revenue 173.0 132.1 475.0 327.0
Direct costs 39.0 33.3 106.9 80.6
------------ ---------- ----------- ----------
Gross margin 134.0 98.8 368.1 246.4
------------ ---------- ----------- ----------
Expenses
Operations 45.6 40.4 129.2 104.3
Sales and marketing 19.0 13.6 55.0 36.8
Research and
development 17.3 5.3 41.8 18.0
General and
administrative 17.7 13.8 50.5 36.5
------------ ---------- ----------- ----------
99.6 73.1 276.5 195.6
------------ ---------- ----------- ----------
Earnings before
under-noted items 34.4 25.7 91.6 50.8
Depreciation 12.1 5.9 32.2 17.8
Amortization of
intangibles 105.0 92.3 310.0 220.0
Interest income (1.2) (2.2) (4.0) (5.0)
Interest on
long-term debt 3.2 3.4 9.9 8.6
Accretion on
convertible debenture
due to parent, related
to the option 3.5 8.2 10.5 17.1
Writedown of marketable
securities and other
assets (Note 3) 15.3 - 39.2 -
Other (0.4) 0.2 (1.7) 1.3
------------ ---------- ----------- ----------
Net loss before
income taxes (103.1) (82.1) (304.5) (209.0)
Income taxes
Current 5.5 3.5 14.5 6.4
Future (1.1) (2.3) (5.9) (8.9)
------------ ---------- ----------- ----------
Net loss (107.5) (83.3) (313.1) (206.5)
============ ========== =========== ==========
Basic loss per
share ($) (1.14) (0.90) (3.33) (2.26)
Weighted average
number of shares
used in computing
basic loss per
share 94,244,706 93,033,751 94,000,113 91,187,759
Fully diluted loss per share is not presented as it is
anti-dilutive.
The accompanying notes are an integral part of the Interim
Consolidated Financial Statements.
Consolidated Statements of Deficit
For the nine For the nine
month period month period
ended ended
September September
30, 30,
2001 2000
(unaudited) (unaudited)
Deficit - beginning of period (372.0) (124.1)
Adjustment related to the
adoption of
new accounting recommendation - 31.4
Net loss (313.1) (206.5)
------------ ----------
Deficit - end of period (685.1) (299.2)
------------ ----------
The accompanying notes are an integral part of the Interim
Consolidated Financial Statements.
Consolidated Balance Sheets
(millions of dollars)
As at As at
September 30 December 31
2001 2000
(unaudited) (audited)
ASSETS
Current
Cash and temporary cash
investments 81.9 92.2
Marketable securities
(market value $6.2M as at
September 30, 2001
and $67.9M as at
December 31, 2000) 5.9 67.9
Accounts receivable 129.1 76.4
Future income taxes 5.6 7.5
Other 8.3 37.6
---------- ----------
230.8 281.6
Capital assets 148.2 152.3
Goodwill, net 576.0 737.8
Future income taxes 73.0 73.4
Other assets 79.3 71.2
---------- ----------
1,107.3 1,316.3
---------- ----------
LIABILITIES
Current
Accounts payable and
accrued liabilities 119.6 99.9
Deferred revenue 11.5 17.4
Deferred credits 12.0 12.0
Long-term debt 24.6 19.3
Convertible debenture due
to parent (Note 4) 139.5 -
---------- ----------
307.2 148.6
Deferred credits 5.1 13.8
Long-term debt 30.8 29.9
Convertible debenture due
to parent - 129.0
---------- ----------
343.1 321.3
---------- ----------
SHAREHOLDERS' EQUITY (Note 4)
Option on convertible debenture
due to parent 21.0 21.0
Capital stock 1,349.0 1,303.7
Contributed Surplus 25.2 25.2
Deficit (685.1) (372.0)
Foreign currency translation
adjustment 54.1 17.1
---------- ----------
764.2 995.0
---------- ----------
1,107.3 1,316.3
---------- ----------
The accompanying notes are an integral part of the Interim
Consolidated Financial Statements.
Consolidated Statements of Cash Flows
(millions of dollars)
For the For the For the For the
three three nine nine
month month month month
period period period period
ended ended ended ended
September September September September
30, 2001 30, 2000 30, 2001 30, 2000
(unaudited)(unaudited)(unaudited)(unaudited)
Operating activities
Net loss (107.5) (83.3) (313.1) (206.5)
Depreciation and
amortization 117.1 98.2 342.2 237.7
Accretion on convertible
debenture due to parent,
related to the option 3.5 8.2 10.5 17.1
Writedown of marketable
securities and other
assets 15.3 - 39.2 -
Future income taxes (1.1) 1.2 (5.9) (5.4)
Other 1.9 - 2.4 (0.3)
Changes in working
capital 7.5 (19.2) (32.5) (43.0)
----------- --------- --------- ----------
Cash flows from
(used for) operating
activities 36.7 5.1 42.8 (0.4)
----------- --------- --------- ----------
Investing activities
Additions to capital
assets (5.0) (21.8) (21.3) (41.5)
Acquisitions (17.8) (8.6) (45.6) (805.8)
Cash acquired on
acquisition of UP&UP - - - 46.3
Cash acquired on
acquisition of AHC
(Note 2) - - 0.8 -
Cash acquired on
acquisition of
InvoiceLink - 1.1 - 1.1
Proceeds on sale of
marketable securities 9.7 - 21.2 -
Advance to a company
under common control - (2.3) - (2.3)
Note receivable from
former majority
shareholder of UP&UP - - - (11.6)
Settlement of note
payable to former
majority shareholder
of UP&UP - - (1.5) -
----------- --------- --------- ----------
Cash flows used for
investing activities (13.1) (31.6) (46.4) (813.8)
----------- --------- --------- ----------
Financing activities
Repayment of long-term
debt (9.9) (8.9) (20.3) (12.4)
Long-term debt 7.7 - 7.7 -
Issue of convertible
debenture due to parent - - - 150.0
Issue of common shares 1.1 1.3 5.5 655.6
----------- --------- --------- ----------
Cash flows from
(used for)
financing activities (1.1) (7.6) (7.1) 793.2
----------- --------- --------- ----------
Foreign exchange gain
(loss) on cash held
in foreign currencies 0.8 (2.0) 0.4 (4.7)
Cash and cash
equivalents
Increase (decrease) 23.3 (36.1) (10.3) (25.7)
Balance, beginning of
period 58.6 86.5 92.2 76.1
----------- --------- --------- ----------
Balance, end of
period 81.9 50.4 81.9 50.4
----------- --------- --------- ----------
Supplemental disclosure
of cash flow information
Interest paid 3.3 0.2 9.9 4.1
Income taxes paid 2.5 0.1 6.3 2.0
The accompanying notes are an integral part of the Interim
Consolidated Financial Statements.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
As at September 30, 2001
(In millions of Canadian dollars except share data) (unaudited)
These interim consolidated financial statements have been prepared
in accordance with Canadian generally accepted accounting
principles, using the same accounting policies as were used for the
consolidated financial statements for the year ended December 31,
2000 except as discussed below. These interim consolidated
financial statements should be read in conjunction with the
consolidated financial statements for the year ended December 31,
2000, as set out in the 2000 Annual Report.
1. Summary of Significant Accounting Policies
Business Combinations/Goodwill and other intangible assets
In July 2001, the Canadian Institute of Chartered Accountants
("CICA") issued Handbook section 1581 "Business Combinations" and
Handbook section 3062 "Goodwill and other intangible assets".
Under the new rules, goodwill and certain intangible assets with an
indefinite useful life arising from business combinations accounted
for using the purchase method are no longer amortized but are
reviewed annually (or more frequently under certain conditions).
Separable intangible assets that are not deemed to have an
indefinite life will continue to be amortized over their useful
lives. These amortization provisions apply to goodwill and
intangible assets acquired after June 30, 2001. With respect to
goodwill and intangible assets acquired prior to July 1, 2001, the
Company will apply the new accounting rules in 2002.
We are currently assessing the financial impact that these new
rules will have on our Consolidated Financial Statements.
Application of the new rules is expected to have a positive impact
on our net earnings since goodwill will no longer be amortized, but
be measured for impairment.
Earnings per share
On January 1, 2001, the Company adopted the new recommendations
issued by the CICA with respect to earnings per share (Handbook
section 3500). Under the revised section, the treasury stock method
is used instead of the current imputed earnings approach for
determining the dilutive effect of options and warrants issued. In
addition, this section requires that a reconciliation of the
numerator and denominator be disclosed.
For the three-month period ended
September 30, 2001
$ Number of $
Net loss shares Per share
(numerator) (denominator) amount
-------------------------------------
Net loss
available to
common
shareholders (107.5) 94,244,706 (1.14)
=====================================
(table continued)
September 30, 2000
$ Number of $
Net loss shares Per share
(numerator) (denominator) amount
-------------------------------------
Net loss
available to
common
shareholders (83.3) 93,033,751 (0.90)
=====================================
1. Summary of Significant Accounting Policies
For the nine-month period ended
September 30, 2001
$ Number of $
Net loss shares Per share
(numerator) (denominator) amount
-------------------------------------
Net loss available
to common
shareholders (313.1) 94,000,113 (3.33)
(table continued)
September 30, 2000
$ Number of $
Net loss shares Per share
(numerator) (denominator) amount
-------------------------------------
Net loss available
to common
shareholders (206.5) 91,187,759 (2.26)
The following were not included in the computation of diluted
earnings per share because their inclusion would have been
anti-dilutive for the periods presented.
For the three month
period ended
Sept. 30, Sept. 30,
2001 2000
Number of Number of
Shares Shares
----------------------
Convertible debenture due to
parent (a) 1,989,390 1,273,344
Options (a) 4,483,424 3,191,121
Warrants (a) 1,650,000 -
Common shares to be
issued related to acquisitions 1,858,596 -
----------------------
(table continued)
For the nine-month
period ended
Sept. 30, Sept. 30,
2001 2000
Number of Number of
Shares Shares
----------------------
Convertible debenture due to
parent (a) 1,989,390 881,909
Options (a) 4,138,350 2,948,839
Warrants (a) 1,324,074 -
Common shares to be issued related
to acquisitions 1,129,083 -
----------------------
(a)Incremental shares are assumed issued and weighted for the
period the convertible debenture, options or warrants were
outstanding.
2. Acquisitions
In September 2001, the Company acquired, through a merger, the
assets in the business-to-business electronic invoice presentment
and payment business of San Francisco I, LLC for $8.5 million USD;
$6.0 million USD in cash and $2.5 million USD in shares.
The transaction was accounted for using the purchase method and the
purchase price acquisition cost of $8.5 million USD ($13.4 million
CAD) was allocated to goodwill.
In July 2001, the Company acquired the assets of ProCure.Com, a
technology provider of supplier enablement applications in the
Province of Ontario, Canada for a total cash consideration of $5.9
million. The Company also incurred transaction costs in the amount
of $0.5 million in connection with the acquisition relating mostly
to professional fees. The transaction was accounted for using the
purchase method.
The results of operations of ProCure.Com have been included in the
Company's results since July 6, 2001.
The total purchase price of the acquisition was $6.4 million and
was allocated as follows:
$ in
Millions
--------
Current assets 0.3
Capital assets 0.8
Allocation of excess of
purchase price to acquired
technologies 5.3
--------
6.4
========
In June 2001, the Company acquired all of the outstanding shares of
Associates for Health Care, Inc. ("AHC"), a privately held company
involved in health care cost management in the state of Wisconsin
in the US for $30.0 million USD.
Pursuant to the Agreement and Plan of Merger, the Company paid
$10.0 million USD at closing. The balance of the purchase price
will be paid in three equal installments on June 28, 2002, June 28,
2003, and June 28, 2004, by the issuance of shares with a value of
$20.0 million USD. The Company has the option to settle the balance
of the purchase price with cash payments in the amount of $6.7
million USD at each of the above-mentioned dates.
The Company incurred transaction costs in the amount of
approximately $2.0 million USD in connection with the acquisition
relating mostly to professional fees. The transaction was accounted
for using the purchase method.
An amount of $1.25 million USD otherwise payable on June 28, 2002
will be held to be applied against indemnification claims, if any,
arising within a defined period after closing.
The results of operations of AHC have been included in the
Company's results since June 28, 2001, the date of acquisition.
The total purchase price of the acquisition was $32.0 million USD
($48.6 million CAD) and was allocated as follows:
$ in
Millions
--------
Current assets 4.8
Capital assets 0.7
Current liabilities (1.1)
Allocation of excess of
purchase price over net assets:
Goodwill 44.2
--------
48.6
========
Contingent consideration
Under the terms of the purchase agreement of InvoiceLink
Corporation, now renamed BCE Emergis Technologies, Inc.
("Technologies"), in September 2000, the Company agreed to pay
additional purchase consideration of up to $6.0 million USD upon
the achievement of specific objectives by Technologies. The
achievement of these objectives in the current period ended
September 30, 2001 resulted in an increase in the purchase price of
Technologies, and a corresponding increase to the goodwill recorded
on the acquisition in the amount of $6.0 million USD.
3. Write down of marketable securities and other assets
During the nine-month period ended September 30, 2001, the market
value of certain marketable securities was $33.1 million below
their carrying value. As a result, a write-down of $33.1 million
was recorded in the Consolidated Statement of Earnings to reflect
this unrealized loss in the market value of The Descartes Systems
Group Inc. for the nine-month period ended September 30, 2001. Of
this amount, $10.7 million was recorded in the current quarter.
These securities were received as partial consideration in 2000 for
the disposal of our non-core assets related to the delivery of
logistics electronic messaging services in the transportation
industry.
During the nine-month period ended September 30, 2001, a provision
of approximately $4.0 million was recorded on certain other current
assets to reflect an impairment in their net realizable value.
We also recorded a net loss on the disposal of certain marketable
securities during the nine-month period ended September 30, 2001.
4. Equity Components
The stated capital stock as at September 30, 2001 is detailed as
follows:
$
Number Millions
----------------------
Balance beginning of year 93,651,603 1,303.7
Issue of common shares (a) 526,357 5.4
Issue of common shares (b) 146,672 3.9
Issue of common shares (c) 455,676 5.7
----------------------
94,780,308 1,318.7
Common shares to be issued (d) 30.3
---------
1,349.0
=========
Option on convertible debenture 21.0
=========
Contributed surplus 25.2
=========
(a) 526,357 stock options were exercised to purchase 526,357 common
shares for cash consideration of $5,432,600.
(b) 146,672 common shares were issued for a total consideration of
$3,947,500 in connection with the acquisition in September 2001
as described in note 2.
(c) 455,676 additional common shares were issued for the first
installment payment and the payment of the contingent
consideration related to the acquisition of InvoiceLink now
renamed BCE Emergis Technologies, Inc.
(d) The number of shares to be issued in connection with the AHC
acquisition as described in note 2 is not determinable at this
time.
Debenture:
6.3%, Convertible debenture, convertible
at the holder's option into 1,989,389
common shares at a conversion price of
$75.40 per share up to the maturity date
on June 30, 2002 $139.5 million
Stock option plans:
Stock option plans for common shares at
prices ranging from $0.66 to $172.80
per share and expiry dates up to 2010 4,624,942 options
5. Operating Segment Information
The Company focuses its activities in three business units (Canada,
U.S.A. and eHealth Solutions Group), offering a full suite of
products to companies in transaction-intensive, eHealth and
financial services sectors. The following table shows the
activities of each of the three business units:
For the three-month period ended
Canada USA
Business Unit Business Unit
-----------------------------------------
$ Sept. 30, Sept. 30, Sept. 30, Sept. 30,
Millions 2001 2000 2001 2000
----------------------------------------------------------
Revenues 75.7 64.4 19.8 4.6
Direct Costs 26.6 21.4 0.8 0.3
----------------------------------------------------------
Gross Margin 49.1 43.0 19.0 4.3
----------------------------------------------------------
(table continued)
e-Health Solutions
Group
Business Unit Total
----------------------------------------
$ Sept. 30, Sept. 30, Sept. 30, Sept. 30,
Millions 2001 2000 2001 2000
----------------------------------------------------------
Revenues 77.5 63.1 173.0 132.1
Direct Costs 11.6 11.6 39.0 33.3
----------------------------------------------------------
Gross Margin 65.9 51.5 134.0 98.8
----------------------------------------------------------
For the nine-month period ended
Canada USA
Business Unit Business Unit
-----------------------------------------
$ Sept. 30, Sept. 30, Sept. 30, Sept. 30,
Millions 2001 2000 2001 2000
----------------------------------------------------------
Revenues 213.7 166.4 37.3 16.1
Direct Costs 70.3 54.8 1.6 1.8
----------------------------------------------------------
Gross Margin 143.4 111.6 35.7 14.3
----------------------------------------------------------
(table continued)
e-Health Solutions
Group
Business Unit Total
-----------------------------------------
$ Sept. 30, Sept. 30, Sept. 30, Sept. 30,
Millions 2001 2000 2001 2000
----------------------------------------------------------
Revenues 224.0 144.5 475.0 327.0
Direct Costs 35.0 24.0 106.9 80.6
----------------------------------------------------------
Gross Margin 189.0 120.5 368.1 246.4
----------------------------------------------------------
Geographic information
The following table sets out certain geographical information
relative to the Company:
Revenue For the For the For the For the
three three nine nine
month month month month
period period period period
$ ended ended ended ended
Millions Sept. 30, Sept. 30, Sept. 30, Sept. 30,
2001 2000 2001 2000
----------------------------------------------------------
Canada 98.1 81.5 274.7 215.9
United States 74.3 50.2 199.6 109.7
Other 0.6 0.4 0.7 1.4
==========================================================
173.0 132.1 475.0 327.0
----------------------------------------------------------
6. Related Party Information
The following transactions occurred in the normal course of
operations with BCE, the parent company, and other companies in the
BCE group subject to common control during the respective periods
and were measured at the exchange value:
For the For the For the For the
three three nine nine
month month month month
period period period period
$ ended ended ended ended
Millions Sept. 30, Sept. 30, Sept. 30, Sept. 30,
2001 2000 2001 2000
----------------------------------------------------------
Revenue (a) 46.9 32.4 128.8 81.6
Direct costs and
expenses 39.1 27.6 101.1 89.1
Interest expense on
convertible debenture
due to parent 2.4 2.5 7.1 5.3
----------------------------------------------------------
(a) Includes services for resale to third parties and for internal
use.
The balance sheet includes the following balances with BCE, the
parent company, and other companies in the BCE group subject to
common control:
$ As at As at
Millions Sept. 30, 2001 Dec. 31, 2000
----------------------------------------------------------
Accounts receivable 34.6 16.5
Accounts payable and
accrued liabilities 13.9 4.2
Convertible debenture due
to parent 139.5 129.0
Option on convertible
debenture due to parent 21.0 21.0
Long term debt 1.3 2.1
----------------------------------------------------------
7. Warrants
From time to time, the Company enters into formal business
arrangements for the use and distribution of certain technology
solutions with strategic partners. Under the terms of such
arrangements, the partners may acquire warrants to purchase shares
of the Company.
During the first quarter of 2001, warrants to purchase 1,000,000
common shares were acquired under such arrangements of which
warrants convertible into 250,000 common shares vested upon
signature of the agreements and are exercisable at $73.55 per
common share. The remaining balance will vest upon the attainment
of certain contractual arrangements and the exercise price will be
determined at the time of vesting. The warrants expire five years
after vesting. No amount has been recorded in the financial
statements as a result of these arrangements.
8. Contingency
On April 26, 1996, First Health Group Corporation ("First Health")
filed a civil complaint against BCE Emergis Corporation, a
subsidiary of the Company, seeking injunctive relief and damages of
$29 million USD to $37 million USD based on claims of trademark
infringement, false advertising, deceptive trade practices, fraud,
interference with contract, interference with prospective economic
relations and unfair competition. First Health's principal
contention is that representatives of BCE Emergis Corporation made
false and misleading statements during contract negotiations with
health care providers in order to cause them to join the BCE
Emergis Corporation provider network.
On March 21, 2000, the U.S. District Court for the Northern
District of Illinois granted summary judgment in favor of BCE
Emergis Corporation on the false advertising claims and on April
10, 2000, the Court granted summary judgment in favor of BCE
Emergis Corporation on the contractual interference and damages
claims. An appeal of these court rulings has been decided by the
Seventh Circuit Court of Appeals in favor of BCE Emergis
Corporation on October 16, 2001. The Company believes that any
appeal or judicial proceeding to reverse this ruling from the Court
of Appeals which could be initiated by First Health is unlikely to
succeed. |
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