-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, VMla2XUp7/2Ww3DQksNmVH89t6iRnHmaiIrGMHrQ1esnGTR+cLV0rIMnbkM6fob+ M/yNY2aSbUIzco4+ZzLycg== 0000912057-95-003357.txt : 19950511 0000912057-95-003357.hdr.sgml : 19950511 ACCESSION NUMBER: 0000912057-95-003357 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19950331 FILED AS OF DATE: 19950509 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: HBO & CO CENTRAL INDEX KEY: 0000310377 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER INTEGRATED SYSTEMS DESIGN [7373] IRS NUMBER: 370986839 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-09900 FILM NUMBER: 95535501 BUSINESS ADDRESS: STREET 1: 301 PERIMETER CTR N CITY: ATLANTA STATE: GA ZIP: 30346 BUSINESS PHONE: 4043936000 MAIL ADDRESS: STREET 1: 301 PERIMETER CTR N CITY: ATLANTA STATE: GA ZIP: 30346 10-Q 1 FORM 10-Q FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 (Mark one) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE - --- ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1995 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES - --- EXCHANGE ACT OF 1934 For the transition period from to ------ ------ Commission file number 0-9900 HBO & COMPANY (Exact name of registrant as specified in its charter) DELAWARE 37-0986839 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 301 PERIMETER CENTER NORTH ATLANTA, GEORGIA 30346 (Address of principal executive offices including Zip Code) (404) 393-6000 (Registrant's telephone number, including area code) N/A (Former name, former address and former fiscal year, if changed since last report.) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No . --- --- APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date. CLASS OUTSTANDING AT MARCH 31, 1995 Common Stock, $.05 par value 32,076,984 Shares Page 1 of 21 Exhibit Index is on Page 8 PART 1 - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS The following financial statements required herein are incorporated by reference from the Registrant's Quarterly Report to Stockholders for the quarter ended March 31, 1995. (attached hereto as Exhibit 19). Consolidated Statements of Income Consolidated Condensed Balance Sheets Consolidated Statements of Cash Flows NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. The consolidated financial statements include all adjustments that, in the opinion of management, are necessary for a fair presentation of the results for the periods indicated. Quarterly results of operations are not necessarily indicative of annual results. These statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company's 1994 Annual Report to Stockholders. 2. Earnings per share is based upon the weighted average number of shares and the dilutive effect of stock options outstanding. 3. During the second quarter of 1994, the Company entered into an agreement with a financial institution whereby the Company can sell on an ongoing basis, with partial recourse, an undivided interest in a pool of customer receivables. During the first quarter of 1995, the Company increased the amount available to be sold and the amount sold from $20 million to $30 million. Interest is payable at the Company's option of prime or LIBOR plus a margin determined by certain of the Company's financial ratios (1% as of April 1, 1995). The two- year agreement expires June 25, 1996. The Company, as agent for the purchaser, retains collection and administrative responsibilities for the receivables sold. 4. On February 22, 1995, HBOC completed the acquisition of Advanced Laboratory Systems, Inc. (ALS) for approximately $7 million, net of cash acquired. ALS is a Eugene, Oregon-based developer of laboratory software for the healthcare and commercial marketplace. The transaction was accounted for as a purchase. 5. In October 1986 a class action lawsuit was filed against the Company by a plaintiff who purchased 500 shares of the Company's stock in 1985. In April 1991 the United States Federal District Court for the Northern District of Georgia, Atlanta Division (the "District Court"), certified the case as a class action on behalf of all purchasers of the Company's common stock on the open market during the period from March 29, 1985, to April 20, 1986. The plaintiff alleges that HBOC's filings with the Securities and Exchange Commission did not fairly present the Page 2 of 21 Company's financial position and results of operations for the years ended December 31, 1984 and 1985, and the intervening quarters with respect to, among other things, reporting the effect of discounting service agreement contracts. In November 1992 the lawsuit was amended to add a claim regarding the timeliness of recognition and disclosure of various expense items by the Company during fiscal year 1985. The plaintiff also alleges that the market price of the Company's common stock during the period was inflated due to the alleged nondisclosures and misrepresentations in the Company's filings. In early February 1993 the plaintiff evidenced an intention to allege substantial damages. Management believes that the members of the class have suffered no damages that entitle them to compensation and that, in any event, the plaintiff's calculation of alleged damages is unrealistic and without merit. On April 1, 1994, the District Court issued an Order granting the Company's motion for summary judgement and dismissed the suit. On April 20, 1994, the District Court issued an Order setting forth the reasons for dismissing the suit. The plaintiff has appealed from the District Court's determination and that appeal is pending. In the event that the outcome is ultimately unfavorable, the amount of loss could be substantial. Management believes, however, that the Company should be able to continue to defend the suit successfully. The Company is subject to other legal proceedings and claims which arise in the ordinary course of business. In the opinion of management, the amount of potential liability with respect to these actions will not materially affect the Company's financial position or results of operations. - ------------------------------------------------------------------------------- The financial information included in this Quarterly Report on Form 10-Q has been reviewed by Arthur Andersen LLP, independent public accountants, in accordance with established professional standards and procedures for such a review as set forth in their review letter presented on page 7 of this report. Page 3 of 21 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. RESULTS OF OPERATIONS QUARTER ENDED MARCH 31, 1995, COMPARED TO QUARTER ENDED MARCH 31, 1994: First quarter 1995 earnings per share reached a record $.27, a 59% increase over first quarter 1994 earnings per share of $.17. The Company's strong earnings performance resulted from 34% revenue growth combined with a slower rate of growth in operating expense. HBOC's revenue increased both as a result of internal growth and acquisitions made over the last 18 months. Recurring software maintenance and support revenue increased 104% over the first quarter of 1994. Approximately half of this growth relates to the Series product line acquired in the second quarter of 1994. Software license fee revenue increased 41% compared to the first quarter of 1994 due primarily to the success of the Company's new Pathways 2000 line of enterprise solutions. Implementation services revenue was up 33% over the same quarter last year, with strong performance from the STAR and Connect Technology groups and the addition of Series implementation services causing the increase. Revenue from outsourcing contracts increased 24% primarily as a result of HBOC's success in the United Kingdom outsourcing market. Hardware revenue declined 15% compared to the first quarter of 1994. Cost of operations as a percent of revenue declined to 51% from 54% in the first quarter of 1994, although total cost of operations expense increased. Within cost of operations, royalty fees increased due to strong revenue performance for several of the Company's Pathways 2000 products and the addition of Series third-party business partner products. Salaries increased as HBOC focused on continuing to provide excellent service and support to both existing and new customers, but implementation revenue grew at a faster pace than salaries due to the Company's success in improving the productivity of its implementation personnel. Hardware and software maintenance expense increased as well, particularly for maintenance of customers' business partner products. Hardware cost declined in conjunction with hardware revenue. Marketing expense increased in total but remained stable at 14% of revenue in both the first quarter of 1995 and 1994. Salary and commission expense grew primarily due to the addition of the Series sales force and increased sales volume. Research and development (R&D) expense also increased in total but remained stable at 9% of revenue in both quarters. Higher salary costs related to acquisitions were partially offset by increased capitalization of software development costs resulting from efforts spent bringing a number of Pathways 2000 products toward the point of general availability. The Company is also focused on improving R&D productivity by employing advanced object-oriented development tools which allow R&D to respond more quickly to market needs. The capitalization rate was 25% for the quarter compared to 26% for the first quarter of 1994. Page 4 of 21 General and administrative expense remained constant at 10% of revenue for both the first quarter of 1995 and 1994, although actual expense increased. Two of the primary areas of increased general and administrative expense were salaries and Company-wide gainsharing, both corresponding to growth in the number of employees. As a result of the Company's continuing emphases on controlling costs and enhancing productivity during a period of rapid revenue growth, operating income as a percent of revenue increased to 17% for the quarter compared to 13% for the first quarter of 1994, and operating income grew by 73% from quarter to quarter. LIQUIDITY AND CAPITAL RESOURCES MARCH 31, 1995, COMPARED TO DECEMBER 31, 1994: HBOC generated $9.2 million in cash from operating activities which, combined with $1.8 million from financing activities, was used to purchase Advanced Laboratory Systems, Inc. for approximately $7 million, net of cash acquired and to make investments in software development and capital equipment. As a result, the cash balance remained approximately the same as at year-end. The Company's current ratio improved from .9:1 at December 31, 1994 to 1:1 at March 31, 1995. Current assets increased slightly from December 31, 1994. Total receivables remained almost unchanged, while other assets increased primarily as a result of goodwill resulting from the acquisition of Advanced Laboratory Systems, Inc. Current liabilities decreased primarily due to the repayment of $10 million of notes payable and reductions in accruals related to payments for 1994 income taxes, gainsharing and bonuses. During 1994, the Company entered into a $25 million five-year term loan maturing on June 30, 1999. The Company elected to repay the loan in advance, making the final payment during the first quarter of 1995. HBOC's stockholders' equity surpassed the $100 million mark during the first quarter of 1995 due to strong earnings performance. The Company has a long-term revolving credit agreement with a financial institution. During the first quarter of 1995, the amount of the agreement was increased to $25 million from $20 million. Interest is payable at the Company's option of prime or LIBOR plus a margin determined by certain of the Company's financial ratios (1% as of April 1, 1995). A commitment fee of 3/8% is payable quarterly on the unused portion of the commitment. The maturity date is June 30, 1997. At March 31, 1995, the Company had $19.7 million available under this agreement. The agreement contains certain net worth, income, cash flow and financial ratio covenants. The Company was in compliance with these covenants as of March 31, 1995. Page 5 of 21 The Company has a $5 million committed, unsecured line of credit to cover several types of credit extensions, including letters of credit and short-term borrowings. The Company has $5 million available under this line of credit as of March 31, 1995. In addition, the Company has a $5 million uncommitted, unsecured line of credit with another bank at the prime rate less .5%. As of March 31, 1995, the Company had drawn down $5 million against this line of credit. No facility fees or compensating balances are associated with either line. HBOC's access to financing sources and positive cash flow from operations give the Company the flexibility necessary to make long-term strategic investments to promote the growth of the Company. Page 6 of 21 ARTHUR ANDERSEN LLP REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Stockholders and Board of Directors of HBO & Company: We have reviewed the accompanying consolidated condensed balance sheet of HBO & COMPANY (a Delaware corporation) and Subsidiaries as of March 31, 1995 and the related statements of income and cash flows for the three-month period then ended. These financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the financial statements referred to above for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the balance sheet of HBO & Company as of December 31, 1994 (not presented herein), and in our report dated February 8, 1995, we expressed an unqualified opinion on that statement. In our opinion, the information set forth in the accompanying consolidated condensed balance sheet as of December 31, 1994 is fairly stated in all material respects in relation to the balance sheet from which it has been derived. Arthur Andersen LLP Atlanta, Georgia April 19, 1995 Page 7 of 21 PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits: PAGE 10 Second Amendment to Receivables Purchase Agreement, 10 dated March 31, 1995. 11 Statement regarding computation of per share earnings. 16 15 Letter re: unaudited interim financial information. 17 19 Report furnished to security holders. 18 (b) Reports on Form 8-K during the quarter ended March 31, 1995, or subsequent to that date but prior to the filing date of this Form 10-Q: FORM 8-K REPORT DATED FEBRUARY 24, 1995, was filed under ITEM 5 reporting that on February 22, 1995, the Company acquired Advanced Laboratory Systems, Inc. Page 8 of 21 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. HBO & COMPANY (Registrant) Date: 5/8/95 By: /s/ Jay P. Gilbertson --------- -------------------------- Jay P. Gilbertson Vice President-Finance, Chief Financial Officer, Treasurer and Assistant Secretary Page 9 of 21 EX-10 2 EXHIBIT 10 Exhibit 10 SECOND AMENDMENT RECEIVABLES PURCHASE AGREEMENT Second Amendment to Receivables Purchase Agreement dated as of March 31, 1995 (the "SECOND AMENDMENT"), by and among HBO & COMPANY OF GEORGIA, a Delaware corporation (the "SELLER"), THE FIRST NATIONAL BANK OF BOSTON, NATIONSBANK OF GEORGIA, N.A. and the other financial institutions which may become party to the Purchase Agreement (as hereinafter defined) (the "PURCHASERS") and THE FIRST NATIONAL BANK OF BOSTON, as agent for the Purchasers (in such capacity, the "AGENT"), amending certain provision of the Receivables Purchase Agreement dated as of June 30, 1994 (as amended by the First Amendment to Receivables Purchase Agreement dated as of September 30, 1994 and as further amended and in effect from time to time, the "PURCHASE AGREEMENT") by and among the Seller, the Purchasers and the Agent. Terms not otherwise defined herein which are defined in the Purchase Agreement shall have the same respective meanings herein as therein. WHEREAS, the Seller, the Purchasers and the Agent have agreed to modify certain terms and conditions of the Purchase Agreement as specifically set forth in this Second Amendment; NOW, THEREFORE, in consideration of the premises and the mutual agreements contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: SECTION 1. AMENDMENT TO SCHEDULE I OF THE PURCHASE AGREEMENT. Schedule I of the Purchase Agreement is hereby amended as follows: (a) the definition of "by inserting the following definitions in the appropriate alphabetical order: ADJUSTMENT DATE means the first day of the month immediately following the month in which a Compliance Certificate (as defined in Section 9.4(c) of the Bank Credit Agreement) is to be delivered by the Seller pursuant to Section 7.01(i). AGGREGATE PURCHASERS' INVESTMENTS has the meaning set forth in Section 2.03 APPLICABLE MARGIN means for each period commencing on an Adjustment Date through the date immediately preceding the next Adjustment Date (each a "Rate Adjustment Period"), the Applicable Margin shall be the applicable margin set forth below with respect to the Seller's Funded Debt Ratio, as determined for the fiscal period of the Seller and its Subsidiaries ending immediately prior to the applicable Rate Adjustment Period. Page 10 of 21 -2- Funded Debt Ratio Program Fee ------------- -------------- Greater than 3.00:1.00 2% Greater than 1.50:1.00 but less than or equal to 3.00:1.00 1.50% Greater than 1.00:1.00 but less than or equal to 1.50:1.00 1.30% Greater than 0.75:1.00 but less than or equal to 1.00:1.00 1.15% Greater than 0.25:1.00 but less than or equal to 0.75:1.00 1.00% 0.25:1.00 or less 0.80% Notwithstanding the foregoing, (a) the Applicable Margin for any Undivided Interest until the first Adjustment Date to occur after the fiscal quarter ending June 30, 1995 shall be 1.00% and (b) if the Seller fails to deliver any Compliance Certificate pursuant to Section 7.01(i) hereof then, for the period commencing on the next Adjustment Date to occur subsequent to such failure through the date immediately following the date on which such Compliance Certificate is delivered, the Applicable Margin shall be the highest Applicable Margin set forth above. CONSOLIDATED OPERATING CASH FLOW has the meaning as defined in the Bank Credit Agreement. FUNDED DEBT has the meaning as defined in the Bank Credit Agreement. FUNDED DEBT RATIO means as of any date of determination, the ratio of (a) Total Funded Debt of the Seller and its Subsidiaries for such fiscal quarter to (b) Consolidated Operating Cash Flow of the Seller and its Subsidiaries for the immediately preceding four fiscal quarters. TOTAL FUNDED DEBT means as of any date of determination, the sum of (a) Funded Debt, PLUS (b) the Aggregate Purchasers' Investment, PLUS (c) capitalized lease obligations of the Seller and its Subsidiaries, PLUS (d) all other liabilities of the Seller and its Subsidiaries which bear interest (other than liabilites consisting of operating leases), including but not limited to long-term liabilities. Page 11 of 21 -3- (b) the definition of "Program Fee" is hereby amended by deleting the number "1.50%" from the first sentence thereof and inserting in place thereof the words "the Applicable Margin". SECTION 2. AMENDMENT TO SECTION 1.03(A) OF THE PURCHASE AGREEMENT. Section 1.03(a) of the Purchase Agreement is hereby amended by deleting Section 1.03(a) in its entirety and restating it as follows: (a) PURCHASE LIMIT. The Aggregate Purchaser's Investment under this Agreement would exceed an amount (the "Purchase Limit") equal to $15,000,000 for each Purchaser, as such amount may be reduced pursuant to Section 1.05 and the Aggregate Purchasers' Investment under this Agreement would exceed an amount equal to $30,000,000. SECTION 3. AMENDMENT TO SECTION 2.0 OF THE PURCHASE AGREEMENT. Section 2.03 of the Purchase Agreement is hereby amended inserting at the end of Section 2.03 the following sentence: "The then sum of the Dollar amount of all the Aggregate Purchaser's Investments shall constitute the Aggregate Purchasers' Investments". SECTION 4. CONDITIONS TO EFFECTIVENESS. This Second Amendment shall not become effective until the Agent receives, on or prior to March 31, 1995 the following: (a) a counterpart of this Second Amendment executed by the Seller, the Purchasers, the Agent and the guarantor specified on the last page hereof (the "Guarantor"); and (b) payment by the Sellers to the Agent in cash of an amendment fee in the amount of $25,000 for the pro rata accounts of the Purchasers. SECTION 5. CONDITIONS SUBSEQUENT. The Seller hereby agrees to deliver to the Agent on or prior to May 1, 1995 the following: (a) corporate resolutions of the Seller and the Guarantor authorizing the transactions contemplated by this Second Amendment; and (b) a secretary's certificate for each of the Seller and the Guarantor certifying as to the incumbency of the officers authorized to sign this Second Amendment, and no changes to the charter documents or by-laws have occurred since each of the Seller and the Guarantor last delivered such documents to the Agent. The parties hereto hereby acknowledge and agree that a failure by the Seller to deliver the items listed above as required by this Section 4 shall constitute an Event of Default under the terms of the Purchase Agreement. SECTION 6. REPRESENTATIONS AND WARRANTIES. The Seller hereby repeats, on and as of the date hereof, each of the representations and warranties made by it in Article 6 of the Purchase Agreement, PROVIDED, that all references therein to the Purchase Agreement shall refer to such Purchase Agreement as amended hereby. Page 12 of 21 -4- SECTION 7. RATIFICATION, ETC. Except as expressly amended hereby, the Purchase Agreement and all documents, instruments and agreements related thereto are hereby ratified and confirmed in all respects and shall continue in full force and effect. The Purchase Agreement and this Second Amendment shall be read and construed as a single agreement. All references in the Purchase Agreement or any related agreement or instrument to the Purchase Agreement shall hereafter refer to the Purchase Agreement as amended hereby. SECTION 8. NO WAIVER. Nothing contained herein shall constitute a waiver of, impair or otherwise affect any obligation of the Seller, the Guarantor or any rights of the Agent or the Purchasers consequent thereon. SECTION 9. COUNTERPARTS. This Second Amendment may be executed in one or more counterparts, each of which shall be deemed an original but which together shall constitute one and the same instrument. SECTION 10. GOVERNING LAW. THIS SECOND AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS (WITHOUT REFERENCE TO CONFLICT OF LAWS). [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] Page 13 of 21 -5- IN WITNESS WHEREOF, the parties hereto have executed this Second Amendment as a document under seal as of the date first above written. HBO & COMPANY OF GEORGIA By: /s/ Jay P. Gilbertson Title: THE FIRST NATIONAL BANK OF BOSTON, individually and as Agent By: --------------------------- Title: NATIONSBANK OF GEORGIA, N.A. By: --------------------------- Title: Page 14 of 21 -6- RATIFICATION OF GUARANTY The undersigned guarantor (the "Guarantor") hereby acknowledges and consents to the foregoing Second Amendment as of March 31, 1995 and agrees that the Guaranty dated as of June 30, 1994, in favor of the Agent for the benefit of the Agent and the Purchasers, and all other documents or instruments to which the Guarantor is a party remain in full force and effect, and the Guarantor confirms and ratifies all of its obligations thereunder. HBO & COMPANY By: /s/ Jay P. Gilbertson --------------------------- Title: Page 15 of 21 EX-11 3 EXHIBIT 11 Exhibit 11 HBO&COMPANY AND SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE OF COMMON STOCK FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 1995 AND 1994 (000 OMITTED EXCEPT FOR PER SHARE DATA)
THREE MONTHS ENDED MARCH 31, 1995 1994 -------- -------- WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 31,922 31,121 ADD - Shares of common stock assumed issued upon exercise of stock options using the "treasury stock" method as it applies to the computation of primary earnings per share 1,490 1,658 -------- -------- NUMBER OF COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING 33,412 32,779 ADD - Additional shares of common stock assumed issued upon exercise of stock options using the "treasury stock" method as it applies to the computation of fully diluted earnings per share 69 39 -------- -------- NUMBER OF COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING ASSUMING FULL DILUTION 33,481 32,818 -------- -------- -------- -------- NET EARNINGS FOR PRIMARY AND FULLY DILUTED EARNINGS PER SHARE $9,002 $5,428 -------- -------- -------- -------- EARNINGS PER SHARE: PRIMARY $0.27 $0.17 -------- -------- -------- -------- FULLY DILUTED $0.27 $0.17 -------- -------- -------- --------
Page 16 of 21 EX-15 4 EXHIBIT 15 Exhibit 15 ARTHUR ANDERSEN LLP To HBO & Company: We are aware that HBO & Company has incorporated by reference in its previously filed registration statements on Form S-8 its Form 10-Q for the quarter ended March 31, 1995, which includes our report dated April 19, 1995 covering the unaudited interim consolidated financial information contained therein. Pursuant to Regulation C of the Securities Act of 1933 (the "Act"), that report is not considered a part of the registration statement prepared or certified by our firm or a report prepared or certified by our firm within the meaning of Sections 7 and 11 of the Act. Arthur Andersen LLP Atlanta, Georgia April 19, 1995 Page 17 of 21 EX-19 5 EXHIBIT 19 HBO & Company FIRST QUARTER REPORT To Our Stockholders FOLLOWING A YEAR OF TREMENDOUS GROWTH, WE AT HBO & COMPANY KNEW WE HAD OUR WORK CUT OUT FOR US IN 1995. BUT SOLID FIRST QUARTER RESULTS HAVE HELPED US ON OUR WAY. HBOC REALIZED EARNINGS PER SHARE OF $.27 -- AN INCREASE OF 59 PERCENT OVER $.17 FOR THE FIRST QUARTER OF 1994 -- AND HAD REVENUE OF $90.7 MILLION, AN INCREASE OF 34 PERCENT OVER THE SAME PERIOD LAST YEAR. These strong results were based on HBOC's STAR, Pathways 2000-TM- and TRENDSTAR[REGISTERED TRADEMARK] systems sales and installation activity, as well as increased maintenance revenue related primarily to the acquisition of IBAX Healthcare Systems. In addition, our Outsourcing Services Group signed a major outsourcing agreement with North General Services Corporation in New York City that included an Information Services Organization -- a new offering that provides services to the entire integrated health delivery network -- as well as a full range of software. We also started out 1995 with an additional acquisition, furthering our efforts to build the most comprehensive enterprisewide clinical and financial solutions in the industry. In February, Advanced Laboratory Systems (ALS) of Eugene, Oregon, joined HBOC, which not only expanded our presence in the laboratory information systems market but also added commercial, hybrid and reference systems capabilities to the HBOC product portfolio. ALS had 1994 revenue of $17.3 million and approximately 135 customers representing some 250 laboratories in the United States and Canada. In March, we announced that we had signed a letter of intent to acquire Pegasus Medical, LTD, a physician-led Israeli software development company that has designed a computer-based patient record product for physicians that would work in combination with our existing Pathways Clinical Workstation. Alliances among providers continue to spring up around the country, straining the information infrastructure. Even hospitals that are not part of a larger entity are recognizing that they must position themselves for whatever the future may bring. For HBOC the opportunities are tremendous, but the competition remains great. Though some information systems vendors are falling by the wayside, new ones are entering the market -- all touting how they can better serve the information needs of healthcare. Fortunately, many providers realize that there is wisdom in partnering with a company that has proven products and the ability to deliver new technology. They are choosing HBO & Company and trusting us to provide continued leadership in the information solutions industry. Sincerely, Charles W. McCall President & Chief Executive Officer April 24, 1995 Page 18 of 21 HBO & Company and Subsidiaries FINANCIAL STATEMENTS (000 OMITTED EXCEPT FOR PER SHARE DATA) CONSOLIDATED STATEMENTS OF INCOME - UNAUDITED Three Months Ended March 31,
1995 1994 --------------------------------- --------------------------------- REVENUE $ 90,709 $ 67,507 OPERATING EXPENSE: Cost of Operations 46,087 36,380 Marketing 12,331 9,444 Research and Development 7,971 6,089 General and Administrative 8,955 6,733 --------------------------------- Total Operating Expense 75,344 58,646 --------------------------------- OPERATING INCOME 15,365 8,861 Other Income (Expense), Net (362) 138 --------------------------------- Income Before Provision for Income Taxes 15,003 8,999 Provision for Income Taxes 6,001 3,571 --------------------------------- NET INCOME $ 9,002 $ 5,428 --------------------------------- --------------------------------- EARNINGS PER SHARE: Primary $ 0.27 $ 0.17 Fully Diluted $ 0.27 $ 0.17 --------------------------------- WEIGHTED AVERAGE SHARES OUTSTANDING: Primary 33,412 32,779 Fully Diluted 33,481 32,818 --------------------------------- CASH DIVIDENDS DECLARED PER SHARE $ 0.04 $ 0.04 ---------------------------------
CONSOLIDATED CONDENSED BALANCE SHEETS - UNAUDITED
MARCH 31, Dec. 31, 1995 1994 ----------------------------- ASSETS - ------ CURRENT ASSETS: Cash and Cash Equivalents $ 5,715 $ 5,825 Receivables, Net of $1,984 and $1,749 Allowance for Doubtful Accounts 101,934 101,457 Current Deferred Income Taxes 4,626 5,133 Inventories 2,350 1,280 Prepaids and Other Current Assets 10,611 8,968 ----------------------------- Total Current Assets 125,236 122,663 ----------------------------- CAPITALIZED SOFTWARE, Net of $17,648 and $16,182 Accumulated Amortization 26,632 25,035 PROPERTY AND EQUIPMENT, Net of $63,748 and $ 61,166 Accumulated Depreciation 25,794 26,598 INTANGIBLES, Net of $4,705 and $3,482 Accumulated Amortization 66,546 57,569 OTHER NONCURRENT ASSETS, NET 2,652 2,012 ----------------------------- $ 246,860 $ 233,877 ----------------------------- ----------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------ Current Liabilities $ 124,817 $ 131,382 Deferred Income Taxes 10,884 9,623 Long-Term Debt and Other Liabilities 7,725 1,397 Stockholders' Equity 103,934 91,475 ----------------------------- $ 246,860 $ 233,877 ----------------------------- -----------------------------
The Notes to Consolidated Financial Statements, which are an integral part of these consolidated financial statements, can be found in the Company's Form 10-Q filed with the Securities and Exchange Commission. Page 19 of 21 HBO & Company and Subsidiaries FINANCIAL STATEMENTS (000 OMITTED) CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED Three Months Ended March 31,
1995 1994 ---------------------------------- ---------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $ 9,002 $ 5,428 ---------------------------------- Adjustments to Reconcile Net income to Net Cash Provided by Operating Activities: Depreciation and Amortization 5,364 3,469 Provision (Credit) for Noncurrent Deferred Income Taxes 1,261 (92) Changes in Assets and Liabilities: Receivables 890 (10,808) Current Deferred Income Taxes 507 59 Inventories (1,070) - Prepaids and Other Current Assets (1,582) (1,713) Other Noncurrent Assets, Net (748) 93 Current Liabilities (4,657) 8,705 Other, Net 243 (213) ---------------------------------- Total Adjustments 208 (500) ---------------------------------- Net Cash Provided by Operating Activities 9,210 4,928 ---------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Sale of Property and Equipment 39 - Purchase of Facility - (2,698) Capital Expenditures (1,554) (972) Capitalized Software (2,635) (2,109) Purchase of Businesses, Net of Cash Acquired (7,010) - ---------------------------------- Net Cash Used in Investing Activities (11,160) (5,779) ---------------------------------- NET CASH USED BEFORE FINANCING ACTIVITIES (1,950) (851) ---------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from Long-Term Debt 22,000 - Proceeds from Short-Term Debt 8,000 - Proceeds from Issuance of Common Stock 3,252 3,352 Payment of Dividends (1,271) (1,107) Repayment of Short-Term Debt (13,000) - Repayment of Long-Term Debt (17,141) - ---------------------------------- Net Cash Provided by Financing Activities 1,840 2,245 ---------------------------------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (110) 1,394 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 5,825 25,777 ---------------------------------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 5,715 $ 27,171 ---------------------------------- ---------------------------------- CASH PAID DURING THE PERIOD FOR: Interest $ 681 $ 258 Income Taxes $ 6,382 $ 1,456
The Notes to Consolidated Financial Statements, which are an integral part of these consolidated financial statements, can be found in the Company's Form 10-Q filed with the Securities and Exchange Commission. Page 20 of 21 HBO & COMPANY WAYS TO MANAGE CARE. 301 PERIMETER CENTER NORTH, ATLANTA, GEORGIA 30346 - (404) 393-6000 Page 21 of 21 EX-27 6 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS DEC-31-1995 JAN-01-1995 MAR-31-1995 5,715 0 103,918 1,984 2,350 125,236 89,542 63,748 246,860 124,817 0 2,455 0 0 101,479 246,860 34,442 90,709 14,902 46,087 29,257 75 362 15,003 6,001 9,002 0 0 0 9,002 .27 .27
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