-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RdQJEAaD8NfSKeMpBRlfN/sU65fNyeCyZY2quTxvrHrzDlrCJC7ie5dnIi3BmAWZ 8ZzViEuvUkRvPtm1epVzQg== 0000912057-95-009301.txt : 19951106 0000912057-95-009301.hdr.sgml : 19951106 ACCESSION NUMBER: 0000912057-95-009301 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19950930 FILED AS OF DATE: 19951103 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: 95586945 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 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark one) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDING SEPTEMBER 30, 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) ( 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 OCTOBER 31, 1995 - ----------------------------- ------------------------------- Common Stock, $.05 par value 39,780,002 Shares Page 1 Exhibit Index is on Page 4 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- PART 1 - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS. The following required financial statements are incorporated by reference from the Registrant's Quarterly Report to Stockholders for the quarter ended September 30, 1995 (attached as Exhibit 19): Consolidated Statements of Income Consolidated Condensed Balance Sheets Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements 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 3 of this report. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The information required in Item 2 is incorporated by reference from the Financial Review in the Registrant's Quarterly Report to Stockholders for the quarter ended September 30, 1995 (attached as Exhibit 19). Page 2 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 September 30, 1995 and the related statements of income for the three- and nine-month periods and cash flows for the nine-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 October 19, 1995 Page 3 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. The information required in Item 1 is incorporated by reference from the Notes to Consolidated Financial Statements in the Registrant's Quarterly Report to Stockholders for the quarter ended September 30, 1995 (attached as Exhibit 19). ITEM 5. OTHER INFORMATION For the month ended October 31, 1995, HBO & Company reported revenue of $37,016 and net income of $2,797. For the month ended October 31, 1994, revenue was $26,323 and net income was $(1,885) (dollars are in thousands). These results are unaudited. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits: Page ---- 11 Statement regarding computation of per share earnings (loss). 7 15 Letter re: unaudited interim financial information. 8 19 Report furnished to security holders. 9 27 Financial Data Schedule 16 (b) Reports on Form 8-K during the quarter ended September 30, or subsequent to that date but prior to the filing date of this Form 10-Q: FORM 8-K REPORT DATED JULY 10, 1995, was filed under ITEM 5 reporting the acquisition of Pegasus Medical, LTD, a privately held Israeli software company that markets a computer-based patient record known as the Smart Medical Record. FORM 8-K REPORT DATED JULY 18, 1995, was filed under ITEM 5 reporting that the Company signed a definitive agreement to acquire CliniCom Incorporated (CliniCom) in exhange for 0.4 of a share of HBOC Common Stock for each of the approximately 8,660,000 shares outstanding of CliniCom stock. FORM 8-K(A) REPORT DATED JULY 31, 1995, was filed under ITEMS 2 AND 7 reporting that the Company acquired First Data Health Systems Corporation, a wholly owned subsidiary of First Data Corporation, in exchange for 4 million shares of Common Stock of HBOC valued at approximately $200 million, $500,000 in cash and a promissory note for $100,000. Page 4 FORM 8-K(A)2 REPORT DATED AUGUST 8, 1995, was filed under ITEM 7 reporting the results of operations for the First Data Health Systems Corporation Health Services Business for the period from January 1, 1995, through June 17, 1995. FORM 8-K REPORT DATED AUGUST 16, 1995, was filed under ITEMS 5 AND 7 reporting the Pro Forma financial information related to the proposed acquisition of CliniCom Incorporated by HBO & Company and CliniCom Incorporated financial statements. FORM 8-K REPORT DATED OCTOBER 4, 1995, was filed under ITEMS 2 AND 7 reporting that the acquisition of CliniCom Incorporated (CliniCom) by HBO & Company of Georgia, a wholly owned subsidiary of HBO & Company (HBOC) was complete. CliniCom stockholders received 0.4 of a share of HBOC Common Stock for each CliniCom share. Page 5 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:November 2, 1995 By: /s/ Jay P. Gilbertson ----------------------- --------------------- Jay P. Gilbertson Vice President-Finance, Chief Financial Officer, Treasurer and Assistant Secretary Page 6 EX-11 2 EXHIBIT 11 Exhibit 11 HBO & COMPANY AND SUBSIDIARIES Computation of Earnings (Loss) Per Share of Common Stock For the Three-Month and Nine-Month Periods Ended September 30, 1995 and 1994 (000 Omitted Except for Per Share Data)
Three Months Ended Nine Months Ended September 30, September 30, 1995 1994 1995 1994 ------- ------- ------- ------- WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 39,698 34,996 37,099 34,750 ADD - Shares of common stock assumed issued upon exercise of stock options using the "treasury stock" method as it applies to the compu- tation of primary earnings per share 1,805 1,761 - 1,721 ------- ------- ------- ------- NUMBER OF COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING 41,503 36,757 37,099 36,471 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 93 77 - 153 ------- ------- ------- ------- NUMBER OF COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING ASSUMING FULL DILUTION 41,596 36,834 37,099 36,624 ------- ------- ------- ------- ------- ------- ------- ------- NET EARNINGS FOR PRIMARY AND FULLY DILUTED EARNINGS (LOSS) PER SHARE: $9,273 $7,526 ($42,737) $20,828 ------- ------- ------- ------- ------- ------- ------- ------- EARNINGS (LOSS) PER SHARE: PRIMARY $0.22 $0.20 ($1.15) $0.57 ------- ------- ------- ------- ------- ------- ------- ------- FULLY DILUTED $0.22 $0.20 ($1.15) $0.57 ------- ------- ------- ------- ------- ------- ------- -------
Note: No common stock was assumed issued upon exercise of stock options for the computation of loss per share. Note: All prior period amounts have been restated to reflect the acquisition of CliniCom Incorporated. PAGE 7 EX-15 3 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 September 30, 1995, which includes our report dated October 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 October 19, 1995 Page 8 EX-19 4 EXHIBIT 19 EXHIBIT 19 THIRD QUARTER REPORT TO OUR STOCKHOLDERS [Photograph of Charles W. McCall] AS WE HEAD INTO THE HOME STRETCH FOR 1995, HBO & COMPANY IS WELL POSITIONED TO DELIVER ITS BEST PERFORMANCE EVER. WITH TWO MORE ACQUISITIONS COMPLETED IN THE THIRD QUARTER, SOLID FINANCIAL RESULTS AND CONTINUED STRONG SALES ACTIVITY, HBOC BELIEVES IT HAS THE MOMENTUM NEEDED TO REACH OR EXCEED ITS GOALS FOR THE YEAR. As healthcare continues to move toward managed care and capitation, clinical information will play a central role in reducing costs and improving the quality of care. That's why we believe the third quarter additions of CliniCom Incorporated and Pegasus Medical Ltd. will be of particular benefit to HBOC as we continue our efforts to deliver solutions that meet the needs of caregivers across multiple settings of care. CliniCom brings extensive experience in the acute-care arena with innovative point-of-care solutions that capture information at the bedside, while Pegasus, led by physicians, complements those capabilities with its Smart Medical Record (SMR-TM-), a pen-based system designed for use in the physician office and across the continuum of care. These two strategic acquisitions are just part of what has been a very positive quarter for HBOC. On the financial side, HBOC once again announced record earnings per share and revenue growth. Excluding a nonrecurring charge related to the acquisition of CliniCom, earnings per share stood at $.38, a 90 percent increase over the same period last year. Including the charge, quarterly per share earnings came to $.22. Revenue reached a record $138 million, up 51 percent over third quarter 1994. Those strong results hold true from a broader perspective as well. Comparing the nine months ended September 30, 1995, with the same period in 1994, revenue increased by 39 percent to $347 million, while earnings per share increased 75 percent to $1.00, using fully diluted shares and excluding the nonrecurring charges. While acquisitions have bolstered our 1995 growth, software license fees and service revenue from STAR, Pathways 2000-Registered Trademark- and TRENDSTAR- Registered Trademark- systems continue to drive HBOC's strong financial performance. Sales highlights this quarter included an agreement with Science Applications International Corporation (SAIC) to install TRENDSTAR decision support in 120 United States Department of Defense Hospitals and the decision by Quorum Health Group, Inc., to purchase Pathways Managed Care and Pathways Contract Management for its 13 subsidiary facilities throughout the country. In the outsourcing area, Maricopa County Health Care System in Phoenix, Ariz., signed a five-year, approximately $70 million contract with HBOC's Outsourcing Services Group. In addition, HBOC has also begun to make progress in the transition of First Data Corporation's former "First Family" customers to Pathways 2000. At the end of the quarter, Ball Memorial Hospital of Muncie, Ind., signed a replacement contract that calls for the installation of STAR, Pathways 2000 and TRENDSTAR products beginning in the fourth quarter 1995. This sale is larger than the original contract signed with First Data and solidifies HBOC's relationship with a valued customer. Given the solid foundation laid through our growth strategy in terms of critical mass and strategic capabilities, I believe we have what it takes to deliver on our commitments and continue striving to be the No. 1 vendor in the industry -- not only in revenue but in the quality of our products and services as well. Sincerely, /s/ Charles W. McCall Charles W. McCall President & Chief Executive Officer October 23, 1995 Page 9 HBO&Company and Subsidiaries Financial Review RESULTS OF OPERATIONS QUARTER AND NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1995, COMPARED TO QUARTER AND NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1994: HBO & Company posted record quarterly revenue and earnings and completed the acquisitions of both Pegasus Medical Ltd. and CliniCom Incorporated during the third quarter. The CliniCom transaction was accounted for as a pooling of interests; therefore, all prior period amounts have been restated and the following discussion is based on restated information. The Company's revenue increased 51% for the quarter and 39% for the nine-month period. Operating expense increased only 41% and 31% over the same periods, excluding nonrecurring charges. The third quarter nonrecurring charge of $11 million was primarily for severance and acquisition costs related to the CliniCom acquisition. The second quarter nonrecurring charge of $126 million was primarily related to the purchase of First Data Health Systems Corporation (now known as the Charlotte Product Group or CPG). As a result of the growth in revenue exceeding the growth in operating expense, operating income, excluding the nonrecurring charges, increased 108% and 92% for the quarter and nine-month period compared to the same periods in 1994. Excluding the nonrecurring charges, earnings per share for the third quarter increased 90% to $.38, compared to $.20 for the same period last year, and earnings per share for the nine-month period increased 86% (75% fully diluted) to $1.06 ($1.00 fully diluted), compared to $.57 for the same period last year. Including the nonrecurring charges, the Company's earnings (loss) per share for the quarter and nine-month period ended September 30, 1995, were $.22 and $(1.15). The reported loss per share for the nine-month period was not adjusted for the effect of stock options outstanding, since the effect was anti-dilutive. Fully diluted earnings per share information, excluding nonrecurring charges, is presented above to aid in the analysis of results. The Company's strong revenue growth was due in part to the healthcare industry's interest in enterprisewide solutions, resulting in the success of the Company's Pathways 2000 product line. Additional service and maintenance revenue due to acquisitions also contributed to the strong revenue growth. Software license fee revenue increased 34% for the quarter and 29% for the nine- month period. The increase was due to the continued success of the Pathways 2000 line of enterprisewide solutions, strong market demand for TRENDSTAR decision support products and software sales from the newly acquired CPG. Strong software license fee revenue is an indication that the breadth of HBOC's product line continues to meet the unique software application needs of customers throughout the healthcare marketplace, including evolving enterprisewide and managed care organizations. Hardware revenue increased 65% for the quarter and 25% for the nine-month period primarily due to strong revenue growth for Pathways Care Manager and hardware revenue from CPG. A key component to hardware revenue growth for Pathways Care Manager, the Company's primary point-of-care solution, is a hand-held, wireless, pen-based unit that can significantly improve the productivity of clinicians by reducing paperwork and enhancing the quality of care. Support and maintenance revenue increased 68% for the quarter and 80% for the nine-month period, compared to the same periods last year and accounted for 29% of the Company's revenue for the third quarter of 1995. This revenue growth was related primarily to the increase in the number of customers using HBOC systems due both to acquisitions and internal growth. Implementation services revenue increased 12% for the quarter and 24% for the nine-month period. In addition to revenue added by new business units, implementation of Pathways 2000 products, accomplished using the Company's new Service Tracks methodology, increased as more customers worked with HBOC to bring their new enterprisewide solutions live. Recurring revenue increased to 45% of total revenue for the third quarter of 1995 and 41% for the nine-month period, compared to 39% and 35% for the same periods in 1994. This shift, which should enhance the stability and predictability of HBOC's earnings and cash flow, was due in part to the host based systems managed by CPG, which represent a new set of products and services for the Company. In addition, HBOC completed its first month of operations under a new five-year, approximately $70 million outsourcing contract with Maricopa County Health Care System, which serves the Phoenix, Ariz. metropolitan area. Cost of operations expense dropped to 47% of revenue compared to 53% in 1994 for both the quarter and nine-month period. This improvement was due primarily to increased productivity of implementation personnel and the shift in the Page 10 revenue mix toward higher margin service and maintenance offerings. For the quarter, cost of operations expense increased 35%, and for the nine-month period, 25%, compared to the same periods in 1994. Hardware cost was higher due to higher hardware revenue. Salary and related expense was higher primarily related to the addition of support and implementation personnel due to acquisitions. CPG's data center charges related to host based processing activities contributed to higher expense, but margins for this business contributed to improved overall margins. Hardware and software maintenance expense has increased due to growth in the number of customers covered by maintenance contracts. Marketing expense was 14% of revenue for the quarter and nine-month periods compared to 13% and 14% for the same periods in 1994. Salary, commission and travel expense has increased as the sales force has grown to support increased demand and the resulting higher sales volume. Research and development (R&D) expense dropped to 8% of revenue for the quarter compared to 10% for the same period in 1994, but remained stable at 9% of revenue for both nine-month periods. The drop for the quarter was primarily due to a higher R&D capitalization rate in 1995 -- 25% vs. 24%. For both the nine- month periods ended September 30, 1995 and 1994, the capitalization rate was 25%. R&D expense increased 33% for the quarter and 30% for the nine-month period, due primarily to acquisition related personnel costs that were partially offset by higher capitalization and a reduced reliance on consultants. HBOC is aggressively developing enhancements to existing products and bringing new products to the point of general availability. General and administrative (G&A) expense was 11% of revenue for the quarter and nine-month period compared to 11% for the quarter and 10% for nine-month period last year. G&A expense increased primarily due to higher expense for incentive programs such as the HBOC companywide gainsharing program, increased depreciation expense resulting from a larger fixed asset base and higher intangible asset amortization related to acquisitions. The $11 million nonrecurring charge related to the CliniCom acquisition reduced operating income to $16 million, or 12% of revenue for the quarter. For the nine-month period, this nonrecurring charge plus the $126 million nonrecurring purchased R&D charge related to the CPG acquisition resulted in an operating loss of $70 million. Excluding the nonrecurring charges, operating income as a percent of revenue was 19% for both the quarter and nine-month periods, compared to 14% for the comparable periods in 1994. The tax rate remained constant at 40% for all periods presented. LIQUIDITY AND CAPITAL RESOURCES SEPTEMBER 30, 1995, COMPARED TO DECEMBER 31, 1994: HBOC generated $33.5 million of cash flow from operations for the nine-month period ended September 30, 1995. The Company used $28.9 million in investing activities, including $12.6 million for acquisitions, $9.9 million for software development capitalization and $6.7 million for capital expenditures. In addition, the Company used $2.7 million to reduce indebtedness and pay dividends. As a result, the Company's cash balance increased by $1.9 million during the nine-month period to $16.8 million. The Company's current ratio remained constant at 1.1:1 at both September 30, 1995, and December 31, 1994. Current assets increased $45.3 million, or 31%, primarily due to acquisitions. The bulk of this growth came from increased receivables acquired in the purchase of CPG. Receivables management is a key factor determining HBOC's success, and although the Company already has better receivables performance than some of its competitors, management continues to focus on this area. Current liabilities increased $43.7 million or 32% primarily due to accrued liabilities related to the CPG acquisition. The Company has access to several financing sources, including $5 million available on two lines of credit totalling $10 million and $25 million available under a revolving credit agreement. As of September 30, 1995, HBOC had $5 million outstanding on one line of credit. HBOC is well positioned to generate strong positive cash flow from operations through continued focus on receivables and expense controls. The Company has a strong base of recurring revenue that provides a stable, growing source of cash for operating, investing and financing needs. This, combined with significant expense reductions resulting from the synergies created as HBOC merges the operations of newly acquired companies, should result in continued strong cash flow. The Company has flexibility in completing future acquisitions on a non- cash basis if desired. Management believes positive future cash flow from operations and access to financing sources will enable HBOC to continue to make strategic investments to enhance quality, increase efficiency and promote growth. Page 11 HBO&Company and Subsidiaries Financial Statements (000 Omitted Except for Per Share Data) CONSOLIDATED STATEMENTS OF INCOME -- UNAUDITED
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, 1995 1994 1995 1994 REVENUE $137,907 $ 91,565 $347,006 $249,109 OPERATING EXPENSE: Cost of Operations 65,448 48,317 164,018 131,730 Marketing 18,837 11,669 47,972 33,634 Research and Development 11,629 8,749 30,318 23,246 General and Administrative 15,177 9,961 38,260 25,848 Nonrecurring Charge 10,961 --- 136,481 --- -------- -------- -------- -------- Total Operating Expense 122,052 78,696 417,049 214,458 -------- -------- -------- -------- OPERATING INCOME (LOSS) 15,855 12,869 (70,043) 34,651 OTHER INCOME (EXPENSE), NET (399) (326) (1,184) 62 -------- -------- -------- -------- Income (Loss) Before Provision (Credit) for Income Taxes 15,456 12,543 (71,227) 34,713 Provision (Credit) for Income Taxes 6,183 5,017 (28,490) 13,885 -------- -------- -------- -------- NET INCOME (LOSS) $ 9,273 $ 7,526 $(42,737) $ 20,828 -------- -------- -------- -------- -------- -------- -------- -------- EARNINGS (LOSS) PER SHARE: PRIMARY $ .22 $ .20 $ (1.15) $ .57 Fully Diluted $ .22 $ .20 $ (1.15) $ .57 -------- -------- -------- -------- WEIGHTED AVERAGE SHARES OUTSTANDING: Primary 41,503 36,757 37,099 36,471 Fully Diluted 41,596 36,834 37,099 36,624 -------- -------- -------- -------- CASH DIVIDENDS DECLARED PER SHARE $ .04 $ .04 $ .12 $ .12 -------- -------- -------- -------- -------- -------- -------- --------
CONSOLIDATED CONDENSED BALANCE SHEETS -- Unaudited
ASSETS - ------ SEPTEMBER 30, DECEMBER 31, 1995 1994 CURRENT ASSETS: Cash and Cash Equivalents $ 16,835 $ 14,951 Receivables, Net of $10,119 and $2,475 Allowance for Doubtful Accounts 152,698 115,845 Current Deferred Income Taxes 9,981 5,133 Inventories 2,896 3,526 Prepaids and Other Current Assets 10,257 7,917 -------- -------- Total Current Assets 192,667 147,372 -------- -------- INTANGIBLES, Net of $9,975 and $3,567 Accumulated Amortization 187,800 57,595 DEFERRED INCOME TAXES 35,377 --- PROPERTY AND EQUIPMENT, Net of $69,159 and $63,758 Accumulated Depreciation 33,147 29,103 CAPITALIZED SOFTWARE, Net of $20,953 and $16,878 Accumulated Amortization 30,608 27,916 OTHER NONCURRENT ASSETS, NET 6,005 2,146 -------- -------- $485,604 $264,132 -------- -------- -------- -------- LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------ CURRENT LIABILITIES $179,903 $136,212 LONG-TERM DEBT AND OTHER LIABILITIES 16,352 1,397 DEFERRED INCOME TAXES --- 1,746 STOCKHOLDERS' EQUITY 289,349 124,777 -------- -------- $485,604 $264,132 -------- -------- -------- --------
All prior period amounts have been restated to reflect the acquisition of CliniCom Incorporated in a pooling transaction. The accompanying Notes to Consolidated Financial Statements are an integral part of these consolidated financial statements. Page 12 HBO&Company and Subsidiaries Financial Statements (OOO Omitted) CONSOLIDATED STATEMENTS OF CASH FLOWS -- UNAUDITED
NINE MONTHS ENDED SEPTEMBER 30, 1995 1994 - ---------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Income (Loss) $ (42,737) $ 20,828 --------- --------- Adjustments to Reconcile Net Income (Loss) to Net Cash Provided by Operating Activities: Nonrecurring Charge 136,481 --- Depreciation and Amortization 21,812 13,212 Credit for Noncurrent Deferred Income Taxes (1,644) (24) Changes in Assets and Liabilities: Receivables (13,510) (35,209) Current Deferred Income Taxes (4,830) 807 Inventories (1,370) (2,271) Prepaids and Other Current Assets (1,347) 1,210 Deferred Income Taxes (35,377) --- Other Noncurrent Assets, Net (301) 729 Current Liabilities (23,676) 9,618 Other, Net (15) (539) --------- --------- Total Adjustments 76,223 (12,467) --------- --------- Net Cash Provided by Operating Activities 33,486 8,361 --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Sale of Property and Equipment 255 32 Purchase of Facility --- (2,698) Capital Expenditures (6,731) (5,108) Capitalized Software (9,862) (7,415) Purchase of Businesses, Net of Cash Acquired (12,594) (43,495) --------- --------- Net Cash Used in Investing Activities (28,932) (58,684) --------- --------- NET CASH PROVIDED (USED) BEFORE FINANCING ACTIVITIES 4,554 (50,323) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from Long-Term Debt 60,500 53,000 Proceeds from Short-Term Debt 23,000 --- Proceeds from Issuance of Common Stock 6,976 6,550 Payment of Dividends (4,000) (3,508) Repayment of Short-Term Debt (28,000) --- Repayment of Long-Term Debt (61,146) (27,882) --------- --------- Net Cash Provided by (Used in) Financing Activities (2,670) 28,160 --------- --------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,884 (22,163) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 14,951 41,150 --------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 16,835 $ 18,987 --------- --------- --------- --------- CASH PAID DURING THE PERIOD FOR: Interest $ 2,603 $ 1,816 Income Taxes $ 13,961 $ 5,223
All prior period amounts have been restated to reflect the acquisition of CliniCom Incorporated in a pooling transaction. The accompanying Notes to Consolidated Financial Statements are an integral part of these consolidated financial statements. Page 13 HBO&COMPANY and Subsidiaries 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. The loss per share is based upon the weighted average number of shares outstanding, since the effect of stock options was anti-dilutive. 3. At September 30, 1995, HBOC had a long-term revolving credit agreement for $25 million with interest payable at the Company's option of prime or LIBOR plus a margin determined by certain of the Company's financial ratios (6 7/8% as of September 30, 1995). The commitment fee on the revolving credit agreement is 3/8% payable quarterly on the unused portion of the commitment. The agreement, which expires on June 30, 1997, contains certain net worth, income, cash flow and financial ratio covenants. The Company is in compliance with these covenants at September 30, 1995. HBOC also has available a committed, unsecured line of credit for $5 million with no commitment fee, and an uncommitted, unsecured line of credit for $5 million with interest payable at prime less .5% and no commitment fee. As of September 30, 1995, HBOC had $5 million outstanding on the uncommitted line of credit. Additionally, the Company has repaid, in advance, all amounts outstanding related to the $25 million five-year loan entered into in 1994. 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 (6 7/8% as of September 30, 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, the Company completed the acquisition of Advanced Laboratory Systems, Inc. for approximately $7 million, net of cash acquired. Advanced Laboratory Systems, Inc. was a Eugene, Oregon-based developer of laboratory software for the healthcare and commercial marketplace. The transaction was accounted for as a purchase. 5. On June 17, 1995, the Company acquired First Data Health Systems Corporation, now known as the Charlotte Product Group (CPG), a wholly owned subsidiary of First Data Corporation, in exchange for 4 million shares of common stock of HBOC valued at approximately $200 million, $500,000 in cash and a promissory note for $100,000. First Data Health Systems Corporation provided information systems and services to hospitals, medical group practices and medical facilities throughout the United States, United Kingdom, Australia, Puerto Rico and other countries. The transaction was accounted for as a purchase. The cost of the acquisition has been allocated on the basis of an outside appraisal of the tangible ($58 million) and intangible assets acquired and the liabilities assumed ($83 million). HBOC recorded approximately $115 million of intangibles after adjusting for the nonrecurring purchased research and development charge (note 8), which are being amortized on a straight-line basis over periods ranging from seven to 15 years. The results of operations of CPG are included in the accompanying financial statements since the date of acquisition. The following unaudited pro forma information was prepared assuming the Page 14 transaction was consummated on January 1 of each year presented and excludes the effect of the 1995 nonrecurring charges: NINE MONTHS ENDED SEPTEMBER 30, 1995 1994 Revenue $415,201 $364,758 Net Income $ 43,087 $ 26,244 Earnings Per Share $ 1.04 $ .65 This pro forma information is not necessarily indicative of the results of operations that would have been attained had the acquisition been consummated on January 1 of each year presented or that may be attained in the future. 6. On July 10, 1995, the Company completed the acquisition of Pegasus Medical Ltd. for approximately $8 million of cash and contingent payments, based on certain deliverables, of up to $7 million. Pegasus was a privately held Israeli software company that markets the Smart Medical Record, a computer- based patient record. The transaction was accounted for as a purchase. 7. In September 1995 the Company completed the acquisition of CliniCom Incorporated, in exchange for approximately 3.5 million shares of HBOC common stock, in a transaction accounted for as a pooling of interests. Accordingly, all financial information presented herein has been restated and acquisition related expenses are being expensed as incurred. CliniCom was a developer of point-of-care clinical information systems. 8. During the second quarter of 1995, the Company recorded a $126 million nonrecurring charge primarily related to research and development purchased as part of the CPG acquisition that had not reached the stage of technological feasibility ($115 million). The charge also included severance and other acquisition related costs ($8 million) and a mainframe capitalized research and development net book value adjustment ($3 million). During the third quarter of 1995, the Company recorded a nonrecurring charge of $11 million related to the acquisition of CliniCom. The nonrecurring charge consisted primarily of severance pay and acquisition costs. 9. 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 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 appealed the District Court's determination. On September 6, 1995, the Eleventh Circuit Court of Appeals affirmed the District Court's decision. The Company does not know whether the plaintiff will seek further review of the District Court's order. 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. Page 15 EX-27 5 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM HBO & COMPANY CONSOLIDATED STATEMENTS OF INCOME FOR THE NINE MONTHS ENDED 9/30/95 AND HBO & COMPANY CONDENSED BALANCE SHEETS AT 9/30/95 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS DEC-31-1995 JAN-01-1995 SEP-30-1995 16835 0 162817 10119 2896 192667 102306 69159 485604 179903 0 2830 0 0 286519 485604 138839 347006 52209 164018 253031 599 2726 (71277) (28490) (42737) 0 0 0 (42737) (1.15) (1.15)
-----END PRIVACY-ENHANCED MESSAGE-----