-----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, DCcduFN67U9joqGxMbjko2igLskfabOKbzVGGfm1BK59OEO9DgfoUKuz+mJdAKT1 dP6wfoHbjoqIImyWbXAuUw== 0001047469-98-029057.txt : 19980805 0001047469-98-029057.hdr.sgml : 19980805 ACCESSION NUMBER: 0001047469-98-029057 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980803 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: SEC FILE NUMBER: 000-09900 FILM NUMBER: 98675959 BUSINESS ADDRESS: STREET 1: 301 PERIMETER CTR N CITY: ATLANTA STATE: GA ZIP: 30346 BUSINESS PHONE: 7703936000 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 /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998 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 (I.R.S. Employer of Identification Number) incorporation or organization)
301 PERIMETER CENTER NORTH ATLANTA, GEORGIA 30346 (Address of principal executive offices) (Zip Code) (770) 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 SHARES OUTSTANDING AT JULY 31, 1998 - -------------------------------------------- -------------------------------------------- Common Stock, $.05 par value 430,993,048
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART 1--FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS. CONSOLIDATED BALANCE SHEETS--UNAUDITED (000 OMITTED)
JUNE 30, DECEMBER 31, 1998 1997 ------------ ------------ ASSETS CURRENT ASSETS: Cash and Cash Equivalents.......................................................... $ 491,631 $ 432,477 Short-Term Investments............................................................. 5,223 4,981 Receivables, Net of Allowance For Doubtful Accounts of $19,446 and $20,763......... 488,801 421,876 Current Deferred Income Taxes...................................................... 21,799 36,311 Inventories........................................................................ 9,746 6,513 Prepaids and Other Current Assets.................................................. 21,994 21,515 ------------ ------------ Total Current Assets............................................................. 1,039,194 923,673 ------------ ------------ INTANGIBLES Net of Accumulated Amortization of $55,688 and $48,559............................. 161,748 174,233 CAPITALIZED SOFTWARE Net of Accumulated Amortization of $62,323 and $50,618............................. 77,619 69,535 PROPERTY AND EQUIPMENT Net of Accumulated Depreciation of $115,771 and $102,295........................... 108,678 101,409 DEFERRED INCOME TAXES................................................................ 31,554 36,600 OTHER NONCURRENT ASSETS, NET......................................................... 5,331 7,136 ------------ ------------ TOTAL ASSETS......................................................................... $ 1,424,124 $1,312,586 ------------ ------------ ------------ ------------ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Deferred Revenue................................................................... $ 152,524 $ 125,399 Other Current Liabilities.......................................................... 160,522 279,134 ------------ ------------ Total Current Liabilities........................................................ 313,046 404,533 ------------ ------------ LONG-TERM DEBT....................................................................... 781 1,022 OTHER LONG-TERM LIABILITIES.......................................................... 7,662 6,449 ------------ ------------ Total Liabilities................................................................ 321,489 412,004 ------------ ------------ COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Preferred Stock, 1,000 Shares Authorized and No Shares Issued...................... -- -- Common Stock, $.05 Par Value, 1,000,000 Shares Authorized and 430,766 and 211,380 Shares Issued.................................................................... 21,538 10,569 Additional Paid-in Capital......................................................... 638,667 574,863 Retained Earnings.................................................................. 442,430 315,150 ------------ ------------ Total Stockholders' Equity....................................................... 1,102,635 900,582 ------------ ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........................................... $ 1,424,124 $1,312,586 ------------ ------------ ------------ ------------
The accompanying Notes to Consolidated Financial Statements are an integral part of these consolidated financial statements. 2 CONSOLIDATED STATEMENTS OF INCOME--UNAUDITED (000 OMITTED EXCEPT FOR PER SHARE DATA)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ---------------------- ---------------------- 1998 1997 1998 1997 ---------- ---------- ---------- ---------- REVENUE: Systems........................................................ $ 190,123 $ 149,168 $ 358,057 $ 273,661 Services....................................................... 186,581 142,326 361,482 281,125 ---------- ---------- ---------- ---------- Total Revenue................................................ 376,704 291,494 719,539 554,786 OPERATING EXPENSE: Cost of Operations............................................. 155,079 124,619 302,848 237,651 Marketing...................................................... 53,035 43,394 99,385 84,610 Research and Development....................................... 23,858 22,054 45,967 43,501 General and Administrative..................................... 25,721 26,896 49,327 53,095 Nonrecurring Charge............................................ (3,000) 35,420 (3,000) 35,420 ---------- ---------- ---------- ---------- Total Operating Expense...................................... 254,693 252,383 494,527 454,277 ---------- ---------- ---------- ---------- OPERATING INCOME................................................. 122,011 39,111 225,012 100,509 Other Income, Net................................................ 4,015 4,525 9,111 7,135 ---------- ---------- ---------- ---------- Income Before Income Taxes....................................... 126,026 43,636 234,123 107,644 Provision for Income Taxes....................................... 50,411 17,524 93,649 43,156 ---------- ---------- ---------- ---------- NET INCOME....................................................... $ 75,615 $ 26,112 $ 140,474 $ 64,488 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- EARNINGS PER SHARE: Basic.......................................................... $ .18 $ .06 $ .33 $ .16 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Diluted........................................................ $ .17 $ .06 $ .32 $ .15 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- WEIGHTED AVERAGE SHARES OUTSTANDING: Basic.......................................................... 429,951 415,884 427,802 413,535 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Diluted........................................................ 441,906 428,775 438,873 426,574 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- CASH DIVIDENDS DECLARED PER SHARE................................ $ .02 $ .005 $ .03 $ .01 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
All share and per share amounts have been restated to reflect the June 1998 two-for-one stock split effected in the form of a stock dividend. The accompanying Notes to Consolidated Financial Statements are an integral part of these consolidated financial statements. 3 CONSOLIDATED STATEMENTS OF CASH FLOWS--UNAUDITED (000 OMITTED)
FOR THE SIX MONTHS ENDED JUNE 30, ---------------------- 1998 1997 ---------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Income for the Period............................................................... $ 140,474 $ 64,488 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation and Amortization......................................................... 36,042 29,903 Nonrecurring Charge................................................................... (3,000) 35,420 Provision for Noncurrent Deferred Income Taxes........................................ 4,052 3,089 Changes in Assets and Liabilities, Net of Acquisitions: Receivables......................................................................... (67,640) 4,031 Current Deferred Income Taxes....................................................... 14,512 (5,633) Inventories......................................................................... (3,233) (839) Prepaids and Other Current Assets................................................... (1,018) (6,429) Noncurrent Deferred Income Tax...................................................... 994 (4,141) Other Noncurrent Assets............................................................. 1,817 1,033 Deferred Revenue.................................................................... 27,094 1,512 Other Current Liabilities........................................................... (86,183) (24,194) Other, Net............................................................................ (291) (1,702) ---------- ---------- Total Adjustments................................................................. (76,854) 32,050 ---------- ---------- Net Cash Provided by Operating Activities......................................... 63,620 96,538 ---------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Sale of Property and Equipment.......................................................... 1,748 2,497 Capital Expenditures.................................................................... (25,066) (33,257) Capitalized Software.................................................................... (20,044) (16,358) Proceeds from Sale of Investments....................................................... -- 48,913 Purchase of Investments................................................................. (231) (47,528) Other................................................................................... (175) (790) ---------- ---------- Net Cash Used in Investing Activities............................................. (43,768) (46,523) ---------- ---------- NET CASH PROVIDED BEFORE FINANCING ACTIVITIES..................................... 19,852 50,015 ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from Issuance of Common Stock.................................................. 48,070 26,671 Repayment of Long-Term Debt............................................................. (32) (447) Repayment of Capital Leases............................................................. (221) (449) Payment of Dividends.................................................................... (8,515) (3,636) ---------- ---------- Net Cash Provided by Financing Activities......................................... 39,302 22,139 ---------- ---------- INCREASE IN CASH AND CASH EQUIVALENTS..................................................... 59,154 72,154 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.......................................... 432,477 204,952 ---------- ---------- CASH AND CASH EQUIVALENTS AT END OF PERIOD................................................ $ 491,631 $ 277,106 ---------- ---------- ---------- ---------- CASH PAID DURING THE PERIOD FOR: Interest................................................................................ $ 54 $ 116 Income Taxes............................................................................ $ 52,545 $ 26,856
The accompanying Notes to Consolidated Financial Statements are an integral part of these consolidated financial statements. 4 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. All such adjustments are of a normal recurring nature. Quarterly results of operations are not necessarily indicative of annual results. Certain previously reported amounts have been reclassified to conform to the current presentation. These statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the HBO & Company (the "Company" or "HBOC") 1997 Annual Report on Form 10-K for the fiscal year ended December 31, 1997. 2. As of June 30, 1998, there was no outstanding balance on the Company's $50 million long-term revolving credit agreement. Interest is payable at the Company's option of prime or LIBOR plus 0.5% (6.1602% as of June 30, 1998). A commitment fee of 0.25% per annum is payable quarterly on the unused portion of the commitment. The agreement, which expires June 30, 1999, contains certain net worth, cash flow and financial ratio covenants. The Company is in compliance with these covenants at June 30, 1998. 3. During the six months ended June 30, 1998, the Company utilized $9.4 million and $14.5 million of severance and product-related acquisition reserves, respectively. As of June 30, 1998, remaining severance and product-related acquisition reserves were $4.5 million and $6.6 million, respectively. The Company periodically reviews reserves established in connection with acquisitions. During the second quarter of 1998, the Company reduced its product-related acquisition reserves by $3.0 million, which is reflected as a nonrecurring credit in the accompanying Statements of Income. 4. In May 1998, the Company declared a two-for-one stock split effected in the form of a stock dividend on all common stock outstanding, paid on June 9, 1998, to all stockholders of record on May 27, 1998. All per share and share amounts (except stockholders' equity) have been restated. 5. On July 20, 1998, the Company announced it had signed a definitive agreement to acquire US Servis, a leading professional management company providing outsourcing services for physician delivery systems and hospital business offices. The acquisition, which is subject to regulatory and US Servis stockholder approval, will be accounted for as a pooling of interests and is anticipated to close during the third quarter of 1998. Terms of the transaction call for a $50 million acquisition price, with US Servis stockholders receiving a fraction of a share of HBOC common stock for each share of US Servis common stock, to be determined on the basis of HBOC average trading prices shortly before the closing of the transaction. 6. On July 23, 1998, the Company announced it had signed a definitive agreement to acquire IMNET Systems, Inc. (IMNET), the leading provider of electronic information and document management solutions for the healthcare industry. The acquisition, which is subject to regulatory and IMNET stockholder approval, will be accounted for as a pooling of interests and is anticipated to close during the fourth quarter of 1998. Terms of the acquisition call for IMNET stockholders to receive .84 of a share of HBOC common stock for each IMNET share held, subject to certain adjustments. 7. Effective January 1, 1998, HBOC adopted Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income", which requires interim disclosure of total comprehensive income. For the three and six month periods ended June 30, 1998, other comprehensive income items, as defined by SFAS No. 130, were not significant. 5 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. IN THE FOLLOWING DISCUSSION, ALL EXPENSE, INCOME AND PER SHARE AMOUNTS EXCLUDE THE FOLLOWING: I) A $3.0 MILLION NONRECURRING CREDIT FOR THE QUARTER AND SIX MONTHS ENDED JUNE 30, 1998 RELATED TO THE 1997 ACQUISITION OF HPR, INC. AND; II) A $35.4 MILLION NONRECURRING CHARGE RELATED TO THE SECOND QUARTER 1997 ACQUISITIONS OF AMISYS MANAGED CARE SYSTEMS, INC. AND ENTERPRISE SYSTEMS, INC. RESULTS OF OPERATIONS QUARTER AND SIX MONTHS ENDED JUNE 30, 1998, COMPARED TO QUARTER AND SIX MONTHS ENDED JUNE 30, 1997: SUMMARY For the quarter and six months ended June 30, 1998, the Company achieved diluted earnings per share of $.17 and $.32, respectively, a 55% increase over diluted earnings per share of $.11 for the second quarter of 1997 and a 60% increase over diluted earnings per share of $.20 for the first six months of 1997. Including nonrecurring charges, diluted earnings per share for the quarter and six months ended June 30, 1998, was $.17 and $.32, respectively, compared to $.06 and $.15 for the quarter and six months ended June 30, 1997. Total HBOC revenue for the second quarter of 1998 increased 29% to $376.7 million from $291.5 million in the second quarter of 1997, and 30% to $719.5 million from $554.8 million for the six months ended June 30, 1998, compared to the same period in 1997. Operating expense increased 19% for the quarter and six months ended June 30, 1998, compared to the same periods in 1997. The Company continues to make progress in the area of employee productivity, with revenue per average employee at June 30, 1998, of $219,000, up from $194,000 at June 30, 1997. These changes in revenue and expense combined to boost net income for the quarter and six months ended June 30, 1998, by 56% to $73.8 million and 62% to $138.7 million, respectively, compared to the same periods in 1997. Including nonrecurring charges, net income increased 190% to $75.6 million for the second quarter of 1998 and 118% to $140.5 for the six months ended June 30, 1998, compared to the same periods in 1997. REVENUE Software license fee revenue grew 29% to $130.4 million for the second quarter of 1998 and 22% to $231.6 million for the six months ended June 30, 1998, compared to the same periods in 1997. Contributing to this increase was the continuing strong demand for Pathways 2000-Registered Trademark- and STAR 2000 solutions, as well as demand for products from the Payor Solutions Group. The Company also recognized strong quarter and year-to-date sales of its decision support and physician practice products. The continued growth in sales from developed and acquired products validates the integration strategy of the Company as customers look for a vendor with an enterprisewide solution set to meet their ever-expanding needs. Hardware revenue increased 25% to $59.7 million for the second quarter of 1998 and 52% to $126.5 million for the six months ended June 30, 1998, compared to the same periods in 1997. This increase was primarily due to strong sales of enterprise, Connect Technology Group, and physician practice hardware related to increased sales of software. Hardware margins decreased slightly for the quarter and increased slightly for the six months ended June 30, 1998, compared to the same periods in 1997. Implementation and one-time services revenue for the quarter and six months ended June 30, 1998, increased 42% to $67.7 million, from $47.8 million, and 35% to $124.2 million from $91.9 million, compared to the same periods in 1997. This increase was primarily due to the numerous implementations resulting from strong sales of the Company's STAR 2000 and Pathways 2000 products as well as payor 6 market products. In addition, strong growth in implementation revenue was realized from the late 1997 purchase acquisition of AT&T's UK Specialist Healthcare Services Division (AT&T Healthcare). Installation and implementation services are offered to purchasers of all HBOC software products, and the Company continues to focus on increasing the efficiency of the implementation process using such things as standard project plans and best practices service methodologies. Maintenance and support revenue increased 23% to $69.9 million for the second quarter of 1998 and 22% to $139.9 million for the six months ended June 30, 1998, compared to the same periods in 1997. This increase was primarily the result of new maintenance contracts from increased software sales and the expansion of the customer base. Outsourcing revenue increased 41% for the second quarter of 1998 and 43% for the six months ended June 30, 1998, compared to the same periods in 1997. This increase was mainly the result of international outsourcing revenue from HBOC UK's purchase acquisition of AT&T Healthcare. AT&T Healthcare expands HBOC's role as a provider of software solutions and remote processing services for the financial and payroll needs of healthcare providers in the United Kingdom. EXPENSE Cost of operations as a percent of revenue decreased to 41% from 43% for the second quarter of 1998 and decreased to 42% from 43% for the six months ended June 30, 1998, compared to the same periods in 1997. Gross margin for the second quarter of 1998 was 59% and for the six months ended June 30, 1998, was 58%, compared to 57% for the same periods in 1997. Cost of operations expense increased in both periods compared to the same periods in 1997, primarily due to increased personnel expense as a result of the overall growth of the Company and increased hardware costs associated with the growth in hardware sales. The six month increase was partially offset by lower third-party royalty expenses. Marketing expense as a percent of revenue decreased to 14% from 15% for both the quarter and six months ended June 30, 1998, compared to the same periods in 1997. Actual marketing expense increased primarily due to higher personnel, travel, and commission expense related to the growth in size and revenue of the Company. Research and development (R&D) expense as a percent of revenue decreased to 6% from 8% for both the quarter and six months ended June 30, 1998, compared to the same periods in 1997. The R&D capitalization rate increased to 31% from 29% for the second quarter, and to 30% from 27% for the six months ended June 30, 1998, compared to the same periods in 1997. The R&D capitalization rate increased as a result of increased projects focused on integrating the products from acquisitions and continued new development of enterprisewide solutions. Actual R&D expense increased slightly due to increases in personnel-related costs associated with growth in the Company. General and administrative (G&A) expense as a percent of revenue decreased to 7% in both the second quarter and six months ended June 30, 1998, from 9% in the second quarter of 1997 and from 10% for the six months ended June 30, 1997. Actual G&A expense decreased slightly for both periods primarily due to cost savings realized from the integration of operations of acquired companies. Operating expense grew at a slower rate than revenue for both the quarter and six months ended June 30, 1998, compared to the same periods in 1997, due to strong system and service revenue, successful cost-control programs and productivity enhancements. Total operating income increased 60% for the quarter and 63% for the six months ended June 30, 1998, compared to the same periods in 1997. In addition, operating income as a percent of revenue increased to 32% for the second quarter of 1998 from 26% for the second quarter of 1997, and to 31% for the six months ended June 30, 1998, compared to 25% for the same period in 1997. Total operating income, including nonrecurring charges, increased 212% for the quarter and 124% for the six months ended June 30, 1998, compared to the same periods in 1997. Including nonrecurring 7 charges, operating income as a percent of revenue increased to 32% for the second quarter of 1998 from 13% for the second quarter of 1997, and to 31% for the six months ended June 30, 1998, compared to 18% for the same period in 1997. The tax rate remained constant at 40% for the quarter and six months ended June 30, 1998, and 1997. LIQUIDITY AND CAPITAL RESOURCES JUNE 30, 1998, COMPARED TO DECEMBER 31, 1997: The Company continues to improve the strength and quality of its balance sheet. At June 30, 1998, with $497 million in cash and short-term investments, no bank debt and an improving current ratio, the Company remains well-positioned for continued growth. During the first six months of 1998, the Company generated $63.6 million in cash flow from operations. The Company used cash of $43.8 million in investing activities, primarily consisting of $25.1 million used for capital expenditures and $20.0 million used for software development capitalization. An additional $39.3 million was provided from financing activities, primarily related to proceeds from the issuance of common stock pursuant to employee benefit plans, that were partially offset by the payment of dividends. As a result, the Company's cash balance increased to $492 million at June 30, 1998, from $432 million at December 31, 1997. The Company's current ratio increased to 3.3:1 at June 30, 1998, from 2.3:1 at December 31, 1997. Current assets increased $115.5 million, primarily reflecting a large increase in cash and receivables. Receivables as a percent of current assets increased only slightly at June 30, 1998, from December 31, 1997. The Company's management places a high priority on the area of receivables, and the Company continues to monitor receivables performance closely. Current liabilities decreased $91.5 million, mainly due to the pay-down of year-end and acquisition accruals. The Company has access to several financing sources, including a $5 million line of credit and a $50 million revolving credit agreement. As of June 30, 1998, there were no outstanding balances on either. Management believes that the Company's existing cash and short-term investment balances, anticipated future cash flow from operations and amounts available under existing credit arrangements are sufficient to meet ongoing operational and capital expenditure requirements, as well as to fund costs associated with future equity acquisitions and small acquisitions for cash. FORWARD-LOOKING STATEMENTS This report contains certain forward-looking statements, which are qualified by the risks and uncertainties described from time to time in HBOC's reports filed with the Securities and Exchange Commission, including the Annual Report on Form 10-K for the fiscal year ended December 31, 1997. 8 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 June 30, 1998 and the related statements of income for the three-month and six-month periods ended June 30, 1998 and 1997, and the statements of cash flows for the six-month periods ended June 30, 1998 and 1997. 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. ARTHUR ANDERSEN LLP Atlanta, Georgia July 20, 1998 9 PART II--OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. The Company held its Annual Meeting of Stockholders on May 12, 1998. Of the 214,379,558 shares of common stock outstanding and entitled to vote at this meeting, 189,613,405 were represented at the meeting, in person or by proxy. The following matters were voted upon. 1. The election of a Board of Directors consisting of seven persons named as nominees for Director in the Proxy Statement of the Company, to serve as Directors of the Company, each to serve until the next Annual Meeting of Stockholders or until their successor shall have been elected. The result of the vote for each individual Director was:
FOR WITHHELD ------------- ------------- Alfred C. Eckert III............................................................... 189,021,627 591,778 Philip A. Incarnati................................................................ 189,039,489 573,916 Alton F. Irby...................................................................... 184,728,582 4,884,823 Gerald E. Mayo..................................................................... 189,029,166 584,239 Charles W. McCall.................................................................. 188,195,742 1,417,663 James V. Napier.................................................................... 188,934,281 679,124 Donald C. Wegmiller................................................................ 189,021,042 592,363
Accordingly, all seven nominees were duly elected Directors of the Company. 2. The approval to the Amendment of the Certificate of Incorporation of the Company to increase the number of authorized shares of Common Stock from 250,000,000 to 1,000,000,000. The result of the vote was 168,872,934 shares in favor, 20,602,834 shares opposed and 137,637 shares abstained. Accordingly, the Amendment was approved. 3. The approval of the HBO & Company 1998 Employee Discount Stock Purchase Plan. The result of the vote was 188,361,125 shares in favor, 1,061,140 shares opposed and 191,140 shares abstained. Accordingly, the Plan was approved. 4. The ratification of the appointment of Arthur Andersen LLP as independent public accountants to audit the accounts of the Company for the fiscal year ending December 31, 1998. The result of the vote was 189,360,460 shares in favor, 143,068 shares opposed and 109,877 shares abstained. Accordingly, the appointment of Arthur Andersen LLP was ratified. ITEM 5. OTHER INFORMATION Proposals by stockholders intended to be presented at the 1999 Annual Meeting must be forwarded in writing and received at the principal executive office of the Company no later than December 4, 1998, directed to the attention of the Secretary, for consideration for inclusion in the Company's proxy statement for the Annual Meeting of Stockholders to be held in 1999. Moreover, with regard to any proposal by a stockholder not seeking to have such proposal included in the proxy statement but seeking to have such proposal considered at the 1999 Annual Meeting, if such stockholder fails to notify the Company in the manner set forth above of such proposal no later than February 17, 1999, then the persons appointed as proxies may exercise their discretionary voting authority if the proposal is considered at the 1999 Annual Meeting notwithstanding that stockholders have not been advised of the proposal in the proxy statement for the 1999 Annual Meeting. Any proposals submitted by stockholders must comply in all respects with the rules and regulations of the Securities and Exchange Commission and the provisions of the Company's Certificate of Incorporation and Bylaws and of Delaware law. 10 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits: 11 Statement regarding computation of per share earnings.......................... 15 Letter re: unaudited interim financial information............................. 27 Financial Data Schedule........................................................
(b) Reports on Form 8-K filed during the quarter ended June 30, 1998, or subsequent to that date but prior to the filing date of this Form 10-Q: FORM 8-K DATED MAY 19, 1998: Reporting under Item 5 that on May 12, 1998, the stockholders of HBO & Company approved an amendment to the Company's Certificate of Incorporation to increase the number of shares of authorized common stock from 250 million to 1 billion. Reporting under Item 5 that on May 12, 1998, the Board of Directors of HBO & Company declared a two-for-one stock split to be effected in the form of a stock dividend payable on June 9, 1998 to all stockholders of record as of May 27, 1998. Reporting under Item 5 that on May 12, 1998, the Board of Directors of HBO & Company declared a quarterly cash dividend of $0.02 per post split share payable on July 21, 1998, to stockholders of record on June 30, 1998. Reporting under Item 5 that on May 12, 1998, the Board of Directors of HBO & Company elected M. Christine Jacobs, president, chief executive officer and vice-chairman of Atlanta based Theragenics Corporation, to the HBOC Board of Directors. FORM 8-K DATED MAY 27, 1998: Reporting under Item 5 that on July 20, 1998, the Company announced it had signed a definitive agreement to acquire US Servis, a leading professional management company providing outsourcing services for physician delivery systems and hospital business offices. The acquisition, which is subject to regulatory and US Servis stockholder approval, will be accounted for as a pooling of interests and is anticipated to close during the third quarter of 1998. Terms of the transaction call for a $50 million acquisition price, with US Servis stockholders receiving a fraction of a share of HBOC common stock for each share of US Servis common stock, to be determined on the basis of HBOC average trading prices shortly before the closing of the transaction. Reporting under Item 5 that on July 23, 1998, HBO & Company announced it had signed a definitive agreement to acquire IMNET Systems, Inc. (IMNET), a leading provider of electronic information and document management solutions for the healthcare industry. The acquisition, which is subject to regulatory and IMNET stockholder approval, will be accounted for as a pooling of interests and is anticipated to close during the fourth quarter of 1998. Terms of the acquisition call for IMNET stockholders to receive .84 of a share of HBOC common stock for each IMNET share held, subject to certain adjustments. 11 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: July 31, 1998 By: /s/ Jay P. Gilbertson ------------------------------------------ Jay P. Gilbertson PRESIDENT, CO-CHIEF OPERATING OFFICER, CHIEF FINANCIAL OFFICER, TREASURER, PRINCIPAL ACCOUNTING OFFICER AND SECRETARY
12 EX-11 2 EXHIBIT 11 EXHIBIT 11 HBO & COMPANY AND SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE OF COMMON STOCK FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1998 AND 1997 (000 OMITTED EXCEPT FOR PER SHARE DATA)
FOR THE THREE FOR THE SIX MONTHS ENDED MONTHS ENDED JUNE 30, JUNE 30, -------------------- --------------------- 1998 1997 1998 1997 --------- --------- ---------- --------- Weighted Average Number of Common Shares Outstanding................. 429,951 415,884 427,802 413,535 ADD--Shares of common stock assumed issued upon exercise of stock options using the "treasury stock" method as it applies to the computation of diluted earnings per share.......................... 11,955 12,891 11,071 13,039 --------- --------- ---------- --------- Number of Common and Common Equivalent Shares Outstanding............ 441,906 428,775 438,873 426,574 --------- --------- ---------- --------- --------- --------- ---------- --------- Net Earnings for Basic and Diluted Earnings Per Share................ $ 75,615 $ 26,112 $ 140,474 $ 64,488 --------- --------- ---------- --------- --------- --------- ---------- --------- Earnings Per Share: Basic.............................................................. $ .18 $ .06 $ .33 $ .16 --------- --------- ---------- --------- --------- --------- ---------- --------- Diluted............................................................ $ .17 $ .06 $ .32 $ .15 --------- --------- ---------- --------- --------- --------- ---------- ---------
All share and per share amounts have been restated to reflect the 1998 two-for-one stock split effected in the form of a stock dividend. 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 June 30, 1998, which includes our report dated July 20, 1998 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 July 20, 1998 EX-27 4 EXHIBIT 27
5 This schedule contains summary financial information extracted from HBO & Company Consolidated Statement of Income for the Six Months Ended 6/30/98 and HBO & Company Consolidated Balance Sheet at 6/30/98 and is qualified in its entirety by reference to such financial statements. 1,000 6-MOS DEC-31-1998 JAN-01-1998 JUN-30-1998 491,631 5,223 508,247 19,446 9,746 1,039,194 224,449 115,771 1,424,124 313,046 781 0 0 21,538 1,081,097 1,424,124 358,057 719,539 125,945 497,527 (6,111) 0 0 234,123 93,649 140,474 0 0 0 140,474 0.33 0.32
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