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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)
<TABLE>
<S> <C>
DELAWARE 37-0986839
(State or other jurisdiction (I.R.S. Employer
of Identification Number)
incorporation or
organization)
</TABLE>
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.
<TABLE>
<S> <C>
CLASS SHARES OUTSTANDING AT JULY 31, 1998
- -------------------------------------------- --------------------------------------------
Common Stock, $.05 par value 430,993,048
</TABLE>
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PART 1--FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
CONSOLIDATED BALANCE SHEETS--UNAUDITED
(000 OMITTED)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
------------ ------------
<S> <C> <C>
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
------------ ------------
------------ ------------
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these consolidated financial statements.
2
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CONSOLIDATED STATEMENTS OF INCOME--UNAUDITED
(000 OMITTED EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------- ----------------------
<S> <C> <C> <C> <C>
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
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
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
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CONSOLIDATED STATEMENTS OF CASH FLOWS--UNAUDITED
(000 OMITTED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JUNE 30,
----------------------
<S> <C> <C>
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
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these consolidated financial statements.
4
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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
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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
<PAGE>
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
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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
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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
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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:
<TABLE>
<CAPTION>
FOR WITHHELD
------------- -------------
<S> <C> <C>
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
</TABLE>
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
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
<TABLE>
<S> <C> <C>
11 Statement regarding computation of per share earnings..........................
15 Letter re: unaudited interim financial information.............................
27 Financial Data Schedule........................................................
</TABLE>
(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
<PAGE>
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.
<TABLE>
<S> <C> <C>
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
</TABLE>
12
<PAGE>
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)
<TABLE>
<CAPTION>
FOR THE THREE FOR THE SIX
MONTHS ENDED MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- ---------------------
<S> <C> <C> <C> <C>
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
--------- --------- ---------- ---------
--------- --------- ---------- ---------
</TABLE>
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.
<PAGE>
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
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
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.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 491,631
<SECURITIES> 5,223
<RECEIVABLES> 508,247
<ALLOWANCES> 19,446
<INVENTORY> 9,746
<CURRENT-ASSETS> 1,039,194
<PP&E> 224,449
<DEPRECIATION> 115,771
<TOTAL-ASSETS> 1,424,124
<CURRENT-LIABILITIES> 313,046
<BONDS> 781
0
0
<COMMON> 21,538
<OTHER-SE> 1,081,097
<TOTAL-LIABILITY-AND-EQUITY> 1,424,124
<SALES> 358,057
<TOTAL-REVENUES> 719,539
<CGS> 125,945
<TOTAL-COSTS> 497,527
<OTHER-EXPENSES> (6,111)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 234,123
<INCOME-TAX> 93,649
<INCOME-CONTINUING> 140,474
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 140,474
<EPS-PRIMARY> 0.33
<EPS-DILUTED> 0.32
</TABLE>
