SECURITIES AND EXCHANGE COMMISSION
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 September 30, 2002 |
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 0-24975
WEBMD CORPORATION
|
Delaware
|
94-3236644 | |
|
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification Number) |
669 River Drive, Center 2
(201) 703-3400
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 o
As of November 5, 2002, there were 297,268,556 shares of the
WEBMD CORPORATION
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
| Page | ||||||
| Number | ||||||
| Cautionary Statement Regarding Forward-Looking Statements | 3 | |||||
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Part I
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Financial Information
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Item 1.
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Financial Statements:
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|||||
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Consolidated Balance Sheets as of
September 30, 2002 (unaudited) and December 31,
2001
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4 | |||||
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Unaudited Consolidated Statements of Operations
for the three and nine months ended September 30, 2002 and
2001
|
5 | |||||
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Unaudited Consolidated Statements of Cash Flows
for the nine months ended September 30, 2002 and 2001
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6 | |||||
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Notes to Consolidated Financial Statements
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7 | |||||
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Item 2.
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Management’s Discussion and Analysis of
Financial Condition and Results of Operations
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20 | ||||
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Item 3.
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Quantitative and Qualitative Disclosures About
Market Risk
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43 | ||||
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Item 4.
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Controls and Procedures
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43 | ||||
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Part II
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Other Information
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|||||
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Item 6.
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Exhibits and Reports on Form 8-K
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44 | ||||
| Signatures | 45 | |||||
| Exhibit Index | E-1 | |||||
2
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains both historical and forward-looking statements. All statements other than statements of historical fact are, or may be deemed to be, forward-looking statements. These forward-looking statements are not based on historical facts, but rather reflect management’s current expectations concerning future results and events. These forward-looking statements generally can be identified by use of expressions such as “believe,” “expect,” “anticipate,” “intend,” “plan,” “foresee,” “likely,” “will” or other similar words or phrases. Similarly, statements that describe our objectives, plans or goals are, or may be deemed to be, forward-looking statements. These forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be different from any future results, performance and achievements expressed or implied by these statements. In addition to the risk factors described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Factors That May Affect Our Future Financial Condition or Results of Operations” beginning on page 31, the following important risks and uncertainties could affect future results, causing these results to differ materially from those expressed in our forward-looking statements:
| • | the failure to achieve sufficient levels of customer utilization and market acceptance of new services or newly integrated services, | |
| • | the inability to successfully deploy new applications or newly integrated applications, | |
| • | difficulties in forming and maintaining mutually beneficial relationships with customers and strategic partners, | |
| • | the inability to attract and retain qualified personnel, and | |
| • | general economic, business or regulatory conditions affecting the healthcare, information technology and Internet industries being less favorable than expected. |
These factors and the risk factors described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Factors That May Affect Our Future Financial Condition or Results of Operations” beginning on page 31 are not necessarily all of the important factors that could cause actual results to differ materially from those expressed in any of our forward-looking statements. Other unknown or unpredictable factors also could have material adverse effects on our future results. The forward-looking statements included in this Quarterly Report on Form 10-Q are made only as of the date of this Quarterly Report. We expressly disclaim any intent or obligation to update any forward-looking statements to reflect subsequent events or circumstances.
3
PART I
FINANCIAL INFORMATION
| ITEM 1. | Financial Statements |
WEBMD CORPORATION
| September 30, | December 31, | |||||||||
| 2002 | 2001 | |||||||||
| (Unaudited) | ||||||||||
|
ASSETS
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||||||||||
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Current assets:
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||||||||||
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Cash and cash equivalents
|
$ | 143,024 | $ | 253,011 | ||||||
|
Short-term investments
|
8,977 | 99,194 | ||||||||
|
Accounts receivable, net
|
145,089 | 150,252 | ||||||||
|
Federal income tax receivable
|
12,887 | — | ||||||||
|
Current portion of prepaid content and
distribution services
|
25,799 | 28,818 | ||||||||
|
Assets of discontinued operations
|
217,337 | 232,552 | ||||||||
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Other current assets
|
24,103 | 19,068 | ||||||||
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Total current assets
|
577,216 | 782,895 | ||||||||
|
Marketable debt securities
|
450,725 | — | ||||||||
|
Marketable equity securities
|
14,025 | 15,707 | ||||||||
|
Property and equipment, net
|
51,310 | 47,333 | ||||||||
|
Prepaid content and distribution services
|
55,241 | 71,579 | ||||||||
|
Goodwill, net
|
525,902 | 506,761 | ||||||||
|
Intangible assets, net
|
65,608 | 153,538 | ||||||||
|
Other assets
|
27,428 | 22,959 | ||||||||
| $ | 1,767,455 | $ | 1,600,772 | |||||||
|
LIABILITIES AND STOCKHOLDERS’
EQUITY
|
||||||||||
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Current liabilities:
|
||||||||||
|
Accounts payable
|
$ | 11,343 | $ | 16,180 | ||||||
|
Accrued expenses
|
212,792 | 224,317 | ||||||||
|
Deferred revenue
|
73,702 | 65,861 | ||||||||
|
Liabilities of discontinued operations
|
40,448 | 44,434 | ||||||||
|
Total current liabilities
|
338,285 | 350,792 | ||||||||
|
Convertible subordinated notes
|
300,000 | — | ||||||||
|
Other long-term liabilities
|
506 | 1,208 | ||||||||
|
Series B convertible redeemable preferred
stock, $0.0001 par value; 200 shares authorized; no shares
issued at September 30, 2002; 100 shares issued at
December 31, 2001
|
— | 10,000 | ||||||||
|
Stockholders’ equity:
|
||||||||||
|
Preferred stock, $0.0001 par value;
5,000,000 shares authorized; Series A convertible
preferred stock, 213,000 shares authorized; no shares issued
|
— | — | ||||||||
|
Common stock, $0.0001 par value;
600,000,000 shares authorized; 370,546,615 shares
issued at September 30, 2002; 366,956,160 shares
issued at December 31, 2001
|
37 | 37 | ||||||||
|
Additional paid-in capital
|
11,665,791 | 11,652,743 | ||||||||
|
Treasury stock, at cost; 74,074,669 shares at
September 30, 2002; 56,091,935 shares at
December 31, 2001
|
(326,366 | ) | (222,582 | ) | ||||||
|
Accumulated other comprehensive income
|
17,146 | 12,093 | ||||||||
|
Deferred stock compensation
|
(19,325 | ) | (42,173 | ) | ||||||
|
Accumulated deficit
|
(10,208,619 | ) | (10,161,346 | ) | ||||||
|
Total stockholders’ equity
|
1,128,664 | 1,238,772 | ||||||||
| $ | 1,767,455 | $ | 1,600,772 | |||||||
See notes to consolidated financial statements.
4
WEBMD CORPORATION
| Three Months Ended | Nine Months Ended | |||||||||||||||||
| September 30, | September 30, | |||||||||||||||||
| 2002 | 2001 | 2002 | 2001 | |||||||||||||||
|
Revenue (1)
|
$ | 200,201 | $ | 185,128 | $ | 592,668 | $ | 585,513 | ||||||||||
|
Costs and expenses:
|
||||||||||||||||||
|
Cost of operations
|
116,714 | 129,699 | 359,536 | 411,589 | ||||||||||||||
|
Development and engineering
|
9,739 | 8,958 | 29,539 | 30,471 | ||||||||||||||
|
Sales, marketing, general and administrative
|
62,981 | 98,804 | 207,141 | 341,171 | ||||||||||||||
|
Depreciation and amortization
|
31,011 | 751,487 | 92,446 | 2,266,357 | ||||||||||||||
|
Impairment of long-lived and other assets
|
— | 3,826,893 | — | 3,826,893 | ||||||||||||||
|
Restructuring and integration
|
(2,100 | ) | 267 | (5,850 | ) | 220,161 | ||||||||||||
|
Gain on investments
|
681 | — | 6,547 | — | ||||||||||||||
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Interest income
|
5,093 | 6,449 | 13,932 | 25,656 | ||||||||||||||
|
Interest expense
|
2,819 | 69 | 5,675 | 269 | ||||||||||||||
|
Other income
|
2,323 | — | 2,323 | — | ||||||||||||||
|
Loss from continuing operations before income tax
benefit
|
(12,866 | ) | (4,624,600 | ) | (73,017 | ) | (6,485,742 | ) | ||||||||||
|
Federal income tax benefit
|
12,887 | — | 12,887 | — | ||||||||||||||
|
Income (loss) from continuing operations
|
21 | (4,624,600 | ) | (60,130 | ) | (6,485,742 | ) | |||||||||||
|
Discontinued operations:
|
||||||||||||||||||
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Income from discontinued operations
|
4,517 | 954 | 12,857 | 954 | ||||||||||||||
|
Net income (loss)
|
$ | 4,538 | $ | (4,623,646 | ) | $ | (47,273 | ) | $ | (6,484,788 | ) | |||||||
|
Basic net income (loss) per common share:
|
||||||||||||||||||
|
Income (loss) from continuing operations
|
$ | .00 | $ | (12.86 | ) | $ | (.20 | ) | $ | (18.11 | ) | |||||||
|
Income from discontinued operations
|
.02 | .00 | .05 | .00 | ||||||||||||||
|
Net income (loss)
|
$ | .02 | $ | (12.86 | ) | $ | (.15 | ) | $ | (18.11 | ) | |||||||
|
Diluted net income (loss) per common share:
|
||||||||||||||||||
|
Income (loss) from continuing operations
|
$ | .00 | $ | (12.86 | ) | $ | (.20 | ) | $ | (18.11 | ) | |||||||
|
Income from discontinued operations
|
.01 | .00 | .05 | .00 | ||||||||||||||
|
Net income (loss)
|
$ | .01 | $ | (12.86 | ) | $ | (.15 | ) | $ | (18.11 | ) | |||||||
|
Weighted-average shares outstanding used in
computing net income (loss) per common share:
|
||||||||||||||||||
|
Basic
|
297,352 | 359,600 | 306,161 | 358,095 | ||||||||||||||
|
Diluted
|
308,537 | 359,600 | 306,161 | 358,095 | ||||||||||||||
| (1) | Includes revenue from related parties of $3,000 for the nine months ended September 30, 2001. |
See notes to consolidated financial statements.
5
WEBMD CORPORATION
| Nine Months Ended | ||||||||||||
| September 30, | ||||||||||||
| 2002 | 2001 | |||||||||||
|
CASH FLOWS FROM OPERATING
ACTIVITIES:
|
||||||||||||
|
Net loss
|
$ | (47,273 | ) | $ | (6,484,788 | ) | ||||||
|
Adjustments to reconcile net loss to net cash
used in operating activities:
|
||||||||||||
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Depreciation and amortization
|
92,446 | 2,266,357 | ||||||||||
|
Impairment of long-lived and other assets
|
— | 3,826,893 | ||||||||||
|
Amortization of debt issuance costs
|
740 | — | ||||||||||
|
Non-cash content and distribution services and
stock compensation
|
41,117 | 96,414 | ||||||||||
|
Non-cash portion of restructuring and integration
charge
|
— | 185,498 | ||||||||||
|
Gain on investments
|
(6,547 | ) | — | |||||||||
|
Changes in operating assets and liabilities:
|
||||||||||||
|
Accounts receivable
|
5,384 | 37,358 | ||||||||||
|
Federal income tax receivable
|
(12,887 | ) | — | |||||||||
|
Prepaid content and distribution services
|
(201 | ) | (8,071 | ) | ||||||||
|
Other assets, net
|
(5,378 | ) | 23,758 | |||||||||
|
Net assets of discontinued operations
|
11,229 | (954 | ) | |||||||||
|
Accounts payable
|
(3,122 | ) | (7,716 | ) | ||||||||
|
Accrued expenses
|
(6,037 | ) | (32,874 | ) | ||||||||
|
Deferred revenue
|
6,822 | 10,630 | ||||||||||
|
Net cash provided by (used in) operating
activities
|
76,293 | (87,495 | ) | |||||||||
|
CASH FLOWS FROM INVESTING
ACTIVITIES:
|
||||||||||||
|
Proceeds from maturities and sales of
available-for-sale securities
|
106,108 | 119,000 | ||||||||||
|
Proceeds from the redemption of held-to-maturity
securities
|
56,000 | — | ||||||||||
|
Purchases of available-for-sale securities
|
(206,983 | ) | — | |||||||||
|
Purchases of held-to-maturity securities
|
(299,111 | ) | — | |||||||||
|
Purchases of property and equipment
|
(16,834 | ) | (20,689 | ) | ||||||||
|
Cash paid in business combinations, net of cash
acquired
|
(9,574 | ) | (6,042 | ) | ||||||||
|
Net cash (used in) provided by investing
activities
|
(370,394 | ) | 92,269 | |||||||||
|
CASH FLOWS FROM FINANCING
ACTIVITIES:
|
||||||||||||
|
Proceeds from issuance of common stock
|
8,783 | 9,545 | ||||||||||
|
Net proceeds from issuance of convertible debt
|
292,000 | — | ||||||||||
|
Payments of notes payable and other
|
(2,885 | ) | (2,489 | ) | ||||||||
|
Redemption of Series B Preferred Stock
|
(10,000 | ) | — | |||||||||
|
Purchases of treasury stock
|
(103,784 | ) | (12,195 | ) | ||||||||
|
Net cash provided by (used in) financing
activities
|
184,114 | (5,139 | ) | |||||||||
|
Net decrease in cash and cash equivalents
|
(109,987 | ) | (365 | ) | ||||||||
|
Cash and cash equivalents at beginning of period
|
253,011 | 490,797 | ||||||||||
|
Cash and cash equivalents at end of period
|
$ | 143,024 | $ | 490,432 | ||||||||
|
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES
|
||||||||||||
|
Issuance of equity securities in connection with
strategic alliances and services
|
$ | 24 | $ | 10,246 | ||||||||