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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, 2004

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

(Exact name of registrant as specified in its charter)
     
Delaware
  94-3236644
(State or other jurisdiction of
incorporation or organization)
  (I.R.S. Employer
Identification Number)

669 River Drive, Center 2

Elmwood Park, New Jersey 07407-1361
(Address of principal executive offices)

(201) 703-3400

(Registrant’s telephone number, including area code)


     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 (the “Exchange Act”) 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

      Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes x     No o

As of August 2, 2004, there were 313,040,051 shares of the

registrant’s Common Stock outstanding.




WEBMD CORPORATION

QUARTERLY REPORT ON FORM 10-Q

For the period ended June 30, 2004

TABLE OF CONTENTS

             
Page
Number

 Cautionary Statement Regarding Forward-Looking Statements     3  
         
         
        4  
        5  
        6  
        7  
      21  
      51  
      51  
         
      52  
      53  
      53  
 Signatures     54  
 Exhibit Index     E-1  
 EX-2.1 AGREEMENT AND PLAN OF MERGER
 EX-3.3 AMENDED AND RESTATED BYLAWS
 EX-31.1 SECTION 302 CERTIFICATION OF CEO
 EX-31.2 SECTION 302 CERTIFICATION OF CFO
 EX-32.1 SECTION 906 CERTIFICATION OF CEO
 EX-32.2 SECTION 906 CERTIFICATION OF CFO

WebMD®, Digital Office Manager®, DIMDX®, Envoy®, ExpressBill®, Intergy®, Medifax®, Medifax-EDI®, Medscape®, MEDPOR®, Medpulse®, POREX®, Publishers’ Circle®, The Little Blue BookTM, The Little Yellow BookTM, The Medical Manager®, ULTIATM, WebMD Health HubTM and WellMed® are trademarks of WebMD Corporation or its subsidiaries.

2


Table of Contents

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 that 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 32, the following important risks and uncertainties could affect future results, causing those 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 or updated products and services,
 
  •  the inability to successfully deploy new or updated applications,
 
  •  difficulties in forming and maintaining 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, Internet and plastic 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 32 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


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PART I

FINANCIAL INFORMATION

 
ITEM 1. Financial Statements

WEBMD CORPORATION

CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
                     
June 30, December 31,
2004 2003


(Unaudited)
ASSETS
               
Current assets:
               
 
Cash and cash equivalents
  $ 206,611     $ 63,298  
 
Short-term investments
    606       207,383  
 
Accounts receivable, net
    187,149       181,173  
 
Inventory
    12,022       12,158  
 
Current portion of prepaid content and distribution services
    16,114       18,116  
 
Other current assets
    24,934       25,973  
     
     
 
   
Total current assets
    447,436       508,101  
 
Marketable debt securities
    592,105       451,290  
Marketable equity securities
    3,206       4,744  
Property and equipment, net
    75,128       77,278  
Prepaid content and distribution services
    22,667       31,992  
Goodwill
    891,406       844,448  
Intangible assets, net
    185,175       184,130  
Other assets
    37,221       33,323  
     
     
 
    $ 2,254,344     $ 2,135,306  
     
     
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
Current liabilities:
               
 
Accounts payable
  $ 9,767     $ 10,390  
 
Accrued expenses
    190,716       208,430  
 
Deferred revenue
    101,516       86,708  
     
     
 
   
Total current liabilities
    301,999       305,528  
 
3 1/4% convertible subordinated notes due 2007
    299,999       299,999  
1.75% convertible subordinated notes due 2023
    350,000       350,000  
Other long-term liabilities
    1,078       1,182  
 
Commitments and contingencies
               
 
Convertible redeemable exchangeable preferred stock, $0.0001 par value; 5,000,000 shares authorized; 10,000 shares issued and outstanding at June 30, 2004
    98,181        
Stockholders’ equity:
               
 
Common stock, $0.0001 par value; 900,000,000 shares authorized; 390,699,641 shares issued at June 30, 2004; 384,751,705 shares issued at December 31, 2003
    39       38  
 
Additional paid-in capital
    11,761,696       11,726,734  
 
Deferred stock compensation
    (10,179 )     (4,683 )
 
Treasury stock, at cost; 77,123,115 shares at June 30, 2004; 76,576,865 shares at December 31, 2003
    (352,735 )     (347,858 )
 
Accumulated deficit
    (10,200,644 )     (10,212,054 )
 
Accumulated other comprehensive income
    4,910       16,420  
     
     
 
   
Total stockholders’ equity
    1,203,087       1,178,597  
     
     
 
    $ 2,254,344     $ 2,135,306  
     
     
 

See accompanying notes.

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WEBMD CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data, unaudited)
                                   
Three Months Ended Six Months Ended
June 30, June 30,


2004 2003 2004 2003




Revenue
  $ 281,881     $ 233,418     $ 553,095     $ 454,949  
Costs and expenses:
                               
 
Cost of operations
    163,961       135,441       326,603       261,286  
 
Development and engineering
    12,991       10,403       24,087       21,320  
 
Sales, marketing, general and administrative
    83,298       69,359       160,292       137,467  
 
Depreciation, amortization and other
    13,148       14,944       25,733       41,864  
 
Legal expense
    2,215             4,252        
 
Interest income
    4,511       4,985       9,994       10,033  
 
Interest expense
    4,838       2,926       9,586       5,741  
 
Other income, net
    447       1,118       484       1,301  
     
     
     
     
 
Income (loss) from continuing operations before income tax provision
    6,388       6,448       13,020       (1,395 )
 
Income tax provision
    613       1,001       1,544       1,988  
     
     
     
     
 
 
Income (loss) from continuing operations
    5,775       5,447       11,476       (3,383 )
 
Loss from discontinued operations, net of income taxes
          (31,717 )           (30,245 )
     
     
     
     
 
Net income (loss)
  $ 5,775     $ (26,270 )   $ 11,476     $ (33,628 )
     
     
     
     
 
Basic income (loss) per common share:
                               
 
Income (loss) from continuing operations
  $ 0.02     $ 0.02     $ 0.04     $ (0.01 )
 
Loss from discontinued operations
          (0.11 )           (0.10 )
     
     
     
     
 
Net income (loss)
  $ 0.02     $ (0.09 )   $ 0.04     $ (0.11 )
     
     
     
     
 
Diluted income (loss) per common share:
                               
 
Income (loss) from continuing operations
  $ 0.02     $ 0.02     $ 0.03     $ (0.01 )
 
Loss from discontinued operations
          (0.10 )           (0.10 )
     
     
     
     
 
Net income (loss)
  $ 0.02     $ (0.08 )   $ 0.03     $ (0.11 )
     
     
     
     
 
Weighted-average shares outstanding used in computing income (loss) per common share:
                               
 
Basic
    312,281       304,001       310,886       303,447  
     
     
     
     
 
 
Diluted
    337,763       325,796       332,582       303,447  
     
     
     
     
 

See accompanying notes.

5


Table of Contents

WEBMD CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, unaudited)
                         
Six Months Ended
June 30,

2004 2003


Cash flows from operating activities:
               
 
Net income (loss)
  $ 11,476     $ (33,628 )
 
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
               
   
Loss from discontinued operations
          30,245  
   
Depreciation, amortization and other
    25,733       41,864  
   
Amortization of debt issuance costs
    1,498       774  
   
Non-cash content and distribution services
    11,284       12,149  
   
Non-cash stock-based compensation
    4,441       7,558  
   
Gain on investments
    (363 )     (183 )
   
Gain on the sale of property and equipment
    (121 )      
   
Changes in operating assets and liabilities:
               
     
Accounts receivable
    (3,389 )     (5,743 )
     
Inventory
    136       (896 )
     
Prepaid content and distribution services
    79       (445 )
     
Accounts payable
    (900 )     1,930  
     
Accrued expenses
    (19,179 )     (26,283 )
     
Deferred revenue
    10,899       478  
     
Other, net
    (946 )     4,946  
     
     
 
       
Net cash provided by continuing operations
    40,648       32,766  
       
Net cash provided by discontinued operations
          4,553  
     
     
 
       
Net cash provided by operating activities
    40,648       37,319  
 
Cash flows from investing activities:
               
 
Proceeds from maturities and sales of available-for-sale securities
    329,163       2,631  
 
Proceeds from maturities and redemptions of held-to-maturity securities
          102,919  
 
Purchases of available-for-sale securities
    (274,600 )     (6,730 )
 
Purchases of held-to-maturity securities
          (124,931 )
 
Proceeds received from the sale of property and equipment
    417        
 
Purchases of property and equipment
    (12,047 )     (8,861 )
 
Cash paid in business combinations, net of cash acquired
    (58,060 )     (14,701 )
 
Other changes in equity of discontinued operations
          (4,596 )
     
     
 
       
Net cash used in continuing operations
    (15,127 )     (54,269 )
       
Net cash provided by discontinued operations
          3,886  
     
     
 
       
Net cash used in investing activities
    (15,127 )     (50,383 )
 
Cash flows from financing activities:
               
 
Proceeds from issuance of common stock
    25,011       28,578  
 
Payments of notes payable and other
    (257 )     (25 )
 
Net proceeds from issuance of convertible debt
          290,500  
 
Net proceeds from issuance of preferred stock
    98,115        
 
Purchases of treasury stock
    (4,877 )     (18,125 )
     
     
 
       
Net cash provided by continuing operations
    117,992       300,928  
       
Net cash used in discontinued operations
          (6,538 )
     
     
 
       
Net cash provided by financing activities
    117,992       294,390  
Effect of exchange rates on cash
    (200 )     663  
     
     
 
Net increase in cash and cash equivalents
    143,313 &nbs