##### Table of Contents



| |                                   
| | ----------------------------------
| |                                   
| |                                   
|
| | SECURITIES AND EXCHANGE COMMISSION
| | Washington, D.C. 20549            
|
|
| |                                   
|
|
| | Form 10-K                         

|   |  |                                                                                                 
|-- |  | ------------------------------------------------------------------------------------------------
|þ  |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR
    15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934    
|  
|   |  | For the fiscal year ended December 31,
    2002                                                 
|  
|or
|  
|o  |  | 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 of incorporation)                                                                          |  | (I.R.S. employer identification no.)
|                                                                                                 
|669 River Drive, Center 2
    Elmwood Park, New Jersey(Address of principal executive
    office) |  | 07407-1361(Zip code)                

(Registrants telephone number including
area code): (201) 703-3400

Securities registered pursuant to
Section 12(b) of the Act: None

Securities registered pursuant to
Section 12(g) of the Act:

Common Stock, par value $.0001 per
share

(Title of each class)


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 þ         No o

Indicate by check mark if disclosure of
delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be
contained, to the best of registrants knowledge, in
definitive proxy or information statements incorporated by
reference into Part III of this Form 10-K or any
amendment to this
Form 10-K.    o

Indicate by check mark whether the registrant is
an accelerated filer (as defined in Rule 12b-2 of the
Exchange
Act).    Yes þ         No o

As of June 28, 2002, the aggregate market
value of the registrants common stock held by
non-affiliates was approximately $1,533,835,956 (based on the
closing price of the common stock of $5.63 per share on
that date, as reported on the Nasdaq Stock Markets
National Market and, for purposes of this computation only, the
assumption that all of the registrants directors and
executive officers are affiliates). As of March 7, 2003,
there were 303,935,066 shares of WebMD common stock
outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Certain information in the registrants
definitive proxy statement to be filed with the Commission
relating to the registrants 2003 Annual Meeting of
Stockholders is incorporated by reference into Part III.



---






---

TABLE OF CONTENTS



|                                                          |                                                                                               |  |  |  |  |  |  | 
|--------------------------------------------------------- | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|TABLE OF CONTENTS                                        
|CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
|PART I                                                   
|                                                          | Item 1. Business                                                                             
|                                                          | Item 2. Properties                                                                           
|                                                          | Item 3. Legal Proceedings                                                                    
|                                                          | Item 4. Submission of Matters to a Vote of Security Holders                                  
|PART II                                                  
|                                                          | Item 5. Market for Registrants Common Equity and Related Stockholder Matters                
|                                                          | Item 6. Selected Financial Data                                                              
|                                                          | Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                                                          | Item 7A. Quantitative and Qualitative Disclosures about Market Risk                          
|                                                          | Item 8. Financial Statements and Supplementary Data                                          
|                                                          | Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 
|PART III                                                 
|                                                          | Item 10. Directors and Executive Officers of the Registrant                                  
|                                                          | Item 11. Executive Compensation                                                              
|                                                          | Item 12. Security Ownership of Certain Beneficial Owners and Management                      
|                                                          | Item 13. Certain Relationships and Related Transactions                                      
|                                                          | Item 14. Controls and Procedures                                                             
|PART IV                                                  
|                                                          | Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K                     
|SIGNATURES                                               
|REPORT OF INDEPENDENT AUDITORS                           
|Consolidated Balance Sheets                              
|Consolidated Statements of Operations                    
|Consolidated Statements of Stockholders Equity          
|Consolidated Statements of Cash Flows                    
|                                                          | Schedule II. Valuation and Qualifying Accounts                                               
|INDEX TO EXHIBITS                                        
|EX-10.14 EMPLOYMENT AGREEMENT DATED 10/23/2002           
|EX-10.21 WEBMD 2002 RESTRICTED STOCK PLAN                
|EX-12.1 COMPUTATION OF RATIO OF EARNINGS                 
|EX-21 SUBSIDIARIES OF THE REGISTRANT                     
|EX-23.1 CONSENT OF ERNST & YOUNG LLP                     
|EX-99.1 SECTION 906 CERTIFICATION OF THE CEO             
|EX-99.2 SECTION 906 CERTIFICATION OF THE CFO             



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##### Table of Contents






TABLE OF CONTENTS

|                                                              |  |                                                                                           |     |      |    | 
|------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------- | --- | ---- | -- | 
|                                                              |  |                                                                                           |     | Page
|                                                              |  |                                                                                           |     |     
|Cautionary Statement Regarding Forward-Looking
    Statements |  |                                                                                           | 2   |     
|PART I                                                       
|Item 1.                                                       |  | Business                                                                                  |     |      | 3  | 
|Item 2.                                                       |  | Properties                                                                                |     |      | 36 | 
|Item 3.                                                       |  | Legal Proceedings                                                                         |     |      | 37 | 
|Item 4.                                                       |  | Submission of Matters to a Vote of Security
    Holders                                   |     |      | 39 | 
|PART II                                                      
|Item 5.                                                       |  | Market for Registrants Common Equity and
    Related Stockholder Matters                 |     |      | 40 | 
|Item 6.                                                       |  | Selected Financial Data                                                                   |     |      | 42 | 
|Item 7.                                                       |  | Managements Discussion and Analysis of
    Financial Condition and Results of Operations |     |      | 43 | 
|Item 7A.                                                      |  | Quantitative and Qualitative Disclosures about
    Market Risk                            |     |      | 72 | 
|Item 8.                                                       |  | Financial Statements and Supplementary Data                                               |     |      | 72 | 
|Item 9.                                                       |  | Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure  |     |      | 72 | 
|PART III                                                     
|Item 10.                                                      |  | Directors and Executive Officers of the Registrant                                        |     |      | 73 | 
|Item 11.                                                      |  | Executive Compensation                                                                    |     |      | 73 | 
|Item 12.                                                      |  | Security Ownership of Certain Beneficial Owners
    and Management                        |     |      | 73 | 
|Item 13.                                                      |  | Certain Relationships and Related Transactions                                            |     |      | 73 | 
|Item 14.                                                      |  | Controls and Procedures                                                                   |     |      | 73 | 
|PART IV                                                      
|Item 15.                                                      |  | Exhibits, Financial Statement Schedules and
    Reports on Form 8-K                       |     |      | 74 | 
|Signatures                                                    |  |                                                                                           | 75  |     
|Financial Statements                                          |  |                                                                                           | F-1 |     
|Index to Exhibits                                             |  |                                                                                           | E-1 |     

WebMD®, Web-MD®, WebMD Health®,
The Medical Manager®, ULTIATM,
IntergyTM, Envoy®, ExpressBill®,
Medscape®, WellMed®, Personal Health
ManagerTM, Personal Health InsightTM,
POREX®, KippMed®, MEDPOR®, Quality Scientific
Products® and QSP® are trademarks of WebMD Corporation
or its subsidiaries. Additional trademarks of WebMD and its
subsidiaries are listed on page 26 of this Annual Report.

1



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##### Table of Contents






CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING
STATEMENTS

This Annual Report on Form 10-K 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 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 58, 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,
    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 58 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 Annual
Report on Form 10-K are made only as of the date of this
Annual Report. We expressly disclaim any intent or obligation to
update any forward-looking statements to reflect subsequent
events or circumstances.

2



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##### Table of Contents






PART I






Item 1.     Business


INTRODUCTION

General Information

WebMD Corporation is a Delaware corporation that
was incorporated in December 1995 and commenced operations in
January 1996 as Healtheon Corporation. Our common stock has
traded on the Nasdaq National Market under the symbol
HLTH since February 11, 1999.

Our principal executive offices are located at
669 River Drive, Center 2, Elmwood Park,
New Jersey 07407-1361 and our telephone number is
(201) 703-3400.

We make available free of charge at www.webmd.com
(in the About WebMD section) copies of materials we
file with, or furnish to, the Securities and Exchange
Commission, including our Annual Reports on Form 10-K,
Quarterly Reports on Form 10-Q, Current Reports on
Form 8-K, and amendments to those reports, as soon as
reasonably practicable after we electronically file such
materials with, or furnish them to, the SEC.

Overview of Our Businesses

Our business is comprised of four segments. Three
of our business segments, Portal Services or WebMD Health,
Transaction Services or WebMD Envoy and Physician Services or
WebMD Medical Manager, provide various types of healthcare
information services and technology solutions. Our fourth
business segment, Plastic Technologies, is known as Porex. The
following overview describes our key products, services and
markets:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Healthcare Information Services and
    Technology Solutions.We provide a
    range of information services and technology solutions for
    participants across the entire continuum of healthcare,
    including physicians and other healthcare providers, payers,
    suppliers and consumers. Our products and services promote
    administrative efficiency and assist in reducing the cost of
    healthcare and creating better patient outcomes.



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | WebMD Health.Our
    Portal Services segment, WebMD Health, offers a variety of
    online resources and services for consumers and healthcare
    professionals. Our online offerings for consumers help them
    become better informed about healthcare choices and assist them
    in playing an active role in managing their own health. Our
    offerings for healthcare professionals help them improve their
    clinical knowledge, as well as their communication with patients
    regarding treatment options for specific health conditions.
|
| |   | We reach a large audience of health-involved
    consumers and clinically active healthcare professionals. We
    work closely with pharmaceutical, medical device and other
    healthcare companies to develop innovative online channels of
    communication to our audience, or targeted portions of our
    audience, that complement their offline education, marketing and
    customer service programs.                                                                                                                                         
|
| |   | In addition, through WellMed from WebMD, we
    provide employers and health plans with access to a suite of
    online tools and related services, for use by their employees
    and plan members. These tools and services provide a framework
    for better decision-making by healthcare consumers and can
    assist employers and plans in managing demand while improving
    quality of care.                                                                                                                                                   
|
| |   | We generate revenue by selling advertising on our
    portals and the online and offline properties of our strategic
    partners, by selling sponsorships of specific pages, sections or
    events on our portal and related e-mailed newsletters, and by
    licensing our content and our online tools and related software
    and services. The majority of our WebMD Health revenues come
    from a small number of customers. Our WebMD Health customers
    include pharmaceutical, biotech and                                                 

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | medical device companies, employers and health
    plans and media distribution companies. In 2002, WebMD Health
    revenues were $84.3 million.                                                                                                                                                                                                                                                                                                                                             
|
| |  | WebMD Envoy.Our
    Transaction Services segment, WebMD Envoy, transmits electronic
    transactions between healthcare payers and physicians,
    pharmacies, dentists, hospitals, laboratory companies and other
    healthcare providers. The use of electronic transactions
    significantly reduces processing time and costs, as compared to
    mail, fax or telephone, and increases productivity for both
    payers and providers. The transactions that we facilitate
    include:
|
| |   |  administrative transactions, such as
    claims submission and status inquiry, eligibility and patient
    coverage verification, referrals and authorizations, and
    electronic remittance advice, and                                                                                                                                                                                                                                                                                   



| |   |                                                                               
| | - | ------------------------------------------------------------------------------
| |  | clinical transactions, such as lab test ordering
    and reporting of results.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We also provide automated patient billing
    services to providers, including statement printing and mailing
    services. We are focused on continuing to increase the
    percentage of healthcare transactions that are handled
    electronically and on providing value-added services to
    providers and payers in connection with our transmission of
    their transactions.                                                                                                                               
|
| | We generate revenue by selling our transaction
    services to healthcare payers and providers, generally on either
    a per transaction basis or, in the case of some providers, on a
    monthly fixed fee basis. We also generate revenue by selling our
    patient statement services, typically on a per statement basis.
    A significant portion of WebMD Envoy revenues come from the
    countrys leading national and regional healthcare payers.
    In 2002, WebMD Envoy revenues were $466.8 million.



| |   |                                                                                                                                                                                                                                                                                                 
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | WebMD Medical Manager.Our Physician Services segment, WebMD
    Medical Manager, develops and markets information technology
    systems for healthcare providers, primarily under The Medical
    Manager, Intergy, ULTIA and Medical Manager Network Services
    brands. Our systems include:
|
| |   |  administrative and financial
    applications that enable healthcare providers and their
    administrative personnel to manage their practices more
    efficiently, and                                                                                                                     
|
| |   |  electronic medical record and other
    clinical applications that assist them in delivering quality
    patient care.                                                                                                                                                                        



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In addition, through Medical Manager Network
    Services, we provide integrated access to our WebMD Envoy
    transaction services.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| | Our systems are scalable to meet the needs of a
    wide variety of healthcare provider settings, from small
    physician groups to large clinics, and across various medical
    specialties. Customers can purchase a base system and then add
    additional modules and services over time to expand their use of
    state-of-the-art technology as needed.                                                                                                                                                                                                                                                                    
|
| | We generate revenue from one-time fees for
    licenses to our software modules and for system hardware and
    from recurring fees for the maintenance and support of our
    software and system hardware. Pricing depends on the number and
    type of software modules to be licensed, the number of users,
    the complexity of the installation and other factors. Our
    Medical Manager Network Services and some of our other WebMD
    Medical Manager products and services are priced on a monthly
    fee per user basis or a per transaction basis. In 2002, WebMD
    Medical Manager revenues were $275.3 million.



| |                                                                                                                                                                                                                                                                                                                                                                            
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We believe that the combination, in one company,
    of WebMD Health, WebMD Envoy and WebMD Medical Manager makes us
    well positioned to create significant improvements in the way
    that information is used by the healthcare industry, enabling
    increased efficiency, better decision-making and, ultimately,
    higher quality patient care at a lower cost.

4



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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Plastic
    Technologies.Our Plastic
    Technologies segment, Porex, develops, manufactures and
    distributes proprietary porous and solid plastic products and
    components used in healthcare, industrial and consumer
    applications. Our Porex customers include both end-users of our
    finished products, as well as manufacturers that include our
    components in their products for the medical device, life
    science, research and clinical laboratory, surgical and other
    markets. Porex is an international business with manufacturing
    operations in North America, Europe and Asia and customers in
    more than 65 countries. In 2002, Porex revenues were
    $120.0 million, over 70% of which were from healthcare and
    related markets.

During 2002, our revenues were divided among our
segments as follows: 50.4% from WebMD Envoy, 29.7% from WebMD
Medical Manager, 9.1% from WebMD Health and 13.0% from Porex.
The sum of these percentages equals 102.2% of our total revenues
of $925.9 million because $20.5 million of our
revenues are from inter-segment transactions and are eliminated
when we consolidate our results.

A more complete description of our products and
services follows. For additional information regarding the
results of operations of each of our segments, see
Managements Discussion and Analysis of Financial
Condition and Results of Operations  Results of
Operations by Operating Segment beginning on page 53
and note 8 to the consolidated financial statements in this
Annual Report.

Acquisition History

In May 1998, Healtheon Corporation completed a
merger with ActaMed Corporation. In November 1999, Healtheon
completed mergers with WebMD, Inc., MedE America Corporation and
Greenberg News Networks, Inc., known as Medcast. Following these
mergers, Healtheon changed its name to Healtheon/ WebMD
Corporation. Healtheon/ WebMD completed acquisitions of Kinetra
LLC and Envoy Corporation in January 2000 and
May 2000, respectively. On September 12, 2000,
Healtheon/ WebMD completed mergers with Medical Manager
Corporation, CareInsite, Inc. and OnHealth Network Company and
changed its name to WebMD Corporation. In December 2001, WebMD
acquired the portal assets of MedicaLogic/ Medscape, Inc., which
we refer to as Medscape. In October 2002, WebMD acquired
WellMed, Inc. In addition, we acquired ten physician services
companies in 2001 and 21 in 2002. For additional information
regarding these transactions, see Managements
Discussion and Analysis of Financial Condition and Results of
Operations  Acquisition History on page 46
and note 2 to the consolidated financial statements in this
Annual Report.

For information regarding the restructuring and
integration plans we implemented following our mergers with
Medical Manager, CareInsite and OnHealth and following our
acquisition of Medscape, see Managements Discussion
and Analysis of Financial Condition and Results of
Operations  Restructuring and Integration
Initiatives on page 47 and note 5 to the
consolidated financial statements in this Annual Report. We have
substantially completed these restructuring and integration
efforts.

HEALTHCARE INFORMATION SERVICES AND TECHNOLOGY
SOLUTIONS

There are many types of transactions, information
exchanges and other communications that occur between the
various participants in the healthcare industry, including
physicians, patients, pharmacies, dentists, hospitals, billing
services, commercial health insurance companies, pharmacy
benefit management companies, managed care organizations, state
and federal government agencies and others. We offer a
comprehensive suite of transaction and information services and
technology solutions to healthcare industry participants. These
integrated and stand-alone products and services are designed to
facilitate transactions, information exchange and communication
among healthcare industry participants and to operate on various
platforms, including the Internet, private intranets and other
networks.




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WebMD
Health

Our Portal Services segment is known as WebMD
Health and includes certain operations from WebMD, Medscape,
Healtheon, Medcast, OnHealth and WellMed.

Overview

We offer a variety of online resources and
services for consumers and healthcare professionals through our
WebMD Medscape Health Network, which consists of:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                              
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | WebMD Health, our consumer portal is located at
    www.webmd.com. WebMD Health provides access to health and
    wellness content. We also distribute our content, and reach
    additional consumers, through AOL Health with WebMD and MSN
    Health with WebMD.                                                                                                                                                         
|
| |  | Medscape from WebMD, our portal for physicians
    and allied healthcare professionals, is located at
    www.medscape.com. At Medscape, physicians and other healthcare
    professionals have access to resources that include timely
    medical news and professional conference coverage, continuing
    medical education activities, full-text medical journal articles
    and drug and medical literature databases.

We also license our content to health plans and
other healthcare partners for use on their Web sites.

The WebMD Medscape Health Network reaches a large
audience of health-involved consumers and clinically active
healthcare professionals. We work closely with pharmaceutical,
medical device and other healthcare companies to develop
innovative online channels of communication to our audience, or
targeted portions of our audience, that complement their offline
education, marketing and customer service programs. Companies
can sponsor specific pages or sections of our portals or
specific events, programs and newsletters, all of which are
clearly labeled as sourced from or sponsored by the specific
sponsor. In addition, sponsors can target specific demographic
groups, condition-specific groups or specialty-specific groups
through the WebMD Medscape Health Network. Performance of our
sponsored programs, including the number of impressions,
visitors and actions taken, is tracked and reported to the
sponsor on a regular basis.

In addition, through WellMed from WebMD, we
provide employers and health plans with access to a suite of
online tools and related services, for use by their employees
and plan members. These tools and services provide a framework
for better decision-making by healthcare consumers and can
assist employers and plans in managing demand while improving
quality of care. WebMD Health and WellMed help people become
better informed about healthcare choices and assist them in
playing an active role in managing their own health. We acquired
WellMed in the fourth quarter of 2002 and are in the process of
integrating WebMD Health content into the WellMed services
offerings and some of our WellMed functionality and technology
into our WebMD Health and Medscape offerings.

We generate revenue by selling advertising on our
portals and the online and offline properties of our strategic
partners, by selling sponsorships of specific pages, sections or
events on our portal and related e-mailed newsletters, and by
licensing our content and our online tools and related software
and services. The majority of our WebMD Health revenues come
from a small number of customers. Our WebMD Health customers
include pharmaceutical, biotech and medical device companies,
employers and health plans and media distribution companies.

WebMD Health Consumer Portal

Consumer interest in convenient and reliable
sources of general information on health and wellness topics
continues to grow. In addition, consumers increasingly seek to
educate themselves about available treatment options for
specific health conditions or injuries. We believe that these
trends are likely to continue, as consumers are asked to bear an
increasingly large share of their healthcare expenditures due to
changes in the design of the medical plans and prescription drug
plans being offered by payers and employers. Traditional media
have sought to meet this demand by introducing magazines focused
on

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##### Table of Contents



health and wellness and by increasing news
coverage of healthcare-related issues. The Internet allows us to
offer consumers the resources they are looking for, with
immediate access to searchable information and dynamic
interactive content.


WebMD Health provides access to health and
wellness news and information, support communities, interactive
tools and opportunities to purchase health-related products and
services. Consumers are also welcome to access content at our
professional portal, Medscape from WebMD. The content and
service offerings on WebMD Health include:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Original and Licensed Content.We offer proprietary, medically
    reviewed health and wellness news articles written daily by our
    staff of journalists. We also offer searchable access to a
    library of health and wellness articles, reference information
    and interactive presentations, some of which we own and some of
    which we have licensed from others. Our articles and other
    content cover various health-related topics, including: specific
    diseases and chronic health conditions, medical tests, pregnancy
    and parenting, diet and nutrition, fitness and sports medicine,
    and sexuality and relationships.
|
| |  | Membership.Consumers can choose to become members
    of WebMD Health, which allows them to create a personalized home
    page, tailored to their interests. Members can also select from
    more than 20 different e-mail newsletters on health-related
    topics or specific conditions and have access to our communities
    and events, as described below. We have built a large database
    of consumers who have expressed interest in receiving our
    clinical alerts, newsletters and reports on specific diseases,
    conditions and other health and wellness topics.                                                                 
|
| |  | Communities.Our
    communities allow our members to participate in real-time
    discussions in our chat rooms and on our message boards, many of
    which are monitored by healthcare professionals. Members can
    share experiences and exchange information with other members
    who share their health condition or concern.                                                                                                                                                                                                                                                                                                                   
|
| |  | Clinical Trials Matching and Listing Services.In collaboration with Veritas
    Medicine, WebMD Health offers a clinical trial matching service
    that assists in matching individuals to clinical trials. In
    collaboration with CenterWatch, WebMD offers a listing of
    clinical trials that are currently recruiting participants.                                                                                                                                                                                                                                                                                                            
|
| |  | Events.Our events
    include one-time programs and series in which experts make
    presentations and answer questions on specific health-related
    topics. Members can also use our Ask the Experts
    service to post their health questions for experts. Our events
    also include WebMD University programs, which are four-week
    courses, live moderated by experts, on specific subjects. WebMD
    University programs have included: 4 Weeks to an Easier
    Pregnancy, 4 Weeks to a Healthier Heart and
    4 Weeks to Breathe Free.                                                                                                
|
| |  | Interactive Personal Health Management Tools
    and Other Features.We provide access
    to interactive tools, calculators, quizzes and slide shows on
    health topics, including an immunization planner, body mass
    index and calorie counter. WebMD Health also has features that
    allow consumers to search for a physician or clinic in their
    area. We are in the process of integrating additional tools from
    our WellMed offerings into WebMD Health.                                                                                                                                                                            

Medscape from WebMD

Medscape from WebMD is designed to meet the
information needs of medical professionals. Medscape from WebMD
is organized by medical specialty area, such as
hematology-oncology and cardiology, to make it easier for
members to access the information most relevant to them. We also
have areas organized by profession or interest area, including
sites for nurses, pharmacists, medical students, users
interested in medical policy and practice management issues, and
members with a particular interest in technology and medicine.
Our extensive and up-to-date medical content and easy-to-use
search capabilities assist medical professionals in keeping
abreast of medical advances and obtaining fast, accurate answers
to medical questions online. In addition, physicians and their
office staffs can access tools for

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creating customized practice Web sites and
opportunities to purchase other products and services. There are
no membership fees and no general usage charges for the site;
however, we do charge usage or subscription fees for some
premium content and services.


Our content and service offerings, a combination
of original material and content licensed from major
professional publishers, are generally presented by specialty
and include:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Continuing Medical Education (CME).More than 30 states and many medical
    specialty societies require physicians and selected other
    medical professionals to certify annually that they have
    accumulated a minimum number of CME hours to maintain licensure
    or membership. We offer a selection of free, regularly updated
    CME activities for physicians, registered nurses, pharmacists
    and other healthcare professionals, including original programs
    and online multimedia adaptations of live events. We also
    provide services that track CME credits accumulated through our
    site for our users. In addition, many of our CME-certified
    programs also carry Continuing Education (CE) credit for nurses
    and/or pharmacists.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| |   | All of our CME activities have been planned and
    implemented in accordance with the Essential Areas and Policies
    of the Accreditation Council for Continuing Medical Education,
    or ACCME, which oversees providers of CME credit, and have been
    produced in collaboration with ACCME-accredited CME providers.
    In August 2002, ACCME awarded Medscape a two-year, provisional
    accreditation as a CME provider, allowing Medscape to certify
    online CME activities.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| |   | In July 2002, Pharmaceutical Research and
    Manufacturers of America (PhRMA), a trade association of
    pharmaceutical manufacturers, instituted a new voluntary Code on
    Interactions with Healthcare Professionals, which outlined
    guidelines for how sales representatives and others involved in
    marketing pharmaceuticals should interact with healthcare
    professionals. The PhRMA Code is intended to help ensure that
    these interactions benefit patients and enhance the practice of
    medicine and to avoid concerns about inappropriate influence on
    the prescribing practices of physicians. The PhRMA Code provides
    that these interactions should not consist of entertainment,
    dining or recreation, but should focus on informing the
    healthcare professional about scientific and clinical
    information and supporting research and education. While
    providing subsidies directly to healthcare professionals for
    travel, lodging and other expenses of attending CME or
    scientific conferences is no longer permitted, sponsorship or
    underwriting of CME programs or conferences continues to be. We
    believe that the guidelines contained in this Code are likely to
    benefit providers of online CME and other online informational
    materials for healthcare professionals, such as Medscape, as
    pharmaceutical manufacturers seek efficient, effective and
    appropriate sponsorships and channels of communication.
|
| |  | Newsletters.Members
    receive MedPulse®, our weekly e-mail newsletter, which is
    published in more than 25 specialty-specific editions and
    highlights new information and CME activities on the Medscape
    site of interest to each particular specialty. We also provide
    commercially supported Special Reports newsletters,
    which contain information on specific conditions and treatments.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| |  | Medical Conference Coverage.We provide overviews and analysis of
    key data and presentations from about 150 professional meetings
    each year, including major conferences in a variety of
    specialties. This benefits our members who were unable to attend
    and those who did attend but might not have been able to see all
    of the presentations of interest to them, as well as the
    sponsors of the conferences, by increasing the size of the
    audience exposed to this material. We cover a number of these
    conferences in collaboration with the societies and
    organizations that present them.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |  | Medical News and Clinical Alerts.We provide original, daily medical
    news stories written by our staff of journalists and reviewed by
    our staff of physicians, in addition to news provided by
    professional wire services. Our news group also regularly
    produces analytical reports based on interviews with experts and
    newsmakers. In addition, we provide real-time alerts on such
    critical clinical issues as pharmaceutical recalls and product
    advisories.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

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| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Resource Centers.Resource Centers are regularly updated collections of clinical
    content, selected by Medscapes editors, focused on a
    specific topic, condition or theme. Content includes news,
    journal articles, conference coverage, expert columns and CME
    programs. Medscape currently has more than 50 Resource Centers
    across multiple specialties.                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| |  | Electronic Journals.We publish four original
    electronic-only journals, including two indexed in the National
    Library of Medicines MEDLINE reference
    database  Medscape General Medicine
    (MedGenMed) and Medscape Womens Health.
    MedGenMed, the worlds first online-only, primary
    source, peer-reviewed medical journal, was established in April
    1999. As of November 2002, it had published more than 500
    papers. In December 2002, we relaunched MedGenMed at
    www.medgenmed.com with specialty sections for HIV-AIDS,
    Gastroenterology, Hematology-Oncology, Pulmonary Medicine,
    Orthopedics and Sports Medicine and Psychiatry/ Mental Health.
    Medscapes other e-journals are Topics in Advanced
    Practice Nursing and TechMed, which focuses on the
    use of technology in medical practice.
|
| |  | Medscape Publishers
    Circle.Medscape Publishers
    Circle is a collection of high-quality clinical information from
    prominent medical publishers, available free to registered
    Medscape members.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| |  | Medical Reference Applications.Our medical reference applications
    include:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            



| |   |                                                                                                                                              
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------
| |  | a custom drug information database,                                                                                                          
|
| |  | an easy-to-use interface to MEDLINE, a database
    of abstracts of medical journals, and                                                    
|
| |  | proprietary medical illustrations that can be
    used by physicians as an important visual aid in communicating
    information to patients.



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Medical Reference
    Services.These services include the
    professional medical reference texts WebMD Scientific
    American® Medicine and ACS Surgery: Principles and
    Practice, each available for sale by subscription to individual
    physicians and to institutions in multiple formats (print,
    CD-ROM and online). WebMD Scientific American® Medicine has
    been a comprehensive and continually updated internal medicine
    reference for 25 years. ACS Surgery: Principles and
    Practice, formerly Scientific American Surgery, is an official
    publication of the American College of Surgeons, although wholly
    owned by WebMD.

Users must register as members to utilize the
features of Medscape from WebMD. This enables us to deliver
targeted medical content based on our members registration
profiles. The registration process enables professional members
to choose a home page tailored to their medical specialty or
interest. For example, a member registered as a cardiologist is
automatically directed to Medscape Cardiology, rather than a
more generic home page. Every member, however, regardless of
medical specialty or professional status, has access to the full
suite of original and licensed content through a uniform,
easy-to-use interface.

WellMed from WebMD

WellMed from WebMD is a suite of online tools and
related services that provides a framework for better
decision-making by healthcare consumers and allows employers and
health plans to manage demand, while improving the quality of
care. WellMed from WebMD helps employers and plans provide
employees and plan members with answers to healthcare and plan
benefit questions and other personalized information and
feedback. This allows employees and plan members to make
informed benefit, provider and treatment selection decisions.
WellMeds applications are integrated into the
clients Intranet or Web site and work with the
clients specific health and benefit programs, disease
management vendors and other health-related systems and content
and can be co-branded or customized to match client branding and
look and feel.

By educating and encouraging their employees and
plan members to take a more active role in their healthcare,
employers and plans can realize cost savings from better
decision-making, while also improving healthcare outcomes. Other
potential benefits to an employer or plan include efficiently
identifying and enrolling candidates in disease management or
other health management programs and assisting in

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managing appropriate drug utilization. We receive
fees from employers for use of our applications and services by
their employees, and from health plans for use by their members.


WellMed from WebMD integrates health and wellness
content, a personal medical record, health assessment tools,
decision support tools, health improvement programs and targeted
messaging. Employees and plan members are given access to
Personal Health Manager, a suite of consumer applications that
provides a personalized framework to manage health, wellness and
benefit information and facilitate healthy behavior. Personal
Health Manager incorporates:



| |   |                                                                                                                                                                                                                                                                                                
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Health risk and condition assessment tools that
    provide recommendations for improvement and behavior change and
    preventive care guidelines;                                                                                                                                            
|
| |  | Health monitoring tools, including Child Health
    Manager, which enables parents and guardians to track the health
    of children age six and younger;                                                                                                                                      
|
| |  | An online personal health record that gives
    individuals or family members the ability to store and maintain
    health information in a secure centralized location, including
    both self-reported information and external data, such as lab
    test results and prescription records;
|
| |  | Healthcare content from WebMD Health and other
    sources;                                                                                                                                                                                                                                    
|
| |  | Secure messaging, including reminders and alerts
    based on profiled data and event-based rules; and                                                                                                                                                                                         
|
| |  | Health and lifestyle improvement programs, in
    areas such as smoking cessation, nutrition and exercise.                                                                                                                                                                                     

WellMed from WebMD also includes Personal Health
Insight, an online service center that provides specialized
decision-support for clients, including aggregated information
regarding utilization of the Personal Health Manager tools and
results of messaging campaigns. With Personal Health Insight,
employers and plans can analyze aggregate health data in real
time, address population health risks and proactively implement
preventive programs.

Sales and Marketing

A team of sales, marketing and account management
personnel represents the WebMD Medscape Health Network to
pharmaceutical companies, medical device companies, health plans
and other healthcare and consumer companies. These individuals
work closely with clients and potential clients to develop
innovative means of using the WebMD Medscape Health Network to
bring their companies, and their products and services, to the
attention of target groups of consumers and healthcare
professionals and to create channels of communication with these
audiences.

A separate team of sales, marketing and account
management personnel represents WellMed from WebMD to employers
and health plans. These individuals customize our services for
each client according to the clients specific plan design
and business objectives.

We seek to attract traffic and new members to
WebMD Health through a variety of methods, including online
and offline media campaigns. The primary focus of our media
campaigns has been member registration.

We seek to attract traffic and new members to
Medscape through a variety of methods, including advertising on
other Internet sites and in medical journals, pharmaceutical and
other healthcare publications and other targeted publications.
We also promote Medscape at industry conferences, trade shows
and medical meetings and by using direct mail.



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WebMD Envoy

Our Transaction Services segment is known as
WebMD Envoy and includes certain transaction operations of
Envoy, Healtheon, Kinetra, MedE America, ActaMed,
WebMD, Inc. and CareInsite.

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Overview

Healthcare providers must interact effectively
with healthcare payers, from the first point of patient contact
until final payment has been received, in order to ensure timely
reimbursement and comply with managed care requirements.
Unfortunately, in these interactions, providers and payers often
juggle a confusing combination of electronic and manual
processes, phone calls and faxes, and disparate software
systems. Our WebMD Envoy clearinghouse provides an
electronic link between payers and providers that allows them to
conduct medical, pharmacy and dental transactions
electronically. However, we provide much more than just a
passive clearinghouse connection  we provide
electronic reimbursement cycle management solutions that can be
used by payers and providers to automate the entire
reimbursement process. In addition, as a complement to our
electronic transmission services, our WebMD ExpressBill
operations provide print and mail services to providers,
including patient statement processing. We also provide
connectivity and tools for automating clinical functions.

The customers for WebMD Envoys
services consist of healthcare providers, such as physician
offices, dental offices, billing services, national
laboratories, pharmacies, hospitals, and healthcare payers,
including Medicare and Medicaid agencies, Blue Cross and
Blue Shield organizations, pharmacy benefit management
companies, commercial health insurance companies and managed
care organizations. We provide those customers connectivity and
transaction services through an integrated electronic
transaction processing system, which includes proprietary
software, host computer hardware, network management, switching
services and interfaces. We refer to these services as
electronic data interchange or EDI. Healthcare payers and
providers pay fees to us for our services, generally on a per
transaction basis or, in the case of some providers, as a flat
rate per month. Transaction fees vary according to the type of
transaction and other factors, such as volume level commitments.
We may also charge one-time implementation fees to providers and
payers. A significant portion of our WebMD Envoy revenues
come from the countrys leading national and regional
healthcare payers.

We work with numerous physician and dental
practice management system vendors, hospital information system
vendors and other service providers to provide integrated
transaction processing between their systems and our
clearinghouse. Most practice management and hospital information
systems support, and can be integrated with, WebMD Envoy
transaction services. Many practice management system vendors,
including WebMD Medical Manager, market a private label
brand of our transaction services that they have integrated with
their systems. We pay a sales commission, based on volume, to
some of these vendors as an inducement to use WebMD Envoy
as the clearinghouse for the transactions made through their
systems. We have long-standing relationships with many vendors
of practice management systems, including Misys Healthcare
Systems, IDX Systems Corporation, PracticeWorks, Inc.,
Dentrix Dental Systems, Inc. and Vitalworks Inc. on a national
level, as well as over 500 regional and local vendors. We work
together with these vendors to increase the percentage of
healthcare transactions that are handled electronically.

Products and Services

General.Providers
access our transaction services both directly and through their
relationships with integrated delivery networks, clinics,
physician and dental practice management system vendors,
hospital information management system vendors, and retail
pharmacy chains. Providers initiate transactions using our
proprietary applications, their practice management systems or
other computer systems or networks. Providers submit
transactions to our clearinghouse by modem connections using
regular telephone lines, using dedicated high speed
telecommunications services and over the Internet. At our
clearinghouse, the transaction is edited for accuracy, validated
for format and completeness, then translated in accordance with
the payers specifications and sent to the payers
claims adjudication and/or real-time database systems. Claims
that cannot be processed by the payer are reported back to the
provider, with the reasons for the rejection, for correction and
resubmission.

Our clearinghouse maintains direct connections
with many healthcare payers, including Medicare contractors and
Medicaid agencies, Blue Cross and Blue Shield organizations,
commercial health insurance

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companies, pharmacy benefit management companies
and managed care organizations. Our direct payer connectivity
facilitates high levels of service by minimizing the number of
intermediaries between the provider and the payer. Our direct
connections with payers typically consist of dedicated networks
between the payer and our clearinghouse. Most transactions are
currently transmitted to the payers using our proprietary
software, data format specifications and dedicated telephone
lines, with some transmitted securely over the Internet. We have
developed innovative programs that work with payers, providers
and practice management system vendors to try to increase the
percentage of healthcare transactions that are transmitted
electronically and the value of these transactions to our
customers. Other clearinghouses also use our services to
transmit transactions that they have received from providers to
payers. We make payments, based on volume, to some of these
clearinghouses as an inducement to use WebMD Envoy to complete
the transactions submitted through their systems.


Medical and Dental Administrative Services.Our medical and dental administrative
services provide the connectivity and transaction processing
services needed for providers and payers in the healthcare
industry to automate key business functions and communicate with
each other. WebMD Envoy provides connectivity throughout the
healthcare reimbursement cycle:



| |   |                                                                               
| | - | ------------------------------------------------------------------------------
| |  | beginning with insurance eligibility verification,                            
|
| |  | continuing through the claim submission process,                              
|
| |  | followed by tracking the reimbursement through
    claim status inquiries, and
|
| |  | concluding with electronic remittance information
    and payment posting.    

Our administrative services also include
referrals and authorizations, pre-certifications, and other
transactions as requested by our clients.

Our administrative services reduce paperwork and
the need for communication by mail, telephone and fax, resulting
in cost savings for payers and providers. These services also
expedite the reimbursement process, which can result in a lower
average number of outstanding accounts receivable days for
providers. A further benefit to payers is that they are able to
more easily detect fraud and screen for unusual utilization
trends. In addition, the availability of online encounter and
referral information provides more efficient medical cost
management for managed care organizations and networked
providers.

Providers can use our services to verify patient
enrollment and eligibility and to obtain authorization from
payers, at the point of care, for services and referrals to
other providers. Providers can submit real-time or batch claims
to us for processing and reimbursement by payers and inquire as
to the status of claims previously submitted. Most claims are
submitted to us as batch claims, which are collected by
providers throughout the day and submitted to us in bulk. We
then sort, format and edit the claims to meet a particular
payers requirements before transmission to the payer.
Providers can receive an electronic remittance advice which
provides payer payment information and an explanation of the
settlement of a related claim. We also offer automated patient
billing services to providers that include electronic data
transmission and formatting, statement printing and mailing
services. See  WebMD ExpressBill below.

We provide various products designed to assist
healthcare providers and payers in utilizing our administrative
services, including:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | WebMD Office.Through our WebMD Office
    Internet-based service, providers can securely access our
    transaction services through either a standard dial-up or high
    speed DSL or cable modem. WebMD Office can be used as a
    stand-alone system or as a complement to a practice management
    system through an import and data management function that
    allows transactions to be generated from the practice management
    system and submitted through WebMD Office. In addition, our
    practice management system vendor partners may elect to market a
    private-label brand version of WebMD Office.
|
| |  | AccuClaim Plus.Our
    AccuClaim Plus solution is designed for the claims submission
    processes of hospitals and large physician practices. AccuClaim
    Plus interfaces with their existing management                                                                                                                                                                                                                                                                                                                                                                                                                    

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | systems, importing claim files and subjecting
    them to payer-specific edits, prompting users to correct claim
    errors prior to submission to payers in order to minimize the
    claim reject rate while increasing the first pass and
    auto-adjudication rate at the payers adjudication system.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| |  | WebMD Empower.WebMD
    Empower is an EDI-enabling software and data hosting solution
    that gives healthcare payers the ability to automate
    communication with their providers through our network, using
    our infrastructure, and to improve auto-adjudication rates.
    WebMD Empower takes claims data submitted to the WebMD Envoy
    clearinghouse, applies value-added editing, including checks
    against payer-specific business rules and data, and sends it
    directly to the payers information system. For real-time
    transactions, WebMD Empower works by downloading appropriate
    eligibility, provider, benefit, referral/ authorization and
    claims data from the payers system onto our server.
    Downloads are performed periodically or in real time as
    information in the payers database is updated.

Pharmacy Administrative
Services.A typical pharmacy benefit
transaction takes place in a real-time setting using a pharmacy
management system or other claim submission product. The claim
is submitted to WebMD Envoy in a standard format and includes
all required information about the prescription. The claim is
then routed to the appropriate adjudicating processor where the
claim is processed within seconds. Response information includes
patient coverage, formulary compliance (specific drug coverage),
potential drug interactions, patients co-payment due and
anticipated reimbursement amount due to the pharmacy from the
payer.

WebMD ExpressBill.Through WebMD ExpressBill, we provide print and mail services to
healthcare practitioners, hospitals and high volume commercial
customers throughout the United States. WebMD ExpressBill
accepts client data via modem or the Internet, generates printed
materials and prepares them for mailing. Our WebMD ExpressBill
services include:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Patient Mailings.On
    behalf of healthcare provider customers, we print invoices,
    account statements, collection letters, recall notices and other
    communications and mail them to patients.                                                                                                                                                                                                                                                                      
|
| |  | Paper Claims.Claims
    that cannot be sent electronically to payers can be sent by
    healthcare providers electronically to WebMD ExpressBill, where
    we print and mail them on their behalf.                                                                                                                                                                                                                                                                         
|
| |  | Payment Processing.We process payments on behalf of providers and other customers,
    receiving and depositing checks, posting payments and
    transmitting funds in accordance with customer instructions.                                                                                                                                                                                                                                                               
|
| |  | Electronic Payment
    Services.Our electronic payment
    services offer healthcare providers the ability to receive
    payment via the Internet.                                                                                                                                                                                                                                                                                                                         
|
| |  | Value-Added
    Services.We offer value-added
    services designed to make it easy and cost-effective for
    providers to get information out to their patients and for our
    business clients to communicate with their customers. WebMD
    ExpressBill offers a full-service graphics department that works
    with clients to design letters, brochures, newsletters and other
    communications. WebMD ExpressBill can also insert
    customer-supplied inserts.

Lab Ordering and Reporting Services.We provide clinical lab ordering and
reporting services through dedicated terminals and teleprinters
and through WebMD Clinician, our Internet-based product. These
products support the ordering of clinical tests and the
reporting of test results between healthcare providers and labs.
WebMD Clinician reduces costs and improves the quality of
patient care by improving order entry accuracy and expediting
the delivery of lab results, while enhancing the ability to
share those results with multiple physicians. In addition, we
provide similar services to practice management system vendors,
hospital information system vendors and electronic medical
record vendors through an application programming interface
known as Clinician eXT.

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Value-Added
Services.We have initiated steps to
enhance the quantity, quality and value to payers and providers
of our transaction services.



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Our all-payer suite of services
    includes the capture, validation and routing of claims
    transactions on behalf of not just commercial payers, but also
    Blue Cross Blue Shield payers, Medicare and Medicaid.
    Additionally, our all-payer services include the return of an
    electronic remittance transaction, which is the equivalent of a
    paper explanation of benefits, from the payers back
    to the originating provider. The goal is to provide a single
    source EDI reimbursement cycle management solution for providers
    and practice management system vendors. A single EDI solution
    reduces administrative burdens on the provider office in sending
    claims transactions and receiving electronic remittance advice
    transactions and, more importantly, allows us to provide a
    single report back to the provider office regarding those
    transactions. That, in turn, allows the provider office to
    determine more easily whether it has been paid on a particular
    claim and how much. Provider offices without such a solution
    typically receive five or more different reports that they then
    have to reconcile in order to manage their accounts receivable.
    We are expanding our connectivity to support a broader set of
    transaction services to non-commercial payers in key markets as
    well as improving the functional capability of our claims and
    accounts receivable management solutions in order to improve the
    quality and value of our services to both payers and providers.
    We market our all-payer services directly to
    healthcare providers and through our practice management system
    partners.
|
| |  | We are working with our practice management
    system vendor partners to integrate real-time transactions into
    their provider software systems. WebMD Medical Manager is
    incorporating our full suite of real-time services into their
    software, making these transactions available to the provider in
    their normal office workflow.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |  | We also offer payers the opportunity to work with
    us in targeted programs to educate physicians and dentists to
    increase the utilization of electronic services. When a payer
    agrees to participate in such a program, WebMD utilizes
    information supplied by the payer to target providers that may
    not be sending claims electronically.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

HIPAA

Under the Healthcare Insurance Portability and
Accountability Act of 1996, or HIPAA, Congress mandated adoption
of a set of regulations relating to standards and requirements
for the electronic submission of certain health information. As
a supplier of EDI-enabling products and connectivity services to
patients, payers, providers and third party vendors, WebMD Envoy
is affected by many of the HIPAA provisions. The government can
impose civil monetary penalties for failure to comply with
standard transaction and code sets. For a description of the
HIPAA regulations, see Government Regulation 
Health Insurance Portability and Accountability Act of
1996 beginning on page 27.

The HIPAA transaction standards regulations
establish format and data content standards for eight of the
most common healthcare transactions. Transaction clearinghouses
can provide a great deal of support for the healthcare industry
in addressing HIPAA requirements and in overcoming other
connectivity challenges that HIPAA does not eliminate.
Healthcare payers and providers who are unable to exchange data
in the required standard formats can achieve HIPAA transaction
standards compliance by contracting with a clearinghouse, like
WebMD Envoy, to translate between standard and non-standard
formats. In addition, use of a clearinghouse allows providers
and payers to move to HIPAA standards independently, reducing
transition costs and risks. As various healthcare entities are
in different stages of migration during transition, WebMD Envoy
is prepared to translate claim information from non-compliant to
compliant formats and vice versa. We are actively involved in
standard-setting and other industry organizations to share our
experiences and perspectives and help policy-makers understand
the implications of current HIPAA transition positions and
practices. However, the standardization of formats and data
standards required by HIPAA may facilitate use of direct EDI
links, allowing transmission of transactions between some
healthcare payers and providers without use of a clearinghouse.
Any significant increase in the

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utilization of direct links between healthcare
providers and payers could have a material adverse effect on
WebMD Envoys transaction volume and financial results.


We are committed to facilitating our
customers compliance with HIPAA and have built the
necessary infrastructure to accommodate and translate
HIPAA-standard transactions. We are marketing HIPAA-ready
provider transaction methods, as well as offering our payer
customers and other healthcare participants support in their own
compliance efforts. We are continuing to develop our HIPAA-ready
solutions and our business strategy for marketing those
solutions and services. Changes in compliance deadlines or in
other aspects of the HIPAA regulations may cause us to make
changes to our strategy or require us to develop different
solutions.

Sales and Marketing

WebMD Envoys sales and marketing efforts
are conducted by sales, marketing and account management
personnel located throughout the United States. WebMD
Envoys primary sales and marketing strategy focuses on
promoting its transaction services to organizations that have
relationships with or access to a large number of providers,
such as practice management systems vendors, hospital
information systems vendors, practice management companies and
other clearinghouses. In certain cases, we agree to pay a sales
commission based on transaction volume to these organizations as
an inducement to use WebMD Envoy as the clearinghouse for the
transactions made through their systems or by providers with
which they have relationships. We also market our transaction
services directly to healthcare payers, as well as to small and
large physician practices, dentists, hospitals and other
healthcare providers. In the pharmacy transactions area, WebMD
Envoy has established relationships with large retail pharmacy
chains and pharmacy software vendors. We market our WebMD
ExpressBill services through the same channels as our
transaction services, including practice management system and
other software vendors, as well as directly to healthcare
industry participants and other high volume commercial customers.



---

WebMD Medical Manager

Our Physician Services segment is known as WebMD
Medical Manager and includes certain operations of Medical
Manager and subsequent acquisitions.

Overview

We develop and market information technology
systems for healthcare providers, primarily under The Medical
Manager, Intergy, ULTIA and Medical Manager Network Services
brands. Our systems include administrative and financial
applications that enable healthcare providers and their
administrative personnel to manage their practices more
efficiently and clinical applications that assist them in
delivering quality patient care. These applications and related
services:



| |   |                                                                                                                             
| | - | ----------------------------------------------------------------------------------------------------------------------------
| |  | automate scheduling, billing, receivables
    management and other administrative and financial management
    tasks,       
|
| |  | enable providers to maintain electronic medical
    records and to automate the documentation of patient encounters,
    and
|
| |  | facilitate the use of electronic data interchange
    for administrative and clinical healthcare transactions.              

Our Intergy product was created using knowledge
gained from 20 years of experience in healthcare technology
development. We believe that the Intergy system will allow us to
compete more effectively for sales to larger sites because of
the advanced data handling and storage capabilities that we have
incorporated in the system architecture. Intergy systems can
also be configured to be cost-effective for practices consisting
of one or two physicians. We expect that most of our future
sales of practice

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management systems will be Intergy systems.
However, we intend to continue to develop and support The
Medical Manager system, which is currently the most widely used
physician practice management system in the United States, and
to market the customized versions of the system designed to meet
the functionality needs of radiologists, public health and
community health markets and family planning clinics.


Both Intergy and The Medical Manager systems are
scalable to meet the needs of a wide variety of healthcare
provider settings, from small physician groups to large clinics,
and across various medical specialties. Customers can purchase a
base system and then add additional modules and services over
time to expand their use of state-of-the-art technology as
needed. We believe that there is a significant opportunity to
increase the use by physician practices of electronic data
interchange transactions and electronic medical record systems
and are focusing on cross-selling these products and services to
our existing customers and as part of our new systems sales. See
 Medical Manager Network Services and
 EMR and Imaging Systems below for
descriptions of these products and services.

Healthcare providers pay us a one-time license
fee for the purchase of a license to our software or to
additional software modules and for system hardware and also pay
us recurring fees for the maintenance and support of our
software. Many providers also pay us recurring fees for the
provision of hardware support and maintenance. Pricing depends
on several factors, including the number and type of modules to
be licensed, the number of users per site, the number of
practices, the operating system, the hardware to be supported
and the complexity of the installation. We license ULTIA to
physician practices on a per provider per month subscription
basis. Healthcare providers pay us fees for our Medical Manager
Network Services transactions services, generally on a per
provider per month subscription basis or a per transaction basis.

Practice Management Systems

Intergy.Intergy,
our new practice management software product, is designed to
meet the needs of physician practices of any size or specialty,
from single physician practices to large multi-specialty
healthcare provider organizations. The Intergy system is the
result of a significant, multi-year commitment to engineering
and development of a completely new practice management system.
The Intergy systems graphical user interface (GUI)
packages complex medical practice functions into
easy-to-navigate windows with consistent point-and-click drop
down menus and buttons. The Intergy software operates on Windows
and UNIX-based servers, together with Windows-based workstations.

The Intergy base package allows an office to
automate appointment scheduling and recalls, registration,
encounter form management, billing, collections and other
administrative and financial functions. The appointment
scheduler includes such features as waiting lists, appointment
tracking and multiple-resource searches and displays. Recall
notices are generated automatically to remind patients to
schedule appointments. The base package also includes a wide
range of tools to manage financial and billing functions,
including charge posting, checkout payment, insurance billing,
refunds, transfers, unapplied credits and collections. The
Intergy system also has a customizable security system, with
access to functions and features that can be defined for each
user based on practice policies and procedures.

One of our optional administrative and financial
modules is the managed care system, which provides functions
required to track incoming and outgoing referrals to facilities
and specialists and to provide risk management capabilities. The
managed care system assists providers in automating: referral
management, capitation payment posting, and contract management
and profitability tracking. The system is designed to work in
all managed care scenarios, including primary and specialty care.

Optional clinical modules include imaging systems
and tools that can be used to create and maintain electronic
medical records and automate the documentation of patient
encounters at the point of care, to manage clinical workflow, to
write and send electronic prescriptions, and to request and
review laboratory tests and results. See  EMR
and Imaging Systems below. All of these solutions are
fully integrated with the Intergy system. Intergy users can also
elect to implement some or all of the integrated products and
services described below under  Additional
Products and Services, including our ULTIA handheld

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wireless device, and our Medical Manager Network
Services connectivity services, described below under
 Medical Manager Network Services.


The Medical Manager.The Medical Manager system provides physician practices with a
broad range of patient care and practice management features.
The Medical Manager software has been designed to operate on a
wide range of hardware platforms and, due to its scalability,
can be a cost-effective solution in small, medium and large
practice settings. We also offer The Medical Manager system in
customized versions to meet the functionality needs of
radiologists, public health and community health markets and
family planning clinics and intend to continue to market The
Medical Manager system in these formats.

The Medical Manager softwares base package
serves as the foundation of the system and includes an
appointment scheduler, billing system, financial management
system and other features. Additional modules containing
advanced administrative and financial features are also
available, including automated collections, advanced billing,
multiple resource scheduling and managed care modules. The
Medical Manager system also has optional electronic medical
record and document and image management system products. See
 EMR and Imaging Systems below. The
Medical Manager users can elect to implement some or all of the
integrated products and services described below under
 Additional Products and Services,
including our ULTIA handheld wireless device, and our Medical
Manager Network Services connectivity services, described below
under  Medical Manager Network Services.

Other Practice Management Systems.Through our acquisitions of various
businesses, we have also obtained ownership of other practice
management systems with smaller user bases. We currently
maintain these other systems and may provide periodic updates to
the users of these systems.

Medical Manager Network Services

Both Intergy and The Medical Manager systems
support integrated use of our WebMD Envoy EDI services through
Medical Manager Network Services. For a description of WebMD
Envoys EDI services, see WebMD Envoy on
page 10. The administrative transactions supported include
electronic claims, claims status inquiry, eligibility
verification, electronic referral authorization/ status, patient
statements and remittances. We also provide connectivity to
laboratories, pharmacies, third party connectivity networks and
hospitals and credit card authorization services. We believe
that the HIPAA transaction standards rule will drive increased
adoption of healthcare EDI services through Medical Manager
Network Services. For additional information regarding the HIPAA
privacy standards rule, see Governmental
Regulation  Health Insurance Portability and
Accountability Act of 1996  HIPAA Transaction
Standards on page 28.

Using Intergy or The Medical Manager systems with
Medical Manager Network Services, providers have access to
HIPAA-ready EDI functionality that is integrated into their
practice management workflow and recordkeeping systems.
Integrated EDI allows providers and their staff to send and
receive EDI transactions from within the practice management
system and to generate reports regarding these transactions,
including whether submitted claims have been accepted or
rejected. These capabilities can be combined with our
all-payer suite of transaction services to provide a
single-source electronic reimbursement management solution (see
WebMD Envoy  Value-Added Services on
page 14). In addition, our systems perform automated
eligibility verification by contacting payers electronically
overnight so that the practice can start the day with
pre-checked eligibility and benefits for each scheduled patient.
This information is stored as part of the patients record.
In addition, eligibility checking for unscheduled patients can
be performed in real time.

Medical Manager Network Services also provides
integrated access to our WebMD ExpressBill print and mail
services for patient statements, collection notices and recall
notices. Practices transmit the required data from Intergy or
The Medical Manager systems to our processing center. From
there, customized statements, letters and inserts and complete
mailing services are provided. Customization options include
logos and patient education inserts.

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EMR and Imaging Systems

Healthcare providers record, use and share
various types of clinical data about their patients, including
patient histories, examination notes, lab results, medication
orders and referrals. Much of this data is currently recorded in
handwritten or printed form on paper records, often referred to
as patient charts. As the amount of patient information
maintained by a practice increases, so do the logistical
challenges of moving paper charts from site to site and
physician to physician. Many healthcare organizations are
finding that the most promising solution to this challenge is
the use of electronic medical record, or EMR, and imaging
systems. These systems allow providers to share patient charts
and other medical records, access them simultaneously and view
them from remote locations. EMR systems not only help healthcare
providers enhance clinical processes and patient safety, they
also assist them in sharing information appropriately and
efficiently and in collecting and managing the data necessary to
meet the requirements of third-party billing procedures and
contractual requirements.

Our suite of EMR applications allows healthcare
providers to computerize their patient records without
disrupting the way they practice medicine. We also provide
technical assistance and support that helps the practice
transition from the paper chart to the fully electronic medical
record. Our Encounter Documentation Module automates the
documentation of a patient encounter at the point of care. This
product allows healthcare providers to generate progress
notes  and estimated evaluation and management
service levels  simply by pointing and clicking on
the findings appropriate to a patient exam, reducing the need
for transcription services and enhancing the accuracy of
documentation of care provided. Customization tools allow the
practice to create pre-defined, disease-specific templates, with
lists of symptoms or other information that can be easily
completed at any workstation.

Our EMR suite includes a prescription module that
automates the process of writing and tracking prescriptions,
providing improved efficiency with both the clinical and
administrative aspects of the prescription process. The
resulting prescription can be printed or called in to the
patients preferred pharmacy. With optional services
through Medical Manager Network Services, practices can perform
full drug utilization review (DUR) screenings, transmit
prescriptions electronically to connected pharmacies, and verify
formulary compliance with the patients health plan.

Our Laboratory System module allows providers to
access, review and maintain all lab results from within the EMR
system. Practices may also arrange a sponsorship through
national and regional laboratories to place orders and receive
accurate and timely lab test results via a direct,
bi-directional link with the sponsoring laboratory. Test results
are received electronically from the sponsoring laboratory and
are stored directly in the patients file for viewing,
printing and analysis.

Using our EMR applications, healthcare providers
can locate all tasks needing their attention. For example, items
on the providers clinical task list are automatically
generated whenever a lab report is ready, a transcription needs
to be signed, or a prescription refill needs approval. Tasks can
then be completed using the system or forwarded to another
provider in the practice, accompanied by appropriate notes.

We also offer our Document Image Management (DIM)
system, which is fully integrated with our Intergy and The
Medical Manager practice management systems. The DIM system
allows a practice to scan, store, catalog and retrieve
documents, images and sound files in electronic form, which then
becomes part of the patients medical record and can be
accessed from multiple workstations simultaneously.
DIMDXTM, the diagnostic version of our
imaging system, allows a practice to organize and store X-rays
and other diagnostic images. Using an imaging system, multiple
files can be viewed at the same time making it possible to view
diagnostic reports alongside images or compare before-and-after
images such as pre- and post-operative X-rays.

Our Digital Office Manager module provides
additional capabilities for the scanning and organization of
documents that are practice-related rather than
patient-specific. Documentation such as contracts and personnel
records are easily and efficiently managed with the Digital
Office Manager, which can handle video, Adobe®
Acrobat® and sound files as well as spreadsheets and word
processing documents.

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We believe that the HIPAA privacy standards rule
will drive increased adoption of imaging and EMR applications
because such solutions can make it easier for providers to
fulfill their obligations under the rule, including with respect
to managing and documenting usage restrictions and providing
patients with access to and the ability to amend their records.
We believe that, as a result of the need to be HIPAA-compliant,
existing users of The Medical Manager and Intergy systems will
become more likely to add our integrated imaging and clinical
solutions to their current configuration. For additional
information regarding the HIPAA privacy standards rule, see
Governmental Regulation  Health Insurance
Portability and Accountability Act of 1996  HIPAA
Privacy Standards on page 28.

Additional Products and Services

ULTIA Handheld Solution.Healthcare providers are becoming
increasingly aware of the benefits of using wireless handheld
computers in their practices. ULTIA, our handheld point-of-care
solution, combines the power of our clinical and administrative
systems with the convenience of mobile handheld connectivity.
ULTIA runs on a handheld device, such as a
Compaq®iPaq®. From anywhere in the office, healthcare
providers can use ULTIA with a wireless local area network, or
LAN, to access information stored within, or to enter data into,
the Intergy or The Medical Manager system, giving them instant
access at the point-of-care to:



| |   |                                                                                                                                                                                                                                                                                                                                                     
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | appointment schedules, hospital rounds
    information and clinical tasks needing the providers
    attention;                                                                                                                                                                                                                                     
|
| |  | a user-friendly electronic prescription writer,
    with integrated DUR and formulary checking, which electronically
    submits prescriptions to the patients chosen pharmacy and,
    at the same time, adds prescription information directly to the
    patients electronic medical record in the Intergy or The
    Medical Manager software;
|
| |  | electronic lab ordering and reporting of results
    that can be viewed using ULTIA, available through the Intergy or
    The Medical Manager system in the providers office;                                                                                                                                                                      
|
| |  | their patients electronic medical records,
    including demographic data, progress notes, medications, lab
    results, procedure histories and other information and
    transcribed patient documentation; and                                                                                                                                  
|
| |  | a fully customized encounter form for capturing
    patient charges, which displays procedure and diagnosis codes in
    customized checklists and automatically posts charge information
    to the practice management system.                                                                                                                    

Physicians can also use ULTIA to digitally record
dictation and then send the voice file electronically for
transcription, reducing the number of devices the physician has
to carry and reducing turn-around time.

In addition, ULTIA provides a range of offsite
functionality that can be used at hospitals and other remote
locations. Using the wireless LAN connection, up to ten days of
hospital rounds and patient data can be downloaded to the
handheld device. This information is then accessible to the
provider when he or she is working at another location. The
provider can enter new data and capture patient charges, all of
which are then uploaded to The Medical Manager or Intergy system
when the provider returns to the office. Using ULTIA Online,
providers can access remotely, using a secure Internet
connection, the clinical, administrative and financial data on
the Intergy or The Medical Manager system in their office. See
 ULTIA Online below.

ULTIA Online.ULTIA
Online allows physicians whose offices use the Intergy or The
Medical Manager practice management system to remotely access,
via an encrypted Internet connection through our Medscape
portal, information contained in their offices practice
management system, including daily schedules, patient records
and clinical items that need their attention. This enables
physicians to view, in a secure manner, information residing on
their office-based computer system from any personal or handheld
computer with a connection to the Internet. The physician can
use this connection to send and receive secure e-mail messages,
to write and send electronic prescriptions, or to create
laboratory orders and view

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test results. ULTIA Online also provides access
to Medscape health content and related services. See
 WebMD Health  Medscape from
WebMD beginning on page 7.


Remote Monitoring
System.Our Remote Monitoring System,
or RMS, allows for a pro-active approach to system support and
maintenance. Real-time connections allow us to monitor
installations of our Intergy and ULTIA systems for problems that
need immediate attention or for potential problems that are
likely to need attention in the near future or that are
adversely affecting system performance. RMS checks for
particular conditions on a fixed schedule. For example, when a
server has reached a defined percentage of capacity, an alert is
forwarded to us to analyze the situation. This type of
monitoring allows the system to be supported regardless of
whether our customers become aware of problems or report them.
In addition, if a required technical component has failed, we
will be alerted to take action without the time it takes for a
customer to call our help desk and have a support representative
analyze and address the issue. For example, RMS alerts us if a
prescription sits in the prescription queue for longer than a
specified amount of time, thus notifying us of a potential
system or connection issue. The issue can then be immediately
addressed, even if it has not yet come to the attention of, or
been reported by, our customer.

InfoPOINT and
InfoCENTRAL.InfoPOINT, our advanced
decision support and reporting application, is designed to
provide timely access to practice data for informed managerial
decision-making and to automate the process of generating
reports using data from The Medical Manager and Intergy systems.
The InfoPOINT system has user-friendly screens that simplify the
process of creating a report and can produce both the predefined
standard reports built into the system as well as ad hoc reports
defined by the user. InfoPOINT also provides access to tools to
analyze that data and to export it to other applications.
InfoCENTRAL is a flexible data warehouse solution, designed to
support ambulatory healthcare organizations such as group
practices, managed care organizations and physician services
organizations. InfoCENTRAL consolidates financial,
administrative, clinical and other data and manages the
interface to the practice management system.

Sales and Marketing

We market and distribute our WebMD Medical
Manager systems and related services nationally through a direct
sales organization, who are also supported by field technicians
and training and support personnel.

We also distribute our systems through
independent dealers and resellers. In the past few years, we
have acquired a significant number of our independent dealers
and resellers and we may continue to make these acquisitions in
the future. We believe that the acquisition of independent
dealers and resellers enables us to establish direct
relationships with end users of our software products, thereby
enhancing our ability to sell additional products and services
to these end users.



---

Competition for Our Healthcare Information
Services and Technology Solutions

The markets for healthcare information services
and technology solutions are intensely competitive, continually
evolving and, in some cases, subject to rapid technological
change. We have many competitors, including:



| |   |                                                                                                                                                                                
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | healthcare information system vendors and support
    providers, including physician practice management system
    vendors and support providers;                             
|
| |  | transaction processing companies, including those
    providing EDI and/or Internet-based services and those providing
    services through other means, such as paper and fax;
|
| |  | large information technology consulting service
    providers;                                                                                                                 
|
| |  | online services, portals or Web sites targeted to
    the healthcare industry, healthcare consumers and/or physicians
    generally;                                           

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| |   |                                                                                                                                                                                                                                        
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | consortiums of health insurance companies and of
    pharmacy benefit management companies that have announced that
    they are developing electronic transaction services for use by
    their members and other potential customers;
|
| |  | publishers and distributors of traditional
    offline media, including those targeted to healthcare
    professionals, many of which have established or may establish
    their own Web sites or partner with other Web sites;       
|
| |  | general purpose consumer online services and
    portals and other high-traffic Web sites that provide access to
    healthcare-related content and services;                                                                          
|
| |  | public sector and non-profit Web sites that
    provide healthcare information and online tools without
    advertising or commercial sponsorships; and                                                                                
|
| |  | vendors of healthcare information, products and
    services distributed through other means, including direct
    sales, mail and fax messaging.                                                                                      

We also compete, in some cases, with alliances
formed by the above competitors, including alliances that are
intended to allow the participants to pursue a strategy similar
to our strategy of integrating transaction processing
capabilities and portal services with physician practice
management systems. Major software, hardware and information
systems companies, both with and without healthcare companies as
their partners, offer or have announced their intention to offer
products or services that are competitive with some of our
solutions, including wireless handheld solutions that will
compete with ULTIA, our handheld solution.

In addition, there can be no assurance that
healthcare payers and providers will continue to use WebMD and
other independent companies to transmit healthcare transactions.
Some of our existing payer and provider customers and some of
our strategic partners may compete with us or plan to do so or
belong to alliances that compete with us or plan to do so. For
example, some payers currently offer electronic data
transmission services to healthcare providers that establish a
direct link between the provider and payer, bypassing third
party EDI service providers such as WebMD Envoy. Any significant
increase in the utilization of direct links between healthcare
providers and payers could have a material adverse effect on our
business and results of operations. We cannot provide assurance
that we will be able to maintain our existing links to payers or
develop new connections on satisfactory terms, if at all.

WebMD Health faces competition both in attracting
members and visitor traffic and in generating revenue from
advertisers, sponsors and others. We compete with numerous
companies and organizations for the attention of healthcare
professionals and consumers including traditional offline media
such as network and cable television, print journals,
conferences, continuing medical education programs and symposia.
We also face significant competition from online information
resources. There are thousands of healthcare-related Web sites
on the Internet. In addition, there are many companies that
provide non-Internet based marketing and advertising services to
the healthcare industry. These competitors include advertising
agencies, consulting firms, marketing and communications
companies and contract sales and marketing organizations. In
addition, to the extent that we are successful in increasing
revenue from our portals, competition for our portals audience
and the potential sources of revenue are likely to increase.

Many of our competitors have greater financial,
technical, product development, marketing and other resources
than we do. These organizations may be better known than we are
and have more customers than we do. We cannot provide assurance
that we will be able to compete successfully against these
organizations or any alliances they have formed or may form.

POREX

Overview

Our plastic technologies segment is known as
Porex. We acquired Porex in our merger with Medical Manager in
September 2000 and our Board of Directors approved a plan to
dispose of Porex. As a result,

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Porex was classified in our financial statements
as an asset held for sale and a discontinued operation. While we
have received various proposals to acquire Porex, we believe
that the offers did not reflect an appropriate value for Porex;
accordingly, during February 2003, we decided to terminate our
formal efforts to divest Porex. As a result, we have
reclassified Porex as a continuing operation within the
accompanying consolidated financial statements and footnotes
from September 2000 for all periods presented.


Porex was originally founded in 1961 in Fairburn,
Georgia. Initially manufacturing porous plastic nibs
for writing instruments, the business expanded its production
capabilities through internal development efforts and
acquisitions. Through Porex, we develop, manufacture and
distribute proprietary porous and solid plastic products and
components used in healthcare, industrial and consumer
applications. Our Porex customers include both end-users of its
finished products as well as manufacturers that include our
components in their products, which we refer to as original
equipment manufacturers or OEMs. Over 70% of Porexs sales
are to customers in healthcare and related markets.

Porex is an international business with
manufacturing operations in North America, Europe and Asia.
Porexs global sales and customer service network markets
its products to customers in more than 65 countries. In 2002,
Porex derived approximately 68% of its revenues from the United
States, approximately 20% from Europe, approximately 10% from
Asia and approximately 2% from Canada and Latin America.

Porex expects to continue its efforts to develop
new porous and solid plastic products and technologies. Porex
also intends to try to develop new porous structures using other
materials such as fiber and membranes, which are preferred in
certain applications over Porexs porous plastic materials.
In addition, Porex may acquire businesses with products and
technologies that complement its current product offerings or
that would assist Porex in its efforts to enter additional
markets.

Porous Plastic Products

Porous Plastics.Porous plastics are permeable plastic structures having
omni-directional (porous in all directions) inter-connecting
pores to permit the flow of fluids and gases. These pores,
depending upon the number and size, control the flow of liquids
and gases. We manufacture porous plastics with pore sizes
between approximately 1 and 500 micrometers. One micrometer
is equal to one-millionth of a meter; an object of
40 micrometers in size is about as small as can be
discerned by the naked eye. Our ability to control pore size
provides the opportunity to serve numerous applications,
including:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Filtering.In
    filtration applications, the pore structure acts as both a
    surface filter and a depth filter. The structure acts as a
    surface filter by trapping particles larger than its average
    pore size and as a depth filter by trapping much smaller
    particles deep in its complex channels. Unlike the direct
    passages in woven synthetic materials and metal screens, the
    pores in porous plastics join to form many tortuous paths.
    Examples of these applications include: filters for drinking
    water purification, air filters, fuel filters for power tools
    and appliances and other liquid filters for clarification of
    drugs, blood separation and chemicals.
|
| |  | Venting.In venting
    applications, the pore structure allows gases to easily escape
    while retaining fluids. Examples of these applications include:
    vents for medical devices, printers and automotive batteries;
    and caps and closures.                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| |  | Wicking.When used
    as a wicking device, the pore structure creates capillary
    channels for liquid transfer allowing fluid to flow, or wick,
    from a reservoir. Examples of these applications include: nibs
    or tips for writing instruments, such as highlighters and
    coloring markers; fluid delivery components for printers and
    copiers; fragrance wicks; and absorbent media for diagnostic
    testing.                                                                                                                                                                                                                                                                                    
|
| |  | Diffusing.When used
    in diffusion applications, porous plastic components emit a
    multitude of small, evenly distributed bubbles. Examples of
    these applications include air diffusers for fermentation, metal
    finishing and plating.                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

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| |   |                                                                                                                                                                                                                                                                           
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Muffling.In
    muffling applications, exhaust air is channeled through a
    tortuous path, causing significant sound reduction by breaking
    up and diffusing the sound waves. Examples of these applications
    include industrial mufflers for pneumatic equipment.

We produce porous plastic components and products
in our own manufacturing facilities, which are equipped to
manufacture products for our customers in custom-molded shapes,
sheets, tubes or rods, depending on customer needs. Porex
believes that there are significant opportunities for new
applications of existing porous plastic technologies. During the
past several years, porous plastic components have been
successfully introduced in applications such as antimicrobial
filters, self-sealing filters, consumer fragrance wicks and
industrial wastewater remediation components.

Other Porous Media.We believe that, in some applications,
fiber and other porous membranes are preferred over our standard
porous plastic materials. We use fiber technology for
applications requiring high flow rates. Based on the same
principles used in making our standard porous plastic products,
fibers are thermally bonded into a matrix. This fiber material
is well-suited for use in filtration and wicking applications,
including our products for the consumer fragrance market. We
also use sub-micron porous polytetrafluoroethylene, or PTFE,
membranes to serve product markets where porous plastics do not
have the physical properties to meet application demands. PTFE
material is commonly known as Teflon®.

Markets for Our Porous Plastic Products.Our porous plastic products are used
in healthcare, consumer and industrial applications, including
the following:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Healthcare Products.We manufacture a variety of porous
    plastic components for the healthcare industry that are
    incorporated into the products of other manufacturers. These
    components are used to vent or diffuse gases or fluids and are
    used as membrane supports, including catheter vents,
    self-sealing valves in surgical vacuum canisters, fluid
    filtration components and components for diagnostic devices.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We also use proprietary porous plastic technology
    to produce Medpor® implants for use in aesthetic and
    reconstructive surgery of the head and face. These permanent
    implants, which are composed of biocompatible porous
    high-density plastics, allow for rapid growth of the
    patients tissue and capillary blood vessels. Since the
    initial product introduction in 1985, we have continued to
    introduce new products to meet the markets needs for a
    variety of shapes, sizes and uses of porous plastic implants.



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Consumer Products.Our porous plastics are used in a
    variety of office and home products. These products include
    writing instrument tips, or nibs, which we supply to
    manufacturers of highlighting pens and childrens coloring
    markers. The porous nib conducts the ink stored in the pen
    barrel to the writing surface by capillary action. Our porous
    plastic components are also found in products such as air
    fresheners, power tool dust canisters and computer printers. We
    also produce a variety of porous plastic water filters used to
    improve the taste and safety of drinking water.
|
| |  | Industrial Products.We manufactures a variety of custom
    porous plastic components for industrial applications, designed
    to customer specifications as to size, rigidity, porosity and
    other needs, including automobile battery vents and various
    types of filters and filtration components.                                                                                                                                                                                                                                                                                                                          

Other Products and Services

Laboratory Products.We design, manufacture and distribute injection molded plastic
products used in laboratory applications, such as liquid
handling, sample collection, preparation and storage. We
distribute these products through a network of approximately 250
global, national and regional laboratory distributors and
directly to research and clinical laboratories. We market these
products under our own brands, including Quality Scientific
Plastics, or QSP, and Online Products for Science, or OPS, as
well as under numerous private label arrangements and generic
packaging. These products include:



| |   |                                                                                                                                                                                                                    
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Pipette Tips.A
    pipette is a device for transferring precise amounts of liquid.
    We offer more than 70 specific designs of pipette tips, covering
    a volume range of 0.1 to 10,000 microns, available with

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| |   |                                                                                                                                                                                                                                                                                                
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | or without aerosol barrier filters. We produce
    pipette tips for use with both automated and manual
    instrumentation.                                                                                                                                                                    
|
| |  | Tubes and Closures.We offer a variety of specialty test tubes, closures for test
    tubes and tube racks intended for storage of samples. The
    products are molded with uniform size, shape and wall thickness
    to provide precise fit with automated equipment and secure
    closures.

Medical Devices and
Components.We design, engineer,
manufacture and market injection molded plastic medical
components and finished medical devices. These components and
devices are primarily incorporated into or used with the
products of other manufacturers. These products include:



| |   |                                                                                                                                                                  
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | caps and connectors used with the tubing for
    intravenous delivery of fluids,                                                                                 
|
| |  | manifolds with access ports for the intravenous
    administration of fluids during surgical procedures, and                                                     
|
| |  | needleless access connector ports for the
    administration of IV fluids, which eliminate the need for
    special adapters or sharp needles for fluid delivery.

Operating
Room Products.We also produce
two product lines for the operating room supplies market:
surgical markers and surgical drainage systems.

Services.Using the
expertise we have developed for our own operations, we provide
clean room injection molding services, assembly services and
engineering services to third party medical device manufacturers
on a contract basis. In addition, we design and fabricate
plastic injection molds for third parties.

Competition

Porex operates in competitive markets and its
products are, in general, used in applications that are affected
by technological change and product obsolescence.

The competitors for Porexs porous plastic
products include other producers of porous plastic materials as
well as companies that manufacture and sell products made from
materials other than porous plastics that can be used for the
same purposes as Porexs products. For example,
Porexs porous plastic pen nibs compete with felt and fiber
tips manufactured by a variety of suppliers worldwide. Other
Porex porous plastic products compete, depending on the
application, with membrane material, porous metals, metal
screens, fiberglass tubes, pleated paper, resin-impregnated
felt, ceramics and other substances and devices. The
MEDPOR® Biomaterial products compete for surgical use
against autogenous and allograph materials and alloplastic
biomaterials.

The market for Porexs injection molded
solid plastic components and products, is highly competitive and
highly fragmented. For example, Porexs pipette tips
compete with similar products manufactured by domestic and
foreign manufacturers. Porexs injection molding and mold
making services compete with services offered by numerous
foreign and domestic companies. Porex has been experiencing
increasing competitive pressures with respect to the products
and services referred to in this paragraph.

Porexs surgical drains and markers compete
against a variety of products from several manufacturers.

Some of Porexs competitors may have greater
financial, technical, product development, marketing and other
resources than Porex. We cannot provide assurance that Porex
will be able to compete successfully against these companies or
against particular products and services they provide or may
provide in the future.

Raw Materials

The principal raw materials used by Porex include
a variety of plastic resins that are generally available from a
number of suppliers. The raw materials for these plastic resins
are petroleum based and may be subject to significant and rapid
price increases based on factors affecting the pricing of
petroleum

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products in general, which could have a material
adverse effect on the margins of some of our plastic products.


Some of Porexs products also require
high-grade plastic resins with specific properties as raw
materials. While Porex has not experienced any material
difficulty in obtaining adequate supplies of high-grade plastic
resins that meet its requirements, it relies on a limited number
of sources for some of these plastic resins. If Porex
experiences a reduction or interruption in supply from these
sources, it may not be able to access alternative sources of
supply within a reasonable period of time or at commercially
reasonable rates, which could have a material adverse effect on
its business and financial results.

Marketing

Sales and marketing of our porous plastic
products are conducted by a sales and marketing team of
professionals with in-depth knowledge of plastic technologies.
Marketing activities include advertising in various trade
publications and directories and participating at tradeshows.
Sales to OEM customers in the United States of our porous
plastic products are made directly by our sales and marketing
team. Internationally, these products are sold by our sales and
marketing team and through independent distributors and agents.

We sell our MEDPOR Biomaterial products directly
to medical centers, trauma centers, hospitals and private
practice surgeons using independent and direct sales
representatives. Internationally, these products are sold in
over 40 countries through local stock distributors. We provide
training, materials and other support to the sales
representatives and distributors. Market awareness is primarily
achieved through exhibitions in conjunction with medical
specialty meetings, presentations by surgeons at medical
meetings, journal publication of clinical papers, a group
sponsored visiting speaker program and direct mail
programs. Journal advertising is placed on a selected basis and
we maintain an active database of contacts for targeted direct
mail programs.

Sales and marketing of our injection molded
plastic laboratory products are conducted by a team of
professionals with extensive market experience. Marketing
activities include providing training, technical support and
field support to the salespersons of our distributors and
working with our distributors to develop marketing and
promotional programs. In addition, members of our sales force
travel with our major distributors sales people, making
joint sales calls to end user laboratories. Marketing activities
for our injection molded medical devices and medical device
components include product specific advertising, trade exhibits
and direct marketing, as well as working with independent
distributors.

EMPLOYEES

As of December 31, 2002, we had
approximately 5,450 employees, of which approximately 170 work
in our corporate headquarters or related functions,
approximately 1,720 are WebMD Envoy employees, approximately 360
are WebMD Health employees, approximately 2,260 are WebMD
Medical Manager employees and approximately 940 are Porex
employees.

DEVELOPMENT AND ENGINEERING

We have developed internally and acquired through
acquisitions healthcare information services and technology
solutions products and services. Our development and engineering
expense totaled $43.8 million in 2002, $43.8 million
in 2001 and $60.0 million in 2000.

The markets for some of our products and services
are characterized by rapid change and technological advances.
Our future success will depend, in part, upon our ability to
enhance our existing products and services, to respond
effectively to technological changes, and to introduce new and
newly integrated applications and technologies that address the
changing needs of our customers. Accordingly, we intend to
continue to make investments in development and engineering and
to recruit and hire experienced development personnel. However,
we cannot provide assurance that we will be able to

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successfully complete the development of new
products or services, enhancements to existing products or
services. Further, there can be no assurance that products or
technologies developed by others will not adversely affect our
competitive position or render our products, services or
technologies noncompetitive or obsolete.


INTELLECTUAL PROPERTY

We rely upon a combination of patent, trade
secret, copyright and trademark laws, license agreements,
confidentiality procedures, employee and client nondisclosure
agreements and technical measures to protect the intellectual
property used in our healthcare information services and
technology solutions.

We use numerous trademarks, tradenames and
service marks for our healthcare information services and
technology solutions in the United States and, in some cases,
internationally, including WebMD®, Web-MD®, WebMD
Health®, The Medical Manager®, ULTIATM,
IntergyTM, Envoy®, ExpressBill®,
Medscape®, Publishers Circle®, WellMed®,
Personal Health ManagerTM, Personal Health
InsightTM, MedPulse®, Kinetra®,
OmniChart®, Digital Office Manager®, MMClient®,
MMWin®, and DIMDXTM. Porex uses
trademarks and trade names in the United States and
internationally, including POREX®, CVATM,
DECapTM, KippMed®, Lateral-FloTM,
MEDPOR®, Needleless Access ConnectorTM,
NACTM, Quality Scientific Products®, QSP®,
SQUEEZE-MARK®, TLS®, Q-SlideTM, Online
Products for Science® and OPS®. In addition to our
trademark registrations and applications, we have registered the
domain names webmd.com, my.webmd.com and
medscape.com and numerous other domain names that
either are or may be relevant to conducting our business. Our
inability to protect our marks and domain names adequately could
have a material adverse effect on our business and hurt us in
establishing and maintaining our brands.

We also rely on a variety of intellectual
property rights that we license from third parties, including
our Internet server software and healthcare content used on our
Web sites, as well as various products incorporated into our
physician practice management systems. These third party
licenses may not continue to be available to us on commercially
reasonable terms. Our loss of or inability to maintain or obtain
upgrades to any of these licenses could significantly harm us.
In addition, because we license a majority of our content from
third parties, we may be exposed to copyright infringement
actions if these parties are subject to claims regarding the
origin and ownership of licensed content.

The steps we have taken to protect our
proprietary rights may not be adequate, and we may not be able
to secure trademark or service mark registrations for marks in
the United States or in foreign countries. Third parties may
infringe upon or misappropriate our copyrights, trademarks,
service marks and similar proprietary rights. In addition,
effective copyright and trademark protection may be unavailable
or limited in many foreign countries, and the global nature of
the Internet makes it impossible to control the ultimate
destination of our services. It is possible that competitors or
others will adopt product or service names similar to our names,
which could impede our efforts to build brand identity and
possibly lead to customer confusion. Moreover, because domain
names derive value from the individuals ability to
remember such names, our domain name will lose its value if, for
example, users begin to rely on mechanisms other than domain
names to access online resources. In the future, litigation may
be necessary to enforce and protect our trademarks, trade names,
service marks, trade secrets, copyrights and other intellectual
property rights. Litigation would divert management resources
and be expensive and may not effectively protect our
intellectual property.

Substantial litigation regarding intellectual
property rights exists in the software industry, and we expect
that software products may be increasingly subject to third
party infringement claims as the number of competitors in our
industry grows and the functionality of products overlaps.
Although we believe that our products do not infringe on the
intellectual property rights of others, we cannot provide
assurance that such a claim will not be asserted against us in
the future, or that a license or similar agreement will be
available on reasonable terms in the event of an unfavorable
ruling on any such claim.

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We have several patents covering our software
technology. Due to the nature of our application software, we
believe that patent protection is less significant than our
ability to further develop, enhance and modify our current
services and products. However, any infringement or
misappropriation of our proprietary software and databases could
disadvantage us in our efforts to attract and retain customers
in a highly competitive market and could cause us to lose
revenue or incur substantial litigation expense. Moreover, in
recent years, there have been a large number of patents issued
in general and numerous patents issued related to Internet
business methods. While we are unaware of any patent the loss of
which would impact our ability to conduct our business, defense
of a patent infringement claim against us could divert
management and monetary resources, and an adverse judgment in
any such matter may negatively impact our ability to conduct our
business in the manner we desire.

Porex relies upon a combination of patent and
trade secret laws, license agreements, confidentiality
procedures, employee and client nondisclosure agreements and
technical measures in its efforts to protect its intellectual
property and proprietary rights. For example, Porex seeks to
protect its proprietary manufacturing technology by designing
and fabricating its own manufacturing equipment and molds. In
addition, in some cases, Porex has patented specific products
and processes and intends to do so in some instances in the
future. The majority of Porexs patents relate to porous
plastics and medical devices and medical device components.
Porex seeks to take appropriate steps to protect its
intellectual property and proprietary rights and intends to
defend those rights as may be necessary. However, we cannot
provide assurance that the steps it has taken to protect these
rights are adequate. In the future, litigation may be necessary
to enforce and protect those rights, which would divert
management resources, may be expensive and may not effectively
protect those rights.

GOVERNMENT REGULATION

The healthcare industry is highly regulated and
is subject to changing political, regulatory and other
influences. These factors affect the purchasing practices and
operations of healthcare organizations as well as the behavior
and attitudes of consumers. Federal and state legislatures and
agencies periodically consider programs to reform or revise the
United States healthcare system. These programs may contain
proposals to increase governmental involvement in healthcare,
lower reimbursement rates or otherwise change the environment in
which healthcare industry participants operate. Healthcare
industry participants may respond by reducing their investments
or postponing investment decisions, including investments in our
products and services. We are unable to predict future proposals
with any certainty or to predict the effect they would have on
our businesses.

Existing laws and regulations also could create
liability, cause us to incur additional cost and restrict our
operations. Many healthcare laws are complex, applied broadly
and subject to interpretation by courts and other governmental
authorities. In addition, many existing healthcare laws and
regulations, when enacted, did not anticipate the methods of
healthcare e-commerce and other products and services that we
provide. However, these laws and regulations may nonetheless be
applied to our products and services. Our failure, or the
failure of our business partners, to accurately anticipate the
application of these healthcare laws and regulations, or other
failure to comply, could create liability for us, result in
adverse publicity and negatively affect our businesses.

Health Insurance Portability and
Accountability Act of 1996

General.Under the
Health Insurance Portability and Accountability Act of 1996, or
HIPAA, Congress mandated a package of interlocking
administrative simplification rules to establish standards and
requirements for the electronic transmission of certain health
information. Five of these rules were published in proposed form
in 1998, with two of the five subsequently published in final
form. The two rules published in final form are Standards for
Electronic Transactions, published August 17, 2000, and
Standards for Privacy of Individually Identifiable Health
Information, published December 28, 2000. These rules took
effect on October 16, 2000 and April 14, 2001,
respectively, with compliance by healthcare providers,
healthcare clearinghouses and large health plans originally
required two years following the

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respective effective dates. Small health plans
are given an additional year to comply. On December 27,
2001, President Bush signed into law H.R. 3323, the
Administrative Simplification Compliance Act (now known as
Public Law 107-105). This law provides for a one-year
extension, to October 16, 2003, of the date for complying
with the HIPAA standard transactions and code set requirements
for any covered entity that submitted to the Secretary of the
United States Department of Health and Human Services, or HHS, a
plan of how the entity would come into compliance with the
requirements by the new deadline.


HIPAA Transaction Standards.The HIPAA Standards for Electronic
Transactions rule is commonly referred to as the transaction
standards rule. The transaction standards are applicable to that
portion of our business involving the processing of healthcare
transactions among physicians, payers, patients and other
healthcare industry participants. The transaction standards rule
establishes format and data content standards for eight of the
most common healthcare transactions, using technical standards
promulgated by recognized standards publishing organizations.
These transactions include healthcare claims, enrollment,
payment and eligibility. We are committed to facilitating our
customers compliance with the HIPAA transaction standards
and have built the necessary infrastructure to accommodate
HIPAA-standard transactions.

The intent of the transaction standards rule was
to promulgate new standards, under which any party transmitting
or receiving any of these eight healthcare transactions
electronically would send and receive data in a single format,
rather than the large number of different data formats currently
used. The standardization of formats and data standards required
by HIPAA may facilitate use of direct EDI links, allowing
transmission of transactions between some healthcare payers and
providers without use of a clearinghouse. Any significant
increase in the utilization of direct links between healthcare
providers and payers could have a material adverse effect on
WebMD Envoys transaction volume and financial results.
However, the transaction standards rule also provides business
opportunities for healthcare EDI clearinghouses such as WebMD
Envoy. See  WebMD Envoy  HIPAA
and  WebMD Medical Manager  Medical
Manager Network Services for additional information
regarding the risks and opportunities resulting from the HIPAA
transaction standards rule. The effect of the HIPAA transaction
standards rule on our business is difficult to predict and there
can be no assurances that we will adequately address the
business risks created by the rule and its implementation or
that we will be able to take advantage of any resulting business
opportunities. Our technological and strategic responses to
HIPAA may result in conflicts with, or other adverse changes in
our relationships with, some healthcare industry participants,
including some who are existing or potential customers for our
products and services or existing or potential strategic
partners.

We may incur significant expenses relating to
compliance with the transaction standards rule. The cost to us
of performing our transaction services in compliance with HIPAA
will depend on, among other things, the status of the compliance
efforts of our payer and provider customers and the extent of
the need to adjust our systems and procedures in response to
changes in their systems and procedures. We cannot control when
or how payers, providers, practice management system vendors or
other healthcare participants comply with HIPAAs
transaction standards or predict how their compliance efforts
will affect their relationships with us, including the volume of
transactions for which they use our services. In addition, some
of our customers may delay implementation of HIPAA-ready
solutions until near the applicable deadline, which may result
in technical difficulties and customer relations problems if
there is insufficient time for us to implement our solutions for
all who are then seeking them.

We are unable to predict what changes to the
transaction standards rule might be made in the future or how
those changes could affect our business. Changes in compliance
deadlines or in other aspects of the HIPAA regulations may cause
us to make changes to our strategy or require us to develop
different solutions.

HIPAA Privacy Standards.The HIPAA Standards for Privacy of
Individually Identifiable Health Information rule is commonly
referred to as the privacy standards rule. This rule establishes
a set of basic national privacy standards and fair information
practices for the protection by health plans, healthcare
clearinghouses, healthcare providers and their business
associates of individually identifiable health

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information. This rule became effective on
April 14, 2001 and the compliance date for most entities is
April 14, 2003. On August 14, 2002, HHS finalized
critical changes to the privacy standards rule. The rule,
including these changes, must be implemented by April 14,
2003. The privacy standards rule applies to the portions of our
business that process healthcare transactions and provide
technical services to other participants in the healthcare
industry. This rule provides for civil and criminal liability
for its breach and requires us, our customers and our partners
to use health information in a highly restricted manner, to
establish policies and procedures to safeguard the information,
to obtain individual authorizations for some activities, and to
provide certain access rights to individuals. This rule may
require us to incur significant costs to change our products and
services, may restrict the manner in which we transmit and use
the information, and may adversely affect our ability to
generate revenue from the provision of de-identified information
to third parties. The effect of the HIPAA privacy standards rule
on our business is difficult to predict and there can be no
assurances that we will adequately address the business risks
created by the privacy standards rule and its implementation or
that we will be able to take advantage of any resulting business
opportunities. In addition, we are unable to predict what
changes to the privacy standards rule might be made in the
future or how those changes could affect our business.


HIPAA Security
Standards.On February 20, 2003,
the United States Department of Health and Human Services
published the final HIPAA security standards regulations,
commonly referred to as the security rule. The security rule
establishes detailed requirements for safeguarding patient
information that is electronically transmitted or electronically
stored. The rule establishes 42 implementation specifications,
20 of which are required, meaning they must be
implemented as specified in the rule. Twenty-two are
addressable. Complying with addressable
implementation specifications requires a business to assess
whether they constitute a reasonable and appropriate safeguard
for the particular business; if not, an alternative approach
must be designed and implemented to achieve the particular
standard. The security standards rule applies to all portions of
our business that process healthcare transactions, that provide
technical services to other participants in the healthcare
industry, and to portions of our business that enable electronic
communications of patient information among healthcare industry
participants. Most participants in the healthcare industry must
be in compliance with the security rule by April 21, 2005.
Some of the security standards are technical in nature, while
others may be addressed through policies and procedures for
using information systems. The security rule may require us to
incur significant costs in evaluating our products and in
establishing that our systems meet the 42 specifications. We are
unable to predict what changes might be made to the security
standards prior to the 2005 implementation deadline or how those
changes might help or hinder our business. The effect of the
security standards rule on our business is difficult to predict
and there can be no assurances that we will adequately address
the business risks created by the security standards rule and
its implementation or that we will be able to take advantage of
any resulting business opportunities.

Other Restrictions Regarding Confidentiality
and Privacy of Patient Information

Numerous state and federal laws other than HIPAA
govern the collection, dissemination, use, access to and
confidentiality of patient health information. Many states are
considering new laws and regulations that further protect the
confidentiality of medical records or medical information. These
state laws are not in most cases preempted by the HIPAA privacy
standard and may be subject to interpretation by various courts
and other governmental authorities, thus creating potentially
complex compliance issues for us and our customers and strategic
partners. Definitions in the various state and federal laws
concerning what constitutes individually identifiable data
sometimes differ and sometimes are not provided, creating
further complexity. In addition, determining whether data has
been sufficiently de-identified may require complex factual and
statistical analyses. The HIPAA privacy standards rule contains
a restrictive definition of de-identified information, which is
information that is not individually identifiable, that could
create a new standard of care for the industry. These other
privacy laws at a state or federal level, or new interpretations
of these laws, could create liability for us, could impose
additional operational requirements on our business, could
affect the manner in which we use and transmit patient
information and could increase our cost of doing business. In
addition, parties may also have contractual rights that provide
additional limits on our collection, dissemination, use, access
to and confidentiality of patient health information. Claims of

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privacy rights or contractual breaches, even if
we are not found liable, could be expensive and time-consuming
to defend and could result in adverse publicity that could harm
our business.


Other Regulation of Transaction
Services

Other state and federal statutes and regulations
governing transmission of healthcare information may affect our
operations. For example, Medicaid rules require some processing
services and eligibility verification to be maintained as
separate and distinct operations. We carefully review our
practices with regulatory experts in an effort to ensure that we
are in compliance with all applicable state and federal laws.
These laws, though, are complex and changing, and the courts and
other governmental authorities may take positions that are
inconsistent with our practices.

International Data Regulation

Other countries also have, or are developing,
their own laws governing the collection, use, storage and
dissemination of personal information or patient data. These
laws could create liability for us, impose additional
operational requirements or restrictions on our business, affect
the manner in which we use or transmit data and increase our
cost of doing business.

Consumer Protection Regulation

The Federal Trade Commission, or FTC, and many
state attorneys general are applying federal and state consumer
protection laws to require that the online collection, use and
dissemination of data, and the presentation of Web site content,
comply with certain standards for notice, choice, security and
access. Courts may also adopt these developing standards. In
many cases, the specific limitations imposed by these standards
are subject to interpretation by courts and other governmental
authorities. We believe that we are in compliance with these
consumer protection standards, but a determination by a state or
federal agency or court that any of our practices do not meet
these standards could result in liability and adversely affect
our business. New interpretations of these standards could also
require us to incur additional costs and restrict our business
operations.

In addition, several foreign governments have
regulations dealing with the collection and use of personal
information obtained from their citizens. Those governments may
attempt to apply such laws extra-territorially or through
treaties or other arrangements with U.S. governmental
entities. We might unintentionally violate such laws, such laws
may be modified and new laws may be enacted in the future. Any
such developments (or developments stemming from enactment or
modification of other laws) or the failure to accurately
anticipate the application or interpretation of these laws could
create liability for us, result in adverse publicity and
negatively affect our businesses.

Regulation of Healthcare
Relationships

Anti-kickback Laws.There are federal and state laws that govern patient referrals,
physician financial relationships and inducements to
beneficiaries of federal healthcare programs. The federal
anti-kickback law prohibits any person or entity from offering,
paying, soliciting or receiving anything of value, directly or
indirectly, for the referral of patients covered by Medicare,
Medicaid and other federal healthcare programs or the leasing,
purchasing, ordering or arranging for or recommending the lease,
purchase or order of any item, good, facility or service covered
by these programs. Many states also have similar anti-kickback
laws that are not necessarily limited to items or services for
which payment is made by a federal healthcare program. In 2002,
the Office of the Inspector General, or OIG, of HHS, the federal
government agency responsible for interpreting the federal
anti-kickback law, issued an advisory opinion that concluded
that the sale of advertising and sponsorships to healthcare
providers and vendors by Web-based information services, such as
us, implicates the federal anti-kickback law. However, the
advisory opinion suggests that enforcement action will not
result if the fees paid represent fair market value for the
advertising/ sponsorship arrangements, and the advertising/
sponsorship relationships are clearly identified as such to
users. We carefully review our practices with regulatory experts
in an effort to

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ensure that we comply with all applicable laws.
However, the laws in this area are both broad and vague and it
is often difficult or impossible to determine precisely how the
laws will be applied, particularly to new services. Penalties
for violating the anti-kickback law include imprisonment, fines
and exclusion from participating, directly or indirectly, in
Medicare, Medicaid and other federal healthcare programs. Any
determination by a state or federal regulatory agency that any
of our practices violate any of these laws could subject us to
civil or criminal penalties and require us to change or
terminate some portions of our business. Even an unsuccessful
challenge by regulatory authorities of our practices could cause
us adverse publicity and be costly for us to respond to.


Anti-Fraud Laws.We
currently provide transaction services to healthcare providers
and, therefore, may be subject to state and federal laws that
govern the submission of claims for medical expense
reimbursement. These laws generally prohibit an individual or
entity from knowingly presenting or causing to be presented a
claim for payment from Medicare, Medicaid or other third party
payers that is false or fraudulent, or is for an item or service
that was not provided as claimed. These laws also provide civil
and criminal penalties for noncompliance, and can be enforced by
individuals through qui tam actions. We have designed our
current transaction services and will design any future services
to place the responsibility for compliance with these laws on
provider customers. However, we cannot guarantee that state and
federal agencies will regard billing errors processed by us as
inadvertent and not in violation of these laws. In addition,
changes in current healthcare financing and reimbursement
systems could cause us to make unplanned modifications of
products or services, or result in delays or cancellations of
orders or in the revocation of endorsement of our products and
services by healthcare participants.

Regulation of Medical Devices

Overview.We
manufacture and market medical devices subject to extensive
regulation by the Food and Drug Administration, or FDA, under
the Federal Food, Drug, and Cosmetic Act, or the FDC Act. The
FDAs regulations govern, among other things, product
development, testing, manufacturing, labeling, storage,
pre-market clearance, pre-market approval (referred to as PMA
approval), advertising and promotion, and sales and
distribution. If the FDA finds that we have failed to comply,
the agency can institute a wide variety of enforcement actions,
ranging from a public warning letter to more severe sanctions
such as: fines, injunctions, and civil penalties; recall or
seizure of our products; issuance of public notices or warnings;
operating restrictions, partial suspension or total shutdown of
production; refusal of our requests for 510(k) clearance or PMA
approval of new products, withdrawal of 510(k) clearance or PMA
approvals already granted, and criminal prosecution.

Access to
U.S. Market.Each medical device
that we wish to commercially distribute in the U.S. will
likely require either 510(k) clearance or PMA approval from the
FDA prior to commercial distribution, unless exempt. Devices
deemed to pose relatively less risk are placed in either
class I or II, which requires the manufacturer to submit a
pre-market notification requesting permission for commercial
distribution; this is known as 510(k) clearance. Some low risk
devices are exempted from this requirement. Devices deemed by
the FDA to pose the greatest risk, such as life-sustaining,
life-supporting or implantable devices, or devices deemed not
substantially equivalent to a previously 510(k) cleared device
or to a preamendment class III device (in
commercial distribution before May 28, 1976) for which PMA
applications have not been called, are placed in Class III
requiring PMA approval.



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 510(k) Clearance
    Process.To obtain 510(k) clearance,
    we must submit a pre-market notification demonstrating that the
    proposed device is substantially equivalent in intended use and
    in safety and effectiveness to a predicate
    device  either a previously 510(k) cleared
    device or a preamendment device for which the FDA has not called
    for PMA applications. The FDAs 510(k) clearance process
    usually takes from four to 12 months, but it can last
    longer. After a device receives 510(k) clearance, any
    modification that could significantly affect its safety or
    effectiveness, or that would constitute a major change in its
    intended use, requires a new 510(k) clearance or could even
    require a PMA approval. The FDA requires each manufacturer to
    make this determination in the first instance, but the FDA can
    review any such decision. If the FDA disagrees with it, the
    agency may retroactively require the manufacturer to seek 510(k)
    clearance or PMA approval. The FDA

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | also can require the manufacturer to cease
    marketing and/or recall the modified device until 510(k)
    clearance or PMA approval is obtained.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |  | PMA Approval Process.If the FDA denies 510(k) clearance for
    a product, the product is placed in class III and must
    follow the PMA approval process, which requires proof of the
    safety and effectiveness of the device to the FDAs
    satisfaction. A PMA application must provide extensive
    preclinical and clinical trial data and also information about
    the device and its components regarding, among other things,
    device design, manufacturing and labeling. As part of the PMA
    review, the FDA will inspect the manufacturers facilities
    for compliance with the Quality System Regulation, which
    requires manufacturers to follow elaborate design, testing,
    control, documentation and other quality assurance procedures
    during the manufacturing process. The PMA approval pathway is
    costly, lengthy and uncertain. It generally takes from one to
    three years or longer. After approval of a PMA, a new PMA or PMA
    supplement may be required in the event of a modification to the
    device, its labeling or its manufacturing process.
|
| |  | Clinical Studies.A
    clinical study is generally required to support a PMA
    application and is sometimes required for a 510(k) pre-market
    notification. For significant risk devices, such
    studies generally require submission of an application for an
    Investigational Device Exemption, or IDE. The IDE application
    must be supported by appropriate data, such as animal and
    laboratory testing results, showing that it is safe to test the
    device in humans and that the testing protocol is scientifically
    sound. The IDE must be approved in advance by the FDA for a
    specified number of patients. Clinical studies may begin once
    the IDE application is approved by the FDA and the appropriate
    institutional review boards at the study sites. For
    nonsignificant risk devices, one or more
    institutional review boards must review the study, but
    submission of an IDE to the FDA for advance approval is not
    required. Both types of studies are subject to record keeping,
    reporting and other IDE regulation requirements.    

Post-market Regulation.After the FDA permits a device to
enter commercial distribution, numerous regulatory requirements
apply. These include the Quality System Regulation, labeling
regulations, the FDAs general prohibition against
promoting products for unapproved or off-label uses,
and the Medical Device Reporting regulation, which requires that
manufacturers report to the FDA if their device may have caused
or contributed to a death or serious injury or malfunctioned in
a way that would likely cause or contribute to a death or
serious injury if it were to recur.

Products.Certain of
Porexs products are FDA-regulated medical devices, such as
plastic and reconstructive surgical implants, intravenous
administration sets, blood filters, and tissue expanders. In
addition, the FDA regulates WebMD Medical Managers
DIMDX System as a medical image management device. It
received 510(k) clearance on August 25, 2000. Subsequently,
we have made modifications to certain of Porexs products
and to the DIMDX System that we believe do not
require new 510(k) clearance. If the FDA disagrees with our
decisions, it can retroactively require new 510(k) clearance or
PMA approval. The FDA also can require us to cease marketing
and/or recall the modified device until 510(k) clearance or PMA
approval is obtained. Because Porexs medical devices and
the DIMDX System are in commercial distribution, we
are subject to inspection and market surveillance by the FDA to
determine compliance with all regulatory requirements.
Compliance with these requirements can be costly and
time-consuming. Our failure to comply could subject us to FDA
enforcement action and sanctions.

The FDA has a long-standing draft software policy
exempting computer software products from active regulation as
medical devices if they are decision support systems intended to
involve competent human intervention before any impact on human
health occurs (in other words, where clinical judgment and
experience can be used to check, interpret and potentially
challenge a systems output). Except for the cleared
DIMDX System, we believe that, under the draft
software policy, the Intergy and The Medical Manager practice
management systems are subject to limited FDA regulation and do
not require 510(k) clearance or PMA approval. Medical Manager
Health Systems has created an interface between the Intergy and
The Medical Manager practice management systems and the image
device. We are marketing the interface and the image device as
the DIMDX System. We believe that the sale of our
practice

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management systems with the DIMDX
System does not require a new 510(k) clearance or PMA approval.
ULTIA permits access to the Intergy and The Medical Manager
practice management systems and makes it available in a wireless
handheld format, including allowing access to the medical images
stored in the DIMDX System. Because any displayed
medical images are not intended for diagnostic use, we believe
that ULTIAs ability to access such medical images does not
subject it to a 510(k) clearance or PMA approval requirement. We
cannot assure you, however, that the FDA would agree with any of
these conclusions. If the FDA does not agree, we may be required
to obtain 510(k) clearance or PMA approval for these products
and may be required to cease marketing and/or recall such
products until 510(k) clearance or PMA approval is obtained.


The FDAs draft software policy has been
under review for several years. A risk exists that the Intergy
or The Medical Manager practice management system or other of
our software or hardware components could in the future become
subject to some or all of the medical device regulation
requirements. In addition, the FDA may take the position that
other products and services we offer, such as ULTIA, are subject
to FDA regulation. We also may expand our services in the future
to areas that subject us to FDA regulation. Except with respect
to Medical Manager Health Systems and Porex, we have no
experience in complying with FDA regulations. We believe that
complying with FDA regulations is time consuming, burdensome and
expensive and could delay our introduction of new applications
or services.

FDA and FTC Regulation of
Advertising

The FDC Act requires that prescription drugs
(including biological products) be approved for a specific
medical indication by the FDA prior to their marketing in
interstate commerce. It is a violation of the Act and of FDA
regulations to market, advertise or otherwise commercialize such
products prior to approval. The FDA does allow for preapproval
exchange of scientific information, provided it is
nonpromotional in nature and does not draw conclusions regarding
the ultimate safety or effectiveness of the unapproved drug.
Upon approval, the FDAs regulatory authority extends to
the labeling and advertising of prescription drugs offered in
interstate commerce. Such products may only be promoted and
advertised for their approved indications. In addition, the
labeling and advertising can be neither false nor misleading,
and must present all material information in a balanced manner.
Labeling and advertising that violate these legal standards are
subject to FDA enforcement action.

Activities and information provided in the
context of a medical or scientific educational program, often
referred to as continuing medical education or CME,
usually are treated as nonpromotional and fall outside the
FDAs jurisdiction. The FDA does however evaluate such CME
activities to determine whether they are independent of the drug
products sponsor. In order to determine whether a
companys activities are sufficiently independent, the FDA
looks at a number of factors related to the planning, content,
speakers and audience selection of such activities. To the
extent that the FDA concludes that such activities are not
independent from a manufacturer, such content must fully comply
with the FDAs requirements.

There are several administrative, civil and
criminal sanctions available to the FDA for violations of the
FDC Act or FDA regulations as they relate to labeling and
advertising. Administrative sanctions may include a written
request that violative advertising or promotion cease and/or
that corrective action be taken, such as requiring a company to
provide to healthcare providers and/or consumers information to
correct misinformation previously conveyed. In addition, the FDA
may use publicity, such as press releases, to warn the public
about false and misleading information concerning a drug
product. More serious civil sanctions include seizures, as well
as injunctions and their resulting consent decrees. Such
measures could prevent a company from introducing or maintaining
its product in the marketplace. Criminal penalties for severe
violations can result in a prison term and/or substantial fines.

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The FDA and the FTC regulate the form, content
and dissemination of labeling, advertising and promotional
materials, including direct-to-consumer prescription drug and
medical device advertising, prepared by, or for, pharmaceutical
or medical device companies. The FTC regulates over-the-counter
drug advertising and, in some cases, medical device advertising,
as well as general product or service advertising. Generally,
based on FDA requirements, regulated companies must limit their
advertising and promotional materials to discussions of
FDA-approved claims. In limited circumstances, regulated
companies may disseminate non-promotional scientific information
regarding products or claims not yet approved by the FDA. Any
information that promotes the use of pharmaceutical products or
medical devices that is put on our Web site is subject to the
full array of the FDA and FTC requirements and enforcement
actions and any information regarding other products and
services is subject to FTC requirements. Areas of our Web site
that we believe would be the primary focus of the FDA and FTC
include banner advertisements, sponsorship links, and any
educational programs that discuss use of an FDA-regulated
product or that lack editorial independence from the influence
of sponsoring pharmaceutical or medical device companies.
Television broadcast advertisements by WebMD may also be subject
to FTC regulation and FDA regulation depending on the content.
The FDA and the FTC place the principal burden of compliance
with advertising and promotional regulations on the company that
advertises on our Web site to make truthful, substantiated
claims. If the FDA or the FTC finds that any information on our
Web site violates FDA or FTC regulations, they may take
regulatory or judicial action against us or the advertiser or
sponsor of that information.

Any increase in FDA regulation of the Internet or
other media for direct-to-consumer advertisements of
prescription drugs could make it more difficult for WebMD Health
to obtain advertising and sponsorship revenue. In the last
15 years, the FDA has gradually relaxed its formerly
restrictive policies on direct-to-consumer advertising of
prescription drugs. Companies can now advertise prescription
drugs for serious conditions to consumers in any medium.
However, physician groups and others have criticized the
FDAs current policies, and have called for restrictions on
any advertising of prescription drugs to consumers. These
critics point to both public health concerns and to the laws of
many other countries that make direct-to-consumer advertising of
prescription drugs a criminal offense. In response to these
critics, the FDA or the FTC may alter its present policies on
the direct-to-consumer advertising of prescription drugs or
medical devices in a way that would materially reduce our
advertising and sponsorship revenues.

Medical Professional Regulation

The practice of most healthcare professions
requires licensing under applicable state law. In addition, the
laws in some states prohibit business entities from practicing
medicine, which is referred to as the prohibition against the
corporate practice of medicine. We do not believe that we engage
in the practice of medicine and we have attempted to structure
our Web site, strategic relationships and other operations to
avoid violating these state licensing and professional practice
laws. A state, however, may determine that some portion of our
business violates these laws and may seek to have us discontinue
those portions or subject us to penalties or licensure
requirements. We provide Web site capabilities for our physician
customers. Many states regulate the ability of medical
professionals to advertise or maintain referral services. We do
not represent that a physicians use of our Web site will
comply with these or other state laws regulating professional
practice and we do not monitor or control the content that
physicians post on their individual practice Web sites using our
Web site application. It is possible a state or a court may
determine we are responsible for any non-compliance with these
laws, which could affect our ability to offer this service to
our customers. We employ and contract with physicians who
provide only medical information to consumers, and we have no
intention to provide medical care or advice. Any determination
that we are a healthcare provider and acted improperly as a
healthcare provider may result in liability to us.

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Childrens Online Privacy Protection
Act

The Childrens Online Privacy Protection
Act, or COPPA, extends to operators of commercial Web sites and
online services directed to U.S. children under the age of
13 that collect personal information from children, and
operators of general audience sites with actual knowledge that
they are collecting information from U.S. children under
13. WebMDs sites are not directed at children and its
general audience site, WebMD Health, states that no one under
the applicable age is entitled to use the site. In addition,
WebMD Health employs a kick-out procedure whereby anyone
identifying themselves as being under the age of 13 during the
registration process is not allowed to register for the
sites member only services, such as message boards and
live chat events. COPPA, however, is a relatively new law, can
be applied broadly and is subject to interpretation by courts
and other governmental authorities. The failure to accurately
anticipate the application or interpretation of this law could
create liability to us, result in adverse publicity and
negatively affect our business.

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Item 2.     Properties

We believe that the offices and other facilities
described are, in general, in good operating condition and
adequate for our current operations.

Headquarters

We lease our corporate headquarters offices in
Elmwood Park, New Jersey, which consists of approximately
40,000 square feet of space, under leases that expire in March
2006.

WebMD Envoy, WebMD Health and WebMD Medical
Manager

We lease important facilities in:



| |   |                                                                                                   
| | - | --------------------------------------------------------------------------------------------------
| |  | Nashville, Tennessee for WebMD Envoys
    headquarters and primary data and call centers;        
|
| |  | Alachua, Florida for WebMD Medical Managers
    development and engineering operations; and      
|
| |  | New York, New York for WebMD Healths
    headquarters and its editorial and marketing operations.

We also use facilities in approximately 110
additional locations throughout the United States, 10 of which
are owned and the rest of which are leased. These locations
include sales and other offices, production centers, data
centers and call centers.

Porex

We use approximately 400,000 square feet for
Porexs headquarters and for office and manufacturing
operations related to its porous plastics and other porous media
product lines, including: the Porex headquarters and largest
plant, which are located on property that we own in Fairburn,
Georgia, a suburb of Atlanta; facilities that we own in Newnan,
Georgia and Bautzen, Germany; and space that we lease in Kuala
Lampur, Malaysia and Alness, Scotland. In addition, Porex uses
approximately 330,000 square feet of office and
manufacturing space for its injection molded plastic product
lines, including 160,000 square feet of space in ten buildings
in a business park located in Petaluma, California (seven of
which are owned and three of which are leased); and 170,000
square feet of space in Ontario, California.

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Item 3.     Legal
Proceedings

Porex Mammary Implant Litigation

From 1988 through 1990, Porex distributed
silicone mammary implants in the United States pursuant to a
distribution arrangement with a Japanese manufacturer. Porex
believes that, after accounting for implants returned to Porex,
the aggregate number of persons who received implants
distributed by Porex totals approximately 2,500. Since March
1991, Porex has been named as one of many co-defendants in a
number of actions brought by recipients of mammary implants. The
typical case or claim alleges that the individuals mammary
implants caused one or more of a wide range of ailments. These
implant cases and claims generally raise difficult and complex
factual and legal issues and are subject to many uncertainties
and complexities, including, but not limited to, the facts and
circumstances of each particular case or claim, the jurisdiction
in which each suit is brought, and differences in applicable
law. Porex does not have sufficient information to evaluate each
case and claim.

Certain of the actions against Porex have been
dismissed, where it was determined that the implant in question
was not distributed by Porex. In addition, as of March 10,
2003, approximately 300 actions have been settled by the
manufacturer, or by Porexs insurance carriers, without
material cost to Porex. As of March 10, 2003, no
implant-related claims were pending against Porex. During
calendar year 2002, there were two implant-related claims made
against Porex by individuals, as compared with two claims during
2001, two claims made during 2000, 39 claims during 1999 and
nine claims during 1998. The majority of claims made during 1999
were claims that were filed by individuals following a court
ruling in 1999 that cases filed in earlier years would not
proceed as class actions, as a result of which such individuals
would not be members of a class in such cases.

In 1994, Porex was notified that its insurance
carrier would not renew its then-existing insurance coverage
after December 31, 1994 with respect to actions and claims
arising out of its distribution of implants. However, Porex
exercised its right, under such policy, to purchase extended
reporting period coverage with respect to such actions and
claims. Such coverage provides insurance subject to existing
policy limits, but for an unlimited time period with respect to
actions and claims made after December 31, 1994 based on
events that occurred during the policy period. In addition,
Porex has purchased extended reporting period coverage with
respect to other excess insurance. This coverage also extends
indefinitely, replacing coverage that would, by its terms, have
otherwise expired by December 31, 1997. Porex will continue
to evaluate the need to purchase further extended reporting
period coverage from excess insurers to the extent such coverage
is reasonably available.

Porex believes that its present coverage,
together with its insurance policies in effect on or before
December 31, 1994, should provide adequate coverage against
liabilities that could result from actions or claims arising out
of Porexs distribution of silicone mammary implants.
However, Porex cannot be certain that particular cases and
claims will not result in liability that is greater than
expected based on Porexs prior experience. If so,
Porexs liability could exceed the amount of its insurance
coverage. Furthermore, certain actions and claims seek punitive
and compensatory damages arising out of alleged intentional
torts. If these claims are successful, such damages may or may
not be covered, in whole or in part, by Porexs insurance
policies.

Envoy Securities Litigation

Envoy and some of its officers were named as
defendants in three identical lawsuits filed in the United
States District Court for the Middle District of Tennessee,
Nashville Division. The plaintiff in each of these lawsuits
purported to represent a class of persons who purchased the
securities of Envoy during the class period from
February 12, 1997 through August 18, 1998. In these
three original complaints, the plaintiffs sued the defendants
for violations of the federal securities laws. The District
Court ordered the three cases consolidated under the caption In
re Envoy Corporation Securities Litigation, and on
December 28, 1998, the plaintiffs, pursuant to the district
courts consolidation orders, filed a consolidated class
action complaint. The consolidated complaint reasserted the
federal securities law claims and also asserted additional
claims under Tennessee common law for fraud and negligent
misrepresentation.

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Plaintiffs allege that the defendants made
material misrepresentations and omissions in Envoys public
filings and public statements concerning Envoys financial
statements and Envoys accounting for some charges taken in
connection with acquisitions. Plaintiffs allege that, as a
result of defendants alleged actions, Envoys
reported earnings during the class period were overstated and
the price for Envoys common stock was artificially
inflated. Plaintiffs seek recovery of an unspecified sum in
damages on behalf of persons who allegedly purchased
Envoys stock at allegedly inflated prices.

On March 1, 1999, the defendants filed a
motion to dismiss all of plaintiffs claims. Plaintiffs
then voluntarily dismissed their state law claims. On
September 17, 1999, the court dismissed the consolidated
complaint without prejudice. On November 23, 1999, the
plaintiffs filed an amended consolidated complaint. In May 2000,
defendants filed a motion to dismiss the amended consolidated
complaint. In February 2001, the court entered an order denying
in part and granting in part defendants motion to dismiss
the amended consolidated complaint. Specifically, the court
denied the motion to dismiss as to Envoy and one of the
individual defendants and granted the motion to dismiss as to
two of the individual defendants. In April 2002, the court
certified a class of plaintiffs consisting of all persons, other
than defendants, who purchased shares of Envoy common stock
between February 27, 1997 and August 18, 1998.

Discovery in the case has been completed and a
trial date has been set for September 9, 2003. On
March 3, 2003, defendants filed a motion for summary
judgment. Plaintiffs are required to respond to the motion by
May 5, 2003 and, following that, defendants will have until
May 26, 2003 to file a reply brief. Defendants have
requested oral argument on the summary judgment motion and
expect that the court will hear oral argument sometime after
briefing is completed. The parties have engaged in preliminary
settlement discussions which have not resulted, thus far, in
agreement on terms for a settlement.

The Agreement and Plan of Merger among Healtheon/
WebMD, Pine Merger Corp., Envoy, Quintiles Transnational Corp.,
and QFinance, Inc. dated as of January 22, 2000 provides
that Quintiles will indemnify us with respect to this litigation.

Litigation Regarding Distribution of Shares in
Healtheon Initial Public Offering

Since July 2001, seven purported class action
lawsuits have been filed against Morgan Stanley & Co.
Incorporated and Goldman Sachs & Co., underwriters of our
initial public offering, in the United States District Court for
the Southern District of New York. Three of these suits also
named WebMD and certain former officers and directors of WebMD
as defendants. These suits were filed in the wake of reports of
governmental investigations of the underwriters practices
in the distribution of shares in certain initial public
offerings. Similar suits have been filed in connection with
approximately 300 other initial public offerings that occurred
in 1999, 2000 and 2001.

The complaints against WebMD and its former
officers and directors allege violations of Section 10(b)
of the Securities Exchange Act of 1934 and Rule 10b-5 under
that Act and Section 11 of the Securities Act of 1933
because of failure to disclose certain practices alleged to have
occurred in connection with the distribution of shares in our
initial public offering. Claims under Section 12(a)(2) of
the Securities Act of 1933 have also been brought against the
underwriters. These claims have been consolidated, along with
claims relating to approximately 300 other initial public
offerings, in the Southern District of New York.

We believe that the claims alleged in the
lawsuits are primarily directed at the underwriters and, as they
relate to us, are without merit. To the extent that these claims
concern practices and disclosures relating to the plan of
distribution in our initial public offering, we believe that we
will have a claim for indemnification from the underwriters. The
plaintiffs have dismissed the claims against the four former
officers and directors of WebMD without prejudice, pursuant to
Reservation of Rights and Tolling Agreements with those
individuals.

On July 15, 2002, the approximately 300
issuer defendants in the consolidated action, including WebMD,
filed a joint motion to dismiss the consolidated complaints. On
February 18, 2003, the District

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Court denied, with certain exceptions not
relevant to WebMD, the issuer defendants motion to
dismiss. This ruling permits the claims against WebMD and most
other issuers to proceed to discovery. Issuers counsel
have engaged in discussions with plaintiffs about the scope of
discovery, and the plaintiffs have not issued any formal
discovery requests to WebMD at this time. In addition, the
issuer defendants in the consolidated action (including WebMD),
along with the affected insurance companies and the plaintiffs,
have engaged in mediation under the auspices of former United
States District Court Judge Politan in an effort to settle the
case among those parties. We are unable to predict whether the
efforts at mediation will be successful.


Other Legal Proceedings

In the normal course of business, we are involved
in various other claims and legal proceedings. While the
ultimate resolution of these matters, and those discussed above,
has yet to be determined, we do not believe that their outcome
will have a material adverse effect on our financial position or
results of operations.




Item 4.     Submission
of Matters to a Vote of Security Holders

At our Annual Meeting of stockholders held on
October 24, 2002, our stockholders voted to elect Joseph E.
Smith as a Class I director for a term ending in 2005, as
follows:

|            |  |   |  |               
|----------- |  | - |  | --------------
|266,239,141 |  |  |  | votes for     
|3,610,607   |  |  |  | votes withheld

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PART II




Item 5.     Market
for Registrants Common Equity and Related Stockholder
Matters

We completed the initial public offering of our
common stock on February 10, 1999. Our common stock has
been traded on the Nasdaq National Market under the symbol
HLTH since February 11, 1999.

The high and low prices for each quarterly period
during the last two fiscal years are as follows:

|     |                |      |   |       |  |  |   |      | 
|---- | -------------- | ---- | - | ----- |  |  | - | ---- | 
|     |                | High |   | Low  
|     |                |      |   |      
|2001 |                |      |   |       |  |  |   |     
|     | First quarter  |      | $ | 10.63 |  |  | $ | 4.56 | 
|     | Second quarter |      |   | 9.44  |  |  |   | 4.50 | 
|     | Third quarter  |      |   | 7.10  |  |  |   | 3.22 | 
|     | Fourth quarter |      |   | 7.15  |  |  |   | 3.29 | 
|2002 |                |      |   |       |  |  |   |     
|     | First quarter  |      | $ | 8.86  |  |  | $ | 6.25 | 
|     | Second quarter |      |   | 7.78  |  |  |   | 5.05 | 
|     | Third quarter  |      |   | 6.23  |  |  |   | 4.25 | 
|     | Fourth quarter |      |   | 9.30  |  |  |   | 4.54 | 

On March 7, 2003, there were approximately
4,650 holders of record of our common stock. Because many
of these shares are held by brokers and other institutions on
behalf of stockholders, we are unable to estimate the total
number of stockholders represented by these record holders.

The market price of our common stock has
fluctuated since the date of our initial public offering and is
likely to fluctuate in the future. Changes in the market price
of our common stock and other securities may result from, among
other things:



| |   |                                                                                                          
| | - | ---------------------------------------------------------------------------------------------------------
| |  | quarter-to-quarter variations in operating results                                                       
|
| |  | operating results being less than analysts
    estimates                                                
|
| |  | changes in analysts earnings estimates                                                                  
|
| |  | announcements of new technologies, products and
    services or pricing policies by us or our competitors
|
| |  | announcements of acquisitions or strategic
    partnerships by us or our competitors                     
|
| |  | developments in existing customer or strategic
    relationships                                         
|
| |  | actual or perceived changes in our business
    strategy                                                 
|
| |  | developments in pending litigation and claims                                                            
|
| |  | sales of large amounts of our common stock                                                               
|
| |  | changes in market conditions in the healthcare,
    information technology or Internet industries        
|
| |  | changes in general economic conditions                                                                   
|
| |  | fluctuations in the securities markets in general.                                                       

In addition, the market prices of Internet and
healthcare information technology stocks in general, and of our
common stock in particular, have experienced large fluctuations,
sometimes quite rapidly. These fluctuations often may be
unrelated or disproportionate to the operating performance of
these companies. Any negative change in the publics
perception of the prospects of these companies, as well as other
broad market and industry factors, may result in changes in the
price of our common stock.

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We have never declared or paid any cash dividends
on our common stock, and we do not anticipate paying cash
dividends in the foreseeable future. We intend to retain
earnings to finance the expansion of our operations.

Sales of Unregistered Securities During the
Fourth Quarter of 2002

On December 6, 2002, WebMD issued 1,048,783
shares of WebMD common stock to Cerner Investment Corp. in a
transaction exempt from registration under Section 3(a)(9)
of the Securities Act. The shares were issued upon exercise of
an outstanding warrant. The aggregate exercise price received by
WebMD was approximately $3.2 million.

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Item 6.     Selected
Financial Data

The following selected consolidated financial
data should be read in conjunction with Managements
Discussion and Analysis of Financial Condition and Results of
Operations and with the consolidated financial statements
and notes thereto, which are included elsewhere in this Annual
Report. The following data reflects the reclassification of our
Plastic Technologies business, Porex, as a continuing operation
since the date of its acquisition on September 12, 2000.
Previously, Porex had been accounted for as an asset held for
sale during the period from September 12, 2000 to
September 12, 2001, and as discontinued operations
subsequent to September 12, 2001. During February 2003, we
decided to terminate our formal divestiture efforts relating to
Porex.

|                                                                                                      |                                                |                                       |         |         |   |         |            |           |  |      |            |           |  |   |          |         |  |   |         |        | 
|----------------------------------------------------------------------------------------------------- | ---------------------------------------------- | ------------------------------------- | ------- | ------- | - | ------- | ---------- | --------- |  | ---- | ---------- | --------- |  | - | -------- | ------- |  | - | ------- | ------ | 
|                                                                                                      |                                                |                                      
|                                                                                                      |                                                | Years Ended December 31,             
|                                                                                                      |                                                |                                      
|                                                                                                      |                                                | 2002(b)                               |         | 2001(b) |   | 2000(b) |            | 1999      |  | 1998
|                                                                                                      |                                                |                                       |         |         |   |         |            |           |  |     
|                                                                                                      |                                                |                                      
|                                                                                                      |                                                | (In thousands, except per share data)
|Consolidated Statements of                                                                            |                                                |                                       |         |         |   |         |            |           |  |      |            |           |  |   |          |         |  |   |         |       
|                                                                                                      | Operations Data:                               |                                       |         |         |   |         |            |           |  |      |            |           |  |   |          |         |  |   |         |        | 
|Revenue(a)                                                                                            |                                                | $                                     | 925,877 |         |   | $       | 901,028    |           |  | $    | 591,602    |           |  | $ | 102,149  |         |  | $ | 48,838  |       
|Costs and expenses:                                                                                   |                                                |                                       |         |         |   |         |            |           |  |      |            |           |  |   |          |         |  |   |         |       
|                                                                                                      | Cost of operations(a)                          |                                       |         | 545,142 |   |         |            | 604,201   |  |      |            | 441,008   |  |   |          | 88,576  |  |   |         | 43,014 | 
|                                                                                                      | Development and engineering                    |                                       |         | 43,849  |   |         |            | 43,839    |  |      |            | 59,957    |  |   |          | 29,669  |  |   |         | 19,002 | 
|                                                                                                      | Sales, marketing, general and administrative   |                                       |         | 291,710 |   |         |            | 457,540   |  |      |            | 538,497   |  |   |          | 82,315  |  |   |         | 25,605 | 
|                                                                                                      | Depreciation, amortization and other           |                                       |         | 130,074 |   |         |            | 2,400,804 |  |      |            | 2,190,273 |  |   |          | 193,067 |  |   |         | 16,055 | 
|                                                                                                      | Impairment of long-lived and other assets      |                                       |         | 609     |   |         |            | 3,826,893 |  |      |            |          |  |   |          |        |  |   |         |       | 
|                                                                                                      | Restructuring and integration (benefit) charge |                                       |         | (4,690  | ) |         |            | 266,755   |  |      |            | 452,919   |  |   |          |        |  |   |         |       | 
|                                                                                                      | (Gain) loss on investments                     |                                       |         | (6,547  | ) |         |            |          |  |      |            | 40,365    |  |   |          |        |  |   |         |       | 
|                                                                                                      | Interest income                                |                                       |         | 19,662  |   |         |            | 30,544    |  |      |            | 51,533    |  |   |          | 4,013   |  |   |         | 1,262  | 
|                                                                                                      | Interest expense                               |                                       |         | 8,940   |   |         |            | 1,101     |  |      |            | 910       |  |   |          | 527     |  |   |         | 472    | 
|                                                                                                      | Other income, net                              |                                       |         | 3,844   |   |         |            |          |  |      |            |          |  |   |          |        |  |   |         |       | 
|                                                                                                      |                                                |                                       |         |         |   |         |            |           |  |      |            |           |  |   |          |         |  |   |         |       
|Loss before income tax (benefit) provision                                                            |                                                |                                       | (59,704 | )       |   |         | (6,669,561 | )         |  |      | (3,080,794 | )         |  |   | (287,992 | )       |  |   | (54,048 | )     
|                                                                                                      | Income tax (benefit) provision                 |                                       |         | (10,002 | ) |         |            | 2,757     |  |      |            | 814       |  |   |          |        |  |   |         |       | 
|                                                                                                      |                                                |                                       |         |         |   |         |            |           |  |      |            |           |  |   |          |         |  |   |         |       
|Net loss                                                                                              |                                                | $                                     | (49,702 | )       |   | $       | (6,672,318 | )         |  | $    | (3,081,608 | )         |  | $ | (287,992 | )       |  | $ | (54,048 | )     
|                                                                                                      |                                                |                                       |         |         |   |         |            |           |  |      |            |           |  |   |          |         |  |   |         |       
|Basic and diluted net loss per common share                                                           |                                                | $                                     | (.16    | )       |   | $       | (19.14     | )         |  | $    | (12.59     | )         |  | $ | (3.58    | )       |  | $ | (1.54   | )     
|                                                                                                      |                                                |                                       |         |         |   |         |            |           |  |      |            |           |  |   |          |         |  |   |         |       
|Weighted-average shares outstanding used in
    computing basic and diluted net loss per common share |                                                |                                       | 304,168 |         |   |         | 348,570    |           |  |      | 244,688    |           |  |   | 80,367   |         |  |   | 34,987  |       
|                                                                                                      |                                                |                                       |         |         |   |         |            |           |  |      |            |           |  |   |          |         |  |   |         |       

|                                                  |  |                    |           |         |  |         |           |      |  |      |           |  |  |   |           |  |  |   |        | 
|------------------------------------------------- |  | ------------------ | --------- | ------- |  | ------- | --------- | ---- |  | ---- | --------- |  |  | - | --------- |  |  | - | ------ | 
|                                                  |  |                   
|                                                  |  | As of December 31,
|                                                  |  |                   
|                                                  |  | 2002(b)            |           | 2001(b) |  | 2000(b) |           | 1999 |  | 1998
|                                                  |  |                    |           |         |  |         |           |      |  |     
|                                                  |  |                   
|                                                  |  | (In thousands)    
|Consolidated Balance Sheet Data:                  |  |                    |           |         |  |         |           |      |  |      |           |  |  |   |           |  |  |   |        | 
|Cash, cash equivalents and short-term investments |  | $                  | 190,429   |         |  | $       | 386,522   |      |  | $    | 507,656   |  |  | $ | 291,286   |  |  | $ | 36,817 | 
|Long-term marketable securities                   |  |                    | 456,716   |         |  |         | 18,769    |      |  |      | 222,774   |  |  |   |          |  |  |   |       | 
|Working capital                                   |  |                    | 119,484   |         |  |         | 290,868   |      |  |      | 445,809   |  |  |   | 216,304   |  |  |   | 27,934 | 
|Total assets                                      |  |                    | 1,766,248 |         |  |         | 1,601,454 |      |  |      | 8,487,108 |  |  |   | 4,123,668 |  |  |   | 79,940 | 
|Convertible subordinated notes                    |  |                    | 300,000   |         |  |         |          |      |  |      |          |  |  |   |          |  |  |   |       | 
|Other long-term liabilities                       |  |                    | 628       |         |  |         | 8,851     |      |  |      | 23,121    |  |  |   | 2,695     |  |  |   | 2,984  | 
|Convertible redeemable preferred stock            |  |                    |          |         |  |         | 10,000    |      |  |      | 10,000    |  |  |   |          |  |  |   |       | 
|Convertible preferred stock                       |  |                    |          |         |  |         |          |      |  |      | 710,746   |  |  |   |          |  |  |   |       | 
|Stockholders equity                              |  |                    | 1,153,801 |         |  |         | 1,255,512 |      |  |      | 8,097,435 |  |  |   | 3,973,672 |  |  |   | 59,413 | 

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|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | Effective January 1, 2002, we adopted
    EITF 01-14 and, as a result, have reclassified the
    reimbursement of out-of-pocket expenses as a component of both
    revenues and cost of operations. This reclassification resulted
    in an increase in previously reported revenue and cost of
    operations of $73,408 and $39,357 for 2001 and 2000,
    respectively. There was no change to previously reported amounts
    for 1999 or 1998.                                                                                                                
|   
|(b) | We terminated our formal divestiture efforts
    related to Porex, our Plastic Technologies segment, in February
    2003. Consequently, the related assets, liabilities and results
    of operations have been reclassified to reflect Porex as a
    continuing operation since the date of its acquisition on
    September 12, 2000. The following table presents summary
    financial information related to Porex, which is now included in
    our consolidated results, as of and for the periods ended
    December 31, 2002, 2001 and 2000, respectively:

|                    |                                              |                          |         |        |  |      |         |        |  |   |        |        | 
|------------------- | -------------------------------------------- | ------------------------ | ------- | ------ |  | ---- | ------- | ------ |  | - | ------ | ------ | 
|                    |                                              |                         
|                    |                                              | Years Ended December 31,
|                    |                                              |                         
|                    |                                              | 2002                     |         | 2001   |  | 2000
|                    |                                              |                          |         |        |  |     
|                    |                                              |                         
|                    |                                              | (In thousands)          
|Revenue             |                                              | $                        | 119,992 |        |  | $    | 121,025 |        |  | $ | 35,092 |       
|Costs and expenses: |                                              |                          |         |        |  |      |         |        |  |   |        |       
|                    | Cost of operations                           |                          |         | 61,807 |  |      |         | 62,105 |  |   |        | 18,086 | 
|                    | Development and engineering                  |                          |         | 4,506  |  |      |         | 4,224  |  |   |        | 1,169  | 
|                    | Sales, marketing, general and administrative |                          |         | 23,673 |  |      |         | 23,887 |  |   |        | 7,570  | 
|                    | Depreciation and amortization                |                          |         | 8,638  |  |      |         | 11,038 |  |   |        | 3,287  | 
|                    | Impairment of long-lived and other assets    |                          |         | 609    |  |      |         |       |  |   |        |       | 
|                    | Restructuring and integration charge         |                          |         | 1,160  |  |      |         |       |  |   |        |       | 
|                    | Loss on investments                          |                          |         |       |  |      |         |       |  |   |        | 763    | 
|                    | Interest income, net                         |                          |         | 115    |  |      |         | 337    |  |   |        | 597    | 
|                    | Income tax provision                         |                          |         | 2,885  |  |      |         | 2,757  |  |   |        | 814    | 
|                    |                                              |                          |         |        |  |      |         |        |  |   |        |       
|                    | Net income                                   |                          | $       | 16,829 |  |      | $       | 17,351 |  |   | $      | 4,000  | 
|                    |                                              |                          |         |        |  |      |         |        |  |   |        |       

|                                                  |  |                    |         |      |  |      |         |  |  |   |         | 
|------------------------------------------------- |  | ------------------ | ------- | ---- |  | ---- | ------- |  |  | - | ------- | 
|                                                  |  |                   
|                                                  |  | As of December 31,
|                                                  |  |                   
|                                                  |  | 2002               |         | 2001 |  | 2000
|                                                  |  |                    |         |      |  |     
|                                                  |  |                   
|                                                  |  | (In thousands)    
|Cash, cash equivalents and short-term investments |  | $                  | 15,786  |      |  | $    | 34,317  |  |  | $ | 16,859  | 
|Long-term marketable securities                   |  |                    |        |      |  |      | 3,062   |  |  |   | 3,088   | 
|Working capital                                   |  |                    | 21,876  |      |  |      | 46,883  |  |  |   | 31,053  | 
|Total assets                                      |  |                    | 228,098 |      |  |      | 249,529 |  |  |   | 235,833 | 
|Other long-term liabilities                       |  |                    | 129     |      |  |      | 7,643   |  |  |   | 7,861   | 






Item 7.     Managements
Discussion and Analysis of Financial Condition and Results of
Operations

This Item 7 contains forward-looking
statements with respect to possible events, outcomes or results
that are, and are expected to continue to be, subject to risks,
uncertainties and contingencies, including those identified in
this Item. See Cautionary Statement Regarding
Forward-Looking Statements on page 2.

WebMD Corporation is a Delaware corporation that
was incorporated in December 1995 and commenced operations in
January 1996 as Healtheon Corporation. Our common stock has
traded on the Nasdaq National Market under the symbol
HLTH since February 11, 1999. In May 1998,
Healtheon merged with ActaMed Corporation. In November 1999,
Healtheon completed mergers with WebMD, Inc., MedE America and
Medcast. Following these mergers, Healtheon changed its name to
Healtheon/ WebMD Corporation. Healtheon/ WebMD completed
acquisitions of Kinetra and Envoy in January 2000

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and May 2000, respectively. On September 12,
2000, Healtheon/ WebMD completed mergers with Medical Manager,
CareInsite and OnHealth and changed its name to WebMD
Corporation.


The following discussion reflects our Plastic
Technologies business, Porex, as a continuing operation since
the date of its acquisition on September 12, 2000.
Previously, Porex had been accounted for as an asset held for
sale during the period from September 12, 2000 to
September 12, 2001, and as discontinued operations
subsequent to September 12, 2001. During February 2003, we
terminated our formal divestiture efforts relating to Porex.

Critical Accounting Policies and
Estimates

Our discussion and analysis of WebMDs
financial condition and results of operations are based upon our
Consolidated Financial Statements and Notes to Consolidated
Financial Statements, which were prepared in conformity with
accounting principles generally accepted in the United States.
The preparation of the consolidated financial statements
requires us to make estimates and assumptions that affect the
amounts reported in the consolidated financial statements. We
base our estimates on historical experience, current business
factors, and various other assumptions that we believe are
necessary to form a basis for making judgments about the
carrying values of assets and liabilities and disclosure of
contingent assets and liabilities. Actual results could differ
from these estimates.

We evaluate our estimates on an ongoing basis,
including those related to revenue recognition, short-term and
long-term investments, deferred tax assets, income taxes,
collectibility of customer receivables, prepaid content and
distribution services, long-lived assets including goodwill and
other intangible assets, certain accrued expenses, accruals
related to our restructuring program, contingencies and
litigation.

We believe the following reflect our critical
accounting policies and our more significant judgments and
estimates used in the preparation of our consolidated financial
statements:



| |   |                                                                                              
| | - | ---------------------------------------------------------------------------------------------
| |  | Revenue
    Our revenue recognition policies for each reportable segment are
    as follows:

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | Transaction Services or WebMD Envoy.Healthcare payers and providers pay us fees for our
services, generally on a per transaction basis or monthly basis.
We recognize revenue as we perform the service. Healthcare
payers and providers also pay us one-time implementation and
annual maintenance fees. We recognize revenue from these fees
ratably over the term of the respective agreements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| | Physician Services or WebMD Medical Manager.Healthcare providers pay us one-time fees for the purchase
of our practice management systems. We recognize revenue from
these one-time fees when we enter into noncancelable agreements
with our customers, the products have been delivered and there
are no uncertainties regarding product acceptance and delivery
and no significant future performance obligations. Amounts
received in advance of meeting these criteria are deferred until
we meet these criteria. Revenue from multiple-element software
arrangements is recognized using the residual method as vendor
specific objective evidence (VSOE) of fair value
exists for the undelivered elements, but not for all of the
delivered elements. The residual method requires revenue to be
allocated to the undelivered elements based on the fair value of
such elements, as indicated by VSOE. VSOE is based on the price
charged when an element is sold separately. Healthcare providers
also pay us fees for maintenance and support of their practice
management system, including the hardware and software. We
recognize revenue from these fees ratably over the contract
period, typically in one year or less. Healthcare providers also
pay us fees for transmitting transactions to payers and
patients. We recognize revenue from these fees, which are
generally paid on a monthly or per transaction basis, as we
provide the service.

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | Portal Services or WebMD Health.Customers pay us for advertising,
    sponsorship, healthcare management tools, continuing medical
    education (CME), content syndication and
    distribution, and e-commerce transactions related to our online
    distribution channels and the online and offline distribution
    channels of our strategic partners. In 2000, we also were paid
    subscription fees for our physician portal. Revenue from
    advertising is recognized as advertisements are delivered.
    Revenues from sponsorship arrangements and healthcare management
    tools are recognized ratably over the term of the applicable
    agreement. Revenue from CME arrangements is recognized over the
    period

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| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | we satisfy the minimum credit hour requirements
    of the applicable agreements. Revenue from fixed fee content
    license or carriage fees is recognized ratably over the term of
    the applicable agreement. E-commerce revenue is recognized when
    a subscriber or consumer utilizes our Internet-based services or
    purchases goods or services through our Web site or co-branded
    Web site with one of our strategic partners. Subscription
    revenue, including subscription revenue from sponsorship
    arrangements, is recognized over the subscription period. When
    contractual arrangements contain multiple elements, revenue is
    allocated to the elements based on their relative fair values,
    determined using prices charged when elements are sold
    separately.
|
| | Plastic Technologies or Porex.We develop, manufacture and distribute
    porous and solid plastic products and components. For standard
    products, we recognize revenue upon shipment of product, net of
    sales returns and allowances. Reserves are established for
    anticipated returns and allowances based on past experience. For
    sales of certain custom products, we recognize revenue upon
    completion and customer acceptance. Amounts received in advance
    of meeting these criteria are deferred until we meet these
    criteria.                                                                                                                                                                                                                                               



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Long-Lived
    Assets Our long-lived
    assets consist of property and equipment, goodwill and other
    intangible assets. Goodwill and other intangible assets arise
    from the acquisitions we have made. The amount assigned to
    intangible assets is subjective and based on our estimates of
    the future benefit of the intangible asset using accepted
    valuation techniques, such as discounted cash flow and
    replacement cost models. Our long-lived assets are amortized
    over their estimated useful lives, which we determined based on
    the consideration of several factors including the period of
    time the asset is expected to remain in service. We evaluate the
    carrying value and remaining useful lives of long-lived assets,
    excluding goodwill, whenever indicators of impairment are
    present. We evaluate the carrying value of goodwill annually. We
    use a discounted cash flow approach to determine the fair value
    of goodwill. There was no impairment of goodwill noted as a
    result of our impairment testing in 2002. During 2001, we
    identified certain indicators of possible impairment of our
    long-lived assets, primarily goodwill and other intangible
    assets. We evaluated our long-lived assets for impairment by
    determining identifiable cash flows to related asset groupings,
    and compared the projected undiscounted cash flows for each
    asset grouping to its carrying value. Once we determined there
    was an impairment, we quantified the impairment based on
    projected discounted cash flows. Other unknown future
    indications of possible impairment charges, such as a
    significant downturn in one of our business segments or
    reporting units or general economic conditions, could result in
    an additional assessment of our long-lived assets for impairment
    and could result in an additional impairment charge in the
    future.
|
| |  | Investments
    Our investments at December 31, 2002, consist principally
    of certificates of deposit, municipal bonds, asset backed
    securities, Federal Agency Notes, U.S. Treasury Notes and
    an equity investment in a publicly traded company. Each
    reporting period we evaluate the carrying value of our
    investments and record a loss on investments when we believe an
    investment has experienced a decline in value that is other than
    temporary. We do not recognize gains on an investment until
    sold. Our carrying value is not necessarily indicative of the
    underlying value of an investment. Future changes in market or
    economic conditions or operating results of our investments
    could result in gains or losses or an inability to recover the
    carrying value of the investments that may not be reflected in
    an investments carrying value.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| |  | Deferred Tax
    Assets Our deferred
    tax assets are comprised primarily of net operating loss
    carryforwards. At December 31, 2002, we had net operating
    loss carryforwards of approximately $1.8 billion. These
    loss carryforwards may be used to offset taxable income in
    future periods reducing the amount of taxes we might otherwise
    be required to pay. Due to a lack of a history of generating
    taxable income, we record a valuation allowance equal to 100% of
    our net deferred tax assets. In the event that we are able to
    generate taxable earnings in the future and determine it is more
    likely than not that we can realize our deferred tax assets, an
    adjustment to the valuation allowance would be made which may
    increase income in the period that such determination was made.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Restructuring and
    Integration In
    connection with our restructuring and integration efforts,
    modifications to our strategic relationship with News
    Corporation resulted in a change in the carrying value of
    advertising services we have the rights to, classified as
    prepaid content and distribution services. We estimated the fair
    value of our rights under the new agreement using a discounted
    cash flow approach. This estimate also affects the amortization
    of this asset in future periods over the contractual term. Also,
    in connection with our restructuring and integration efforts, we
    recorded charges for estimated future lease obligations and
    lease cancellation penalties related to exited facilities based
    on many different variables, such as the term to expiration,
    contractual rights under the lease agreement and current real
    estate market conditions. Future changes in any of these
    variables, such as a change in real estate market conditions,
    could have an impact on these estimates.

Acquisition History

We rapidly and significantly expanded our
operations through acquisitions. We completed the following
significant acquisitions during 1999 and 2000:

|                            |  |               |                |                 |  |               |     |             |  |               |             |  |  |  |            |  |  |   |         | 
|--------------------------- |  | ------------- | -------------- | --------------- |  | ------------- | --- | ----------- |  | ------------- | ----------- |  |  |  | ---------- |  |  | - | ------- | 
|                            |  |               |                | Shares of Our   |  | Shares of Our |     | Options and |  | Purchase     
|                            |  |               |                | Preferred Stock |  | Common        |     | Warrants    |  | Price        
|Company Acquired            |  | Date Acquired |                | Issued          |  | Stock Issued  |     | Assumed     |  | (in millions)
|                            |  |               |                |                 |  |               |     |             |  |              
|WebMD, Inc.                 |  |               | November 1999  |                 |  |               |    |             |  |               | 63,932,659  |  |  |  | 49,012,168 |  |  | $ | 3,659.9 | 
|MedE America                |  |               | November 1999  |                 |  |               |    |             |  |               | 10,404,454  |  |  |  | 468,584    |  |  |   | 417.3   | 
|Medcast                     |  |               | November 1999  |                 |  |               |    |             |  |               | 2,528,465   |  |  |  | 164,036    |  |  |   | 113.0   | 
|Kinetra                     |  |               | January 2000   |                 |  |               |    |             |  |               | 7,437,248   |  |  |  |           |  |  |   | 291.5   | 
|Envoy                       |  |               | May 2000       |                 |  |               |    |             |  |               | 35,000,000  |  |  |  |           |  |  |   | 2,440.2 | 
|OnHealth                    |  |               | September 2000 |                 |  |               |    |             |  |               | 4,678,609   |  |  |  | 1,384,113  |  |  |   | 363.0   | 
|Medical Manager/ CareInsite |  |               | September 2000 |                 |  |               | 100 |             |  |               | 134,370,010 |  |  |  | 81,084,865 |  |  |   | 2,906.6 | 

All of these acquisitions were accounted for
using the purchase method. Our financial information presented
reflects the results of operations for WebMD, Inc., MedE America
and Medcast from the closing date of November 12, 1999,
Kinetra from the closing date of January 31, 2000, Envoy
from the closing date of May 26, 2000, and Medical Manager,
CareInsite and OnHealth from the closing date of
September 12, 2000.

In 2001, we also completed 11 additional
acquisitions. In December 2001, we acquired the portal assets of
MedicaLogic/Medscape, Inc. (Medscape) for
$9.2 million in cash plus $0.6 million of expenses. In
connection with this acquisition, we recorded goodwill of
$5.7 million and intangible assets of $2.4 million.
The intangible assets are being amortized over their estimated
useful lives of three to five years. Also, throughout 2001, we
acquired ten physician services companies for the total cost of
$8.2 million which was paid primarily in cash. We recorded
goodwill of $9.9 million and other intangible assets of
$3.4 million associated with these acquisitions. The
intangible assets have estimated useful lives of one to nine
years.

In 2002, we completed 22 additional acquisitions.
On October 31, 2002, we acquired WellMed, Inc.
(WellMed), which develops and markets healthcare
information technology applications, including online healthcare
decision support and health management tools for use by
consumers. The total purchase consideration for WellMed was
approximately $19.0 million comprised of $18.8 million
in cash and estimated acquisition costs of $.3 million. In
connection with the preliminary allocation of the purchase
price, we recorded goodwill of $18.0 million and an
intangible asset of $2.7 million with an estimated useful
life of three years. Also, throughout 2002, we acquired 21
physician services companies for a total cost of
$14.4 million which was paid in cash. In connection with
the preliminary allocation of the purchase price, goodwill of
$11.8 million and intangible assets subject to amortization
of $4.0 million were recorded. The intangible assets have
estimated useful lives of one to nine years.

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Restructuring and Integration
Initiatives

After the mergers with Medical Manager,
CareInsite and OnHealth, our Board of Directors approved a
restructuring and integration plan, with the objective of
eliminating duplication and redundancies which resulted from the
acquisitions made by us since November 1999 and consolidating
our operational infrastructure into a common platform to more
efficiently serve our customers.

Additionally, as part of our restructuring and
integration efforts, we also undertook a review of our existing
strategic relationships in light of several criteria, including
strategic relevance to both us and our partners, potential
conflicts with other agreements as a result of the numerous
acquisitions made by us, profitability and impact on future
revenue streams. These discussions have resulted in significant
revisions to some of our strategic relationships. Our
restructuring and integration efforts continued in 2001, and a
plan to include the impact of eliminating functions resulting
from our acquisition of Medscape in December 2001 was initiated.
Additionally, our Plastic Technologies segment consolidated a
manufacturing facility in 2002 as part of a separate
restructuring plan.

In connection with our restructuring and
integration efforts, we recorded restructuring and integration
charges of $266.8 million in 2001, of which
$185.5 million was non-cash, and charges of
$452.9 million in 2000, of which $380.0 million was
non-cash. We have substantially completed our restructuring and
integration efforts, with the primary exception being remaining
lease payments of previously vacated facilities. Restructuring
activity in 2002 was limited to a net benefit of
$4.7 million, which includes the Plastic Technologies
restructuring charge of $1.2 million. For additional
information regarding our restructuring and integration efforts,
see Note 5 to the consolidated financial statements in this
Annual Report.

Operating Segments

We have aligned our business into four operating
segments as follows:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Transaction Services or WebMD Envoy.We transmit transactions between
    healthcare payers and physicians, pharmacies, dentists,
    hospitals, laboratory companies and other healthcare providers
    using dial-up, Internet and dedicated communication methods. We
    provide connectivity and transaction services through an
    integrated electronic transaction processing system. These
    services assist the groups customers in automating key
    administrative and clinical functions. In addition, Transaction
    Services provides automated patient billing services to
    providers, including statement printing and mailing services.
    This segment includes certain operations from the former
    Healtheon and the ActaMed, MedE America, WebMD, Inc., Kinetra,
    Envoy and CareInsite acquisitions.
|
| |  | Physician Services or WebMD Medical
    Manager.We develop and market
    integrated physician practice management systems, including
    administrative, financial and clinical applications and
    services, under The Medical Manager, Intergy, ULTIA and Medical
    Manager Network Services brands. These systems and services
    allow physician offices to automate their scheduling, billing
    and other administrative tasks, to maintain electronic medical
    records and to automate documentation of patient encounters.
    This segment includes operations of Medical Manager and
    subsequent Physician Services acquisitions.                                                                                                                                                                                 
|
| |  | Portal Services or WebMD Health.We provide online healthcare
    information and related resources and services for consumers and
    healthcare professionals, both directly and through our
    relationships with leading general consumer Internet portals. We
    also provide online content for use by media and healthcare
    partners in their Web sites. We develop and sell online and
    offline programs for advertisers and sponsors, particularly
    those who are interested in influencing healthcare decisions.
    This segment includes certain operations from the former
    Healtheon and the ActaMed, WebMD, Inc., Medcast, OnHealth,
    Medscape and WellMed acquisitions.                                                                                                                                 
|
| |  | Plastic Technologies or Porex.We develop, manufacture and
    distribute proprietary porous and solid plastic products and
    components used in healthcare, industrial and consumer
    applications, as                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

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| |  |                                                                                                                                                                                                    
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | well as in finished products used in medical
    device, research, clinical laboratory and surgical markets. This
    segment includes the Porex operations of the Medical Manager
    acquisition.

We evaluate the performance of our business
segments based upon income or loss before restructuring,
non-cash and other items. Non-cash and other items include
depreciation, amortization, impairment charges, gain or loss on
investments, other income, income tax (benefit) provision,
non-cash expenses related to content, advertising and
distribution services acquired in exchange for our equity
securities in acquisitions and strategic alliances and stock
compensation primarily related to stock options issued and
assumed in connection with acquisitions. The accounting policies
of the segments are the same as the accounting policies for the
consolidated company. We record inter-segment revenues at rates
comparable to those charged to third parties for comparable
services.

Results of Operations

The following table sets forth our consolidated
statements of operations data and expresses that data as a
percentage of revenue for the periods presented (amounts in
millions):

|                                           |                                                |                          |       |       |   |      |       |      |   |   |          |         |  |  |        |       |  |  |          |         |  |  |        |       | 
|------------------------------------------ | ---------------------------------------------- | ------------------------ | ----- | ----- | - | ---- | ----- | ---- | - | - | -------- | ------- |  |  | ------ | ----- |  |  | -------- | ------- |  |  | ------ | ----- | 
|                                           |                                                |                         
|                                           |                                                | Years Ended December 31,
|                                           |                                                |                         
|                                           |                                                |                          |       |       |   |     
|                                           |                                                | 2002                     |       | 2001  |   | 2000
|                                           |                                                |                          |       |       |   |     
|                                           |                                                | $                        |       | %     |   | $    |       | %    |   | $ |          | %      
|                                           |                                                |                          |       |       |   |      |       |      |   |   |          |        
|Revenue                                    |                                                |                          | 925.9 |       |   |      | 100.0 |      |   |   | 901.0    |         |  |  | 100.0  |       |  |  | 591.6    |         |  |  | 100.0  |      
|Costs and Expenses:                        |                                                |                          |       |       |   |      |       |      |   |   |          |         |  |  |        |       |  |  |          |         |  |  |        |      
|                                           | Cost of operations                             |                          |       | 545.2 |   |      |       | 58.8 |   |   |          | 604.2   |  |  |        | 67.0  |  |  |          | 441.0   |  |  |        | 74.6  | 
|                                           | Development and engineering                    |                          |       | 43.8  |   |      |       | 4.7  |   |   |          | 43.8    |  |  |        | 4.9   |  |  |          | 60.0    |  |  |        | 10.1  | 
|                                           | Sales, marketing, general and administrative   |                          |       | 291.7 |   |      |       | 31.4 |   |   |          | 457.5   |  |  |        | 50.8  |  |  |          | 538.4   |  |  |        | 91.0  | 
|                                           | Depreciation, amortization and other           |                          |       | 130.1 |   |      |       | 14.1 |   |   |          | 2,400.8 |  |  |        | 266.5 |  |  |          | 2,190.3 |  |  |        | 370.2 | 
|                                           | Impairment of long-lived and other assets      |                          |       | 0.6   |   |      |       | 0.1  |   |   |          | 3,826.9 |  |  |        | 424.7 |  |  |          |        |  |  |        |      | 
|                                           | Restructuring and integration (benefit) charge |                          |       | (4.7  | ) |      |       | (0.5 | ) |   |          | 266.8   |  |  |        | 29.6  |  |  |          | 452.9   |  |  |        | 76.6  | 
|                                           | (Gain) loss on investments                     |                          |       | (6.5  | ) |      |       | (0.7 | ) |   |          |        |  |  |        |      |  |  |          | 40.4    |  |  |        | 6.8   | 
|                                           | Interest income                                |                          |       | 19.7  |   |      |       | 2.1  |   |   |          | 30.5    |  |  |        | 3.4   |  |  |          | 51.5    |  |  |        | 8.7   | 
|                                           | Interest expense                               |                          |       | 8.9   |   |      |       | 1.0  |   |   |          | 1.1     |  |  |        | 0.1   |  |  |          | 0.9     |  |  |        | 0.2   | 
|                                           | Other income, net                              |                          |       | 3.8   |   |      |       | 0.4  |   |   |          |        |  |  |        |      |  |  |          |        |  |  |        |      | 
|                                           |                                                |                          |       |       |   |      |       |      |   |   |          |         |  |  |        |       |  |  |          |         |  |  |        |      
|Loss before income tax (benefit) provision |                                                |                          | (59.7 | )     |   |      | (6.4  | )    |   |   | (6,669.6 | )       |  |  | (740.2 | )     |  |  | (3,080.8 | )       |  |  | (520.8 | )    
|                                           |                                                |                          |       |       |   |      |       |      |   |   |          |         |  |  |        |       |  |  |          |         |  |  |        |      
|                                           | Income tax (benefit) provision                 |                          |       | (10.0 | ) |      |       | (1.0 | ) |   |          | 2.7     |  |  |        | 0.3   |  |  |          | 0.8     |  |  |        | 0.1   | 
|                                           |                                                |                          |       |       |   |      |       |      |   |   |          |         |  |  |        |       |  |  |          |         |  |  |        |      
|Net loss                                   |                                                |                          | (49.7 | )     |   |      | (5.4  | )    |   |   | (6,672.3 | )       |  |  | (740.5 | )     |  |  | (3,081.6 | )       |  |  | (520.9 | )    
|                                           |                                                |                          |       |       |   |      |       |      |   |   |          |         |  |  |        |       |  |  |          |         |  |  |        |      

Revenue is derived from our four business
segments: Transaction Services, Physician Services, Portal
Services and Plastic Technologies. Our Transaction Services
include administrative services, such as transaction processing
for medical, dental and pharmacy claims, automated patient
statements and clinical lab and reporting services, such as lab
test orders and results. A significant portion of Transaction
Services revenues is generated from the countrys largest
national and regional healthcare payers. Our Physician Services
include sales of practice management systems, including
administrative, financial and clinical applications and
services, under The Medical Manager, Intergy, ULTIA and Medical
Manager Network Services brands. Portal Services include
advertising, sponsorship, continuing medical education, content
syndication and distribution, and e-commerce transactions
through our online distribution channels and the online and
offline distribution channels of our strategic partners. The
majority of Portal Services revenues are derived from a small
number of customers. Our customers include pharmaceutical
companies, biotech companies, medical device companies and media
companies. Our Plastic Technologies revenue includes the sale of
porous plastic components used to control the flow of fluids and
gases, disposable plastic components including pipette tips,
test tubes and closure devices, injection-molded medical
components

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and finished medical devices, and sterile
surgical products. Revenues for 2001 and 2000 reflect the
reclassification of reimbursements for certain out-of-pocket
expenses as a result of our adoption of EITF 01-14
effective January 1, 2002. See  Recent
Accounting Pronouncements.


Cost of operations consists of costs related to
services and products we provide to customers and costs
associated with the operation and maintenance of our networks.
These costs include salaries and related expenses for network
operations personnel and customer support personnel,
telecommunication costs, maintenance of network equipment, cost
of hardware related to the sale of practice management systems
by Physician Services, a portion of facilities expenses, leased
personnel and facilities costs, and sales commissions paid to
certain distributors of our Transaction Services products, and
non-cash expenses related to content and distribution services.
In addition, cost of operations includes raw materials, direct
labor and manufacturing overhead, such as fringe benefits,
indirect labor and product development related to our Plastic
Technologies segment.

Development and engineering expense consists
primarily of salaries and related expenses associated with the
development of applications and services. Expenses include
compensation paid to development and engineering personnel, fees
to outside contractors and consultants, and the maintenance of
capital equipment used in the development process.

Sales, marketing, general and administrative
expense consists primarily of advertising, product and brand
promotion, salaries and related expenses for sales,
administrative, finance, legal, information technology, human
resources and executive personnel. These expenses include items
related to account management and marketing personnel,
commissions, costs and expenses for marketing programs and trade
shows, and fees for professional marketing and advertising
services, as well as fees for professional services, costs of
general insurance and costs of accounting and internal control
systems to support our operations. Also included are non-cash
expenses related to content and distribution services acquired
for our equity securities and stock compensation expense
primarily related to the amortization of deferred compensation.
Content and distribution services consist of advertising,
promotion and distribution services from our arrangements with
News Corporation, Microsoft, AOL and other partners. Stock
compensation primarily relates to deferred compensation
associated with the fair value of the vested portion of stock
options issued in exchange for outstanding stock options of
companies acquired in 2000, and the excess of the market price
over the exercise price of options granted to employees.

2002 and
2001

Revenue.Our total
revenues increased to $925.9 million in 2002 from
$901.0 million in 2001. Transaction Services, Physician
Services and Portal Services accounted for $9.3 million,
$15.1 million and $9.7 million, respectively, of the
revenue increase. This revenue increase was partially offset by
a revenue decrease in our Plastic Technologies segment of
$1.0 million and an increase in inter-segment eliminations
of $8.2 million.

Costs and
Expenses

Cost of Operations.Cost of operations decreased to $545.2 million in 2002 from
$604.2 million in 2001. Our cost of operations represented
58.8% of revenues in 2002, compared to 67.0% in 2001. This
decrease was primarily due to the elimination of costs as a
result of our restructuring and integration initiatives,
primarily reduced personnel and facilities related costs from
consolidating data center operations in our Transaction Services
segment as well as in our Portal Services segment. Also
contributing to the decrease were the elimination of direct
costs associated with residual revenue from technology
outsourcing and consulting relationships and other non-core
products that were exited in 2001 and 2002. As we have
substantially completed our restructuring and integration
initiatives, continued decreases in cost of operations as a
percentage of revenues, if any, are not expected to occur at the
same rate as the decrease from 2001. Cost of operations for 2002
and 2001 includes approximately $4.8 million and
$1.5 million, respectively, in non-cash expenses related to
content and distribution services.

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Development and
Engineering.Development and
engineering expense was $43.8 million for both 2002 and
2001. During 2002, we increased our investment in product
offerings in both the Transaction Services and Physician
Services segments, which was predominantly offset by the impact
of cost reductions resulting from our restructuring and
integration efforts.

Sales, Marketing, General and
Administrative.Sales, marketing,
general and administrative expense decreased to
$291.7 million in 2002 from $457.5 million in 2001,
which represents a decrease of 36.2% or $165.8 million.
Included in sales, marketing, general and administrative expense
are non-cash expenses related to content and distribution
services and stock compensation. Non-cash expenses related to
content and distribution services were $20.9 million in
2002, compared to $43.9 million in 2001. This decrease was
primarily due to the expiration of certain content and
distribution alliance agreements. Non-cash stock compensation
was $25.3 million in 2002, compared to $78.5 million
in 2001. The decrease in non-cash stock compensation is
primarily related to the vesting schedules of options issued and
assumed in connection with our 2000 acquisitions. Sales,
marketing, general and administrative expense excluding the
non-cash expenses discussed above, decreased to
$245.5 million in 2002 from $335.1 million in 2001.
This decrease is primarily due to the elimination of costs as a
result of our restructuring and integration efforts. The
reduction is primarily due to reduced advertising expenses
related to the elimination of barter arrangements and
distribution costs in our Portal Services segment, as well as
lower personnel related costs and lower bad debt expense. As we
have substantially completed our restructuring and integration
initiatives, continued decreases in sales, marketing, general
and administrative expense, if any, are not expected to occur at
the same rate as the decreases from 2001.

Depreciation, Amortization and
Other.Depreciation and amortization
expense decreased to $130.1 million in 2002 from
$2.4 billion in 2001. The decrease was primarily
attributable to the adoption of SFAS No. 142 on
January 1, 2002, which eliminates amortization expenses
related to goodwill and certain intangibles and requires these
assets to be tested for impairment at least annually. We
recorded goodwill and intangible amortization of
$2.2 billion in 2001, related to goodwill and certain
intangible assets that were not subject to amortization in 2002.

Impairment of Long-Lived and Other
Assets.During 2002, we performed both
the transitional and annual impairment tests of goodwill, as
required by SFAS No. 142. There was no impairment resulting
from these tests. Additionally, our Plastic Technologies segment
recorded an impairment charge of $0.6 million during 2002
related to equipment to be disposed of following the cessation
of a product line. During 2001, we identified certain indicators
of possible impairment of long-lived assets, primarily goodwill
and other acquired intangible assets. These indicators included
a further decline in the price of our common stock to its lowest
price in the previous twelve months accompanied by a significant
decline in the volatility of our stock price, a sustained
decline in valuations in the e-health, technology and Internet
sectors, and the impact of recent trends in general economic
conditions. Based on these indicators, we reviewed substantially
all of our long-lived assets for impairment. As a result of this
review, we determined that our long-lived and other assets,
primarily goodwill and other acquired intangibles, were impaired
and recorded a write-down of $3.8 billion during 2001.

Restructuring and Integration (Benefit)
Charge.In connection with our
restructuring and integration efforts, we recorded a net benefit
of $4.7 million in 2002. This benefit related to
$5.9 million in settlements of certain contractual
obligations, which was partially offset by a restructuring
charge of $1.2 million related to the consolidation of a
manufacturing plant into other facilities within our Plastic
Technologies segment.

Gain on Investments.Gain on investments of $6.5 million represents a
$5.9 million gain related to the sale of one of our
investments in available-for-sale securities and a
$0.6 million gain related to one of our investments in
held-to-maturity securities that was called for early redemption.

Interest Income.Interest income decreased to $19.7 million in 2002, from
$30.5 million in 2001. This decrease is due to lower
average balances available for investment as a result of cash
used to settle certain contracts with certain of our strategic
partners, repurchases of our stock, acquisitions during 2002 and
2001, and payments made under our restructuring and integration
program combined with lower

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available rates of return, offset in part by
interest income related to the $292 million of net proceeds
received from our issuance of 3 1/4% Convertible
Subordinated Notes on April 1, 2002.


Interest Expense.Interest expense increased to $8.9 million in 2002 from
$1.1 million in 2001, as a result of interest expense and
amortization of debt issuance costs related to the 3 1/4%
Convertible Subordinated Notes issued in April 2002.

Other Income, Net.Other income of $3.8 million in 2002 includes
$5.2 million for the settlement of various preacquisition
issues related to certain of the companies acquired in 1998
through 2000. This income was partially offset by
$1.4 million in expenses related to our disposition plan
for our Plastic Technologies business.

Income Tax (Benefit)
Provision.Income tax (benefit)
provision in 2002 includes a $12.9 million benefit
reflecting the carryback of net operating losses to the prior
periods of certain acquired subsidiaries, in which those
subsidiaries generated taxable income. The carryback was allowed
as a result of the Job Creation and Workers Assistance Act
of 2002 that was enacted on March 9, 2002. In
addition, we have operations that are profitable in certain
states and foreign countries in which we do not have net
operating losses to offset that income. Accordingly, we provided
for $2.9 million and $2.7 million of state, local and
foreign income taxes during 2002 and 2001, respectively.

2001 and
2000

Revenue.Our total
revenue increased to $901.0 million in 2001 from
$591.6 million in 2000. Transaction Services, Physician
Services and Plastic Technologies revenues accounted for
$147.7 million, $176.6 million, and
$85.9 million, respectively, of the revenue increase. This
increase was partially offset by a revenue decrease in our
Portal Services segment of $65.4 million and a decrease in
inter-segment eliminations and other of $35.4 million. The
increase in Transaction Services revenue was primarily
attributable to the full year impact of the acquisitions of
Envoy in May 2000 and CareInsite in September 2000. The
increases in Physician Services and Plastic Technologies
revenues were attributable to the full year impact of the
September 2000 acquisition of Medical Manager. The decrease in
Portal Services revenue was primarily due to the elimination of
revenue as a result of the termination of our strategic
relationship with DuPont and the revisions to our strategic
relationship with Microsoft. Revenues associated with these
relationships were $48.5 million in 2000, primarily related
to the sponsorship of subscriptions to the WebMD professional
portal. There were no revenues from these strategic
relationships in 2001. Also contributing to the decline in
Portal Services revenue was the impact of the softness in the
market for Internet advertising on us and certain of our
carriage partners. The decrease in inter-segment eliminations
and other reflects our decision during 2000 to exit our
technology consulting and outsourcing relationships and other
non-core products, and an increase in the elimination of
inter-segment revenues included across the reportable segments
to $14.1 million from $3.1 million.

Revenue from related parties was
$3.0 million in 2001 and $45.3 million in 2000. These
revenues consist of services provided to Microsoft (who ceased
being a related party in October 2001) and News Corporation (who
ceased being a related party in February 2001).

Costs and
Expenses

Cost of Operations.Cost of operations increased to $604.2 million in 2001 from
$441.0 million in 2000. The increase is attributable to
expenses related to the full year impact of the companies
acquired during 2000, increased personnel and network operation
costs and $1.5 million of non-cash distribution service
expense, partially offset by the elimination of costs as a
result of our restructuring and integration efforts. As a result
of the revision or termination of our strategic relationships,
primarily with Microsoft, News Corporation and DuPont, costs of
$37.8 million included in cost of operations in 2000 were
eliminated in 2001. Cost of operations as a percentage of
revenue improved to 67.0% in 2001 from 74.6% in 2000. The
improvement in cost of operations as a percentage of revenues is
primarily due to changes in product mix as well as the
elimination of costs as a result of our restructuring and
integration efforts.

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Development and
Engineering.Development and
engineering expense decreased to $43.8 million in 2001 from
$60.0 million in 2000. The decrease was the result of cost
reductions related to our restructuring and integration efforts,
partially offset by the full year impact for companies acquired
during 2000.

Sales, Marketing, General and
Administrative.Sales, marketing,
general and administrative expense decreased to
$457.5 million in 2001 from $538.4 million in 2000.
Included in sales, marketing, general and administrative expense
are non-cash expenses related to content and distribution
services and stock compensation. Non-cash expenses related to
content and distribution services were $43.9 million and
$87.5 million in 2001 and 2000, respectively, and non-cash
stock compensation expenses were $78.5 million and
$72.5 million in 2001 and 2000, respectively. The decrease
in non-cash content and distribution services expense reflects
the impact of our revised strategic relationships with News
Corporation and Microsoft and the termination of the DuPont
relationship. Sales, marketing, general and administrative
expense excluding the non-cash expenses discussed above was
$335.1 million in 2001 compared to $378.5 million in
2000. This decrease resulted from the elimination of costs as a
result of our restructuring and integration efforts, offset
partially by costs associated with the 2000 acquisitions and
$3.0 million in severance cost associated with the
departure of our former President. As a result of the revision
or termination of our strategic relationships, primarily with
Microsoft, News Corporation and DuPont, costs of
$36.5 million included in selling, marketing, general and
administrative expense in 2000 were eliminated in 2001.

Depreciation, Amortization and
Other.Depreciation, amortization and
other increased to $2.4 billion in 2001 from
$2.2 billion in 2000. The increase is due primarily to the
full year impact of amortization of intangible assets associated
with the companies acquired in 2000, offset by the reduced
amortization as a result of the impairment charge of
$3.8 billion related to the write-down of our long-lived
assets during 2001 and the elimination of $108.2 million of
dividends and accretion of discount related to the Series A
convertible preferred stock in 2000.

Impairment of Long-Lived and Other
Assets.During 2001, we identified
certain indicators of possible impairment of long-lived assets,
primarily goodwill and other acquired intangible assets. These
indicators included a further decline in the price of our common
stock to its lowest price in the previous twelve months
accompanied by a significant decline in the volatility of our
stock price, a sustained decline in valuations in the e-health,
technology and Internet sectors, and the impact of recent trends
in general economic conditions. Based on these indicators, we
reviewed substantially all of our long-lived assets for
impairment. As a result of this review, we determined that our
long-lived and other assets, primarily goodwill and other
acquired intangibles, were impaired and recorded a write-down of
$3.8 billion during 2001.

Restructuring and Integration
Charges.In connection with our
restructuring and integration efforts, we recorded a total
charge in 2001 of $266.8 million, which consists of:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | $123.2 million relating to the restructuring
    of strategic relationships primarily associated with Microsoft,
    of which $133.5 million represented non-cash charges
    related to the write-off of intangible assets associated with
    our original Microsoft agreement recorded as part of our
    acquisition of WebMD, Inc. in 1999, offset by a
    $15.6 million cash benefit relating to the settlement of
    certain obligations from the original strategic relationship
    with Microsoft, as well as net cash payments of
    $5.3 million made to exit contractual obligations,
|
| |  | $52.0 million cash charge associated with
    the settlement of the original Quintiles agreements, of which
    $59.0 million was a cash charge recorded for the difference
    between the purchase price and fair value of the
    35,000,000 shares of our common stock acquired in October
    2001, offset by a $7.0 million cash benefit related to our
    release from certain obligations in relation to our acquisition
    of Envoy,                                                                                                                                                      
|
| |  | personnel-related restructuring costs of
    $67.6 million, of which $52.0 million primarily
    represented non-cash stock option compensation charges related
    to the resignation or termination of certain                                                                                                                                                                                                                                                                                                                                                                                     

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | employees pursuant to the applicable employment
    and separation arrangements, with the remaining
    personnel-related charge relating to severance and outplacement
    services for approximately 615 employees that we identified
    and notified of termination during 2001. This includes personnel
    related restructuring costs of $2.8 million related to
    severance and outplacement services of 115 employees that
    we notified of termination in relation to our Medscape
    acquisition and restructuring,
|
| |  | facilities charges of $15.6 million,
    comprised of future lease obligations and lease cancellation
    penalties, and                                                                                                                                                                                                                                                                                                                                                                                                           
|
| |  | $8.4 million of integration costs,
    consisting of employee retention arrangements related to exit
    activities.                                                                                                                                                                                                                                                                                                                                                                                                               

Interest Income,
Net.Interest income, net decreased to
$29.4 million in 2001 from $50.6 million in 2000. The
decrease was due to lower average balances available for
investment as a result of cash used to settle certain contracts
with certain of our strategic partners, repurchases of our
common stock, acquisitions during 2001 and 2000, and payments
made under our restructuring and integration program.

Results of Operations by Operating
Segment

We evaluate the performance of our business
segments based upon income or loss before restructuring,
non-cash and other items. Non-cash and other items include
depreciation, amortization, accretion of preferred stock,
impairment charges, gain or loss on investments, other income,
income tax benefit (provision) and non-cash expenses related to
content, advertising and distribution services acquired in
exchange for our equity securities in acquisitions and strategic
alliances and stock compensation primarily related to stock
options issued and assumed in connection with acquisitions. The
accounting policies of the segments are the same as the
accounting policies for the consolidated company. We record
inter-segment revenues at rates comparable to those charged to
third parties for comparable services.

Segment information related to income or loss
before restructuring, non-cash and other items for 2000 has not
been provided as our operations and internal reporting were not
organized in a manner consistent with the current reportable
segments and it is impracticable to create this information. For
the year 2000, we managed our operations within two segments:
Healthcare Information Services and Technology Solutions
(Healthcare Services) and Plastic Technologies. In
2000, the Healthcare Services segment included the operations of
what are now our Transaction Services, Physician Services and
Portal Services segments and Corporate expenses. The
organization of our Plastic Technologies segment is consistent
with its previous structure. In 2000, income (loss) before
restructuring, non-cash and other items was
$(296.2) million and $8.3 million for the Healthcare
Services and Plastic Technologies segments, respectively.
Additionally, net interest income was $50.6 million in 2000.

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The following table presents the results of our
operations for each of our reportable segments:

|                                                                      |          |                          |        |       |   |      |          |          |   |   |          |          |  
|--------------------------------------------------------------------- | -------- | ------------------------ | ------ | ----- | - | ---- | -------- | -------- | - | - | -------- | -------- | -
|                                                                      |          |                         
|                                                                      |          | Years Ended December 31,
|                                                                      |          |                         
|                                                                      |          | 2002                     |        | 2001  |   | 2000
|                                                                      |          |                          |        |       |   |     
|                                                                      |          |                         
|                                                                      |          | (in millions)           
|Revenues                                                              |          |                          |        |       |   |      |          |          |   |   |          |         
|Transaction services                                                  |          | $                        | 466.8  |       |   | $    | 457.5    |          |   | $ | 309.8    |         
|Physician services                                                    |          |                          | 275.3  |       |   |      | 260.2    |          |   |   | 83.6     |         
|Portal services                                                       |          |                          | 84.3   |       |   |      | 74.6     |          |   |   | 140.0    |         
|Plastic technologies                                                  |          |                          | 120.0  |       |   |      | 121.0    |          |   |   | 35.1     |         
|Eliminations and other, net(a)                                        |          |                          | (20.5  | )     |   |      | (12.3    | )        |   |   | 23.1     |         
|                                                                      |          |                          |        |       |   |      |          |          |   |   |          |         
|                                                                      |          | $                        | 925.9  |       |   | $    | 901.0    |          |   | $ | 591.6    |         
|                                                                      |          |                          |        |       |   |      |          |          |   |   |          |         
|Income (loss) before restructuring, non-cash
    and other items      |          |                          |        |       |   |      |          |          |   |   |          |         
|Transaction services                                                  |          | $                        | 85.2   |       |   | $    | 42.0     |          |   | $ |         |         
|Physician services                                                    |          |                          | 26.7   |       |   |      | 20.8     |          |   |   |         |         
|Portal services                                                       |          |                          | 5.6    |       |   |      | (79.4    | )        |   |   |         |         
|Plastic technologies                                                  |          |                          | 30.0   |       |   |      | 30.8     |          |   |   |         |         
|Corporate and other                                                   |          |                          | (51.3  | )     |   |      | (94.8    | )        |   |   |         |         
|Interest income                                                       |          |                          | 19.7   |       |   |      | 30.5     |          |   |   |         |         
|Interest expense                                                      |          |                          | (8.9   | )     |   |      | (1.1     | )        |   |   |         |         
|                                                                      |          |                          |        |       |   |      |          |          |   |   |          |         
|                                                                      |          | $                        | 107.0  |       |   | $    | (51.2    | )        |   | $ | (237.3   | )       
|                                                                      |          |                          |        |       |   |      |          |          |   |   |          |         
|Restructuring, non-cash and other
    items                           |          |                          |        |       |   |      |          |          |   |   |          |         
|Depreciation, amortization and other                                  |          | $                        | (130.1 | )     |   | $    | (2,400.8 | )        |   | $ | (2,190.3 | )       
|Non-cash content and distribution services and
    stock compensation |          |                          | (51.0  | )     |   |      | (123.9   | )        |   |   | (159.9   | )       
|Impairment of long-lived and other assets                             |          |                          | (0.6   | )     |   |      | (3,826.9 | )        |   |   |         |         
|Restructuring and integration benefit (charge)                        |          |                          | 4.7    |       |   |      | (266.8   | )        |   |   | (452.9   | )       
|Gain (loss) on investments                                            |          |                          | 6.5    |       |   |      |         |          |   |   | (40.4    | )       
|Income tax benefit (provision)                                        |          |                          | 10.0   |       |   |      | (2.7     | )        |   |   | (0.8     | )       
|Other income, net                                                     |          |                          | 3.8    |       |   |      |         |          |   |   |         |         
|                                                                      |          |                          |        |       |   |      |          |          |   |   |          |         
|                                                                      | Net loss |                          | $      | (49.7 | ) |      | $        | (6,672.3 | ) |   | $        | (3,081.6 | )
|                                                                      |          |                          |        |       |   |      |          |          |   |   |          |         



---



|    |                                                                                                                                                                                                                                                                                                                                                                     
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | Includes revenues related to technology
    outsourcing and consulting relationships and other non-core
    products that we decided to exit as a result of restructuring
    and integration efforts that commenced in the third quarter of
    2000, and elimination of inter-segment revenues of $20.5, $14.1,
    and $3.1 in 2002, 2001 and 2000, respectively.

Transaction
Services.Revenues were
$466.8 million in 2002, an increase of $9.3 million
from 2001. The increase was due to higher transaction volumes
and the impact of the postal rate increase that was effective
July 1, 2002. These increases were partially offset by the
net reduction in revenues of $22.5 million in 2002, when
compared to 2001. This reduction in revenue related to certain
terminated products and relationships, such as hospital and
laboratory connectivity relationships and consolidation of
duplicate product offerings exited in 2001 and 2002.

Income before restructuring, non-cash and other
items in 2002 increased by $43.2 million or 102.9% from
2001. As a percentage of revenue, income before restructuring,
non-cash and other items improved to 18.3% in 2002, from 9.2% in
2001. The improvement was a result of our consolidation and
integration efforts which resulted in lower personnel and
occupancy-related expenses and the elimination of certain
unprofitable products and relationships.

As we have substantially completed our
consolidation and integration efforts, continued improvement in
income before restructuring, non-cash and other items is not
expected to continue at the same rate as the improvement from
2001.

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Physician Services.Revenues were $275.3 million in 2002, an increase of
$15.1 million from 2001. The increase was primarily
attributable to an increase in Medical Manager Network Services
revenues as well as higher systems sales and maintenance
revenues. The higher sales in 2002 reflect the impact of the
June 2002 release of Intergy. The cumulative revenues from the
2001 and 2002 acquisitions contributed $6.8 million more in
revenues in 2002.

Income before restructuring, non-cash and other
items increased by $5.9 million in 2002 from 2001. As a
percentage of revenue, income before restructuring, non-cash and
other items was 9.7% in 2002 compared to 8.0% in 2001. This
improvement related to changes in the mix of revenues offset by
roll-out costs related to our new products.

Portal Services.Revenues were $84.3 million in 2002, an increase of
$9.7 million from 2001. The increase was a result of higher
levels of sponsorship from our customers, the acquisition of
Medscape in late 2001 and WellMed in late 2002, which
contributed an aggregate of $23.4 million in revenues
during 2002, partially offset by the elimination of arrangements
which generated barter revenue of $19.0 million in 2001. No
barter revenue was recognized during 2002. Revenue from related
parties was $3.0 million in 2001. These revenues consist of
services provided to News Corporation. Revenue from News
Corporation ceased being considered from a related party as of
February 15, 2001 when News Corporation surrendered our
Series A convertible preferred stock.

Income before restructuring, non-cash and other
items in 2002 was $5.6 million, compared to a loss of
$79.4 million in 2001. As a percentage of revenue, the
income (loss) before restructuring, non-cash and other items
improved to 6.6% in 2002, compared to (106.4)% in 2001. Our
restructuring, integration and cost containment efforts have
resulted in substantial reductions in personnel, marketing,
advertising, content, distribution and other expenses.

As we have substantially completed our
restructuring and integration initiatives, income before
restructuring, non-cash and other items in 2003 is not expected
to improve at the same rate of improvement in 2002.

Plastic
Technologies.Revenues were
$120.0 million in 2002, a decrease of $1.0 million
from 2001. The decrease was primarily due to lower sales of our
injection molded laboratory and medical products, partially
offset by higher sales of our porous and surgical products.

Income before restructuring, non-cash and other
items in 2002 was $30.0 million, a decrease of
$0.8 million from 2001. As a percentage of revenue, income
before restructuring, non-cash and other items was 25.0% in 2002
compared to 25.5% in 2001. This decrease was due to the effect
of the lower sales discussed above and an increase in certain
direct manufacturing and other costs.

Corporate and Otherincludes expenses shared across all segments, such as executive
personnel, corporate finance, legal, human resources and risk
management as well as the residual costs during the prior year
periods related to the exit of discontinued products resulting
from our restructuring and integration efforts. Corporate and
other expenses declined to $51.3 million in 2002 from
$94.8 million in 2001 as a result of consolidating many
duplicative corporate functions and the elimination of residual
expenses related to discontinued products. These efforts
resulted in reduced expenses in occupancy, personnel, outside
services and other operating expenses. As we have substantially
completed our restructuring and integration initiatives,
corporate expenses are not expected to decline in 2003 as they
did in 2002.

Inter-Segment Eliminations and Other,
Net.The increase of $8.2 million
in inter-segment eliminations from 2001 resulted from higher
sales of Transaction Services products into the Physician
Services customer base, offset by the elimination of
$1.8 million in revenues from technology outsourcing and
consulting relationships and other non-core products exited in
2001.

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Liquidity and Capital Resources

We have incurred significant operating and net
losses since we began operations and, as of December 31,
2002, we had an accumulated deficit of $10.2 billion. We
plan to continue to invest in acquisitions, strategic
relationships, infrastructure and product development.

As of December 31, 2002, we had
approximately $190.4 million in cash and cash equivalents
and short-term investments and working capital of
$119.5 million. Additionally, we had long-term investments
of $449.3 million in marketable debt securities and
$7.4 million in marketable equity securities. We invest our
excess cash principally in U.S. Treasury obligations and
federal agency notes and expect to do so in the future.

Cash provided by operating activities was
$93.1 million in 2002, compared to cash used in operating
activities of $114.3 million in 2001. The cash provided
from operating activities was primarily a result of the net loss
of $49.7 million and net changes in operating assets and
liabilities of $34.0 million, offset by non-cash charges of
$183.4 million. The cash used in operating activities a
year ago was primarily attributable to a net loss of
$6.7 billion, offset primarily by non-cash charges of
$6.5 billion. The non-cash charges consist of depreciation
and amortization, impairment of long-lived and other assets,
non-cash expenses related to content and distribution services
and stock compensation, amortization of debt issuance costs and
the non-cash portion of the restructuring and integration charge.

Cash used in investing activities was
$402.7 million in 2002, compared to cash provided by
investing activities of $76.4 million in 2001. Cash used in
investing activities during 2002 primarily related to
$508.8 million of purchases of held-to-maturity and
available-for-sale securities, partially offset by
$168.1 million of proceeds from the maturities, sales and
redemption of available-for-sale and held-to-maturity
securities. Cash provided by investing activities a year ago
primarily related to maturities of short-term marketable debt
securities. Investments in property and equipment were
$28.5 million in 2002, compared to $31.0 million in
2001. Cash paid in business combinations was $33.5 million
in 2002 and related to the WellMed and Physician Services
acquisitions. Cash paid in business combinations in 2001 was
$17.3 million and related to the Medscape and Physician
Services acquisitions.

Cash provided by financing activities was
$201.8 million in 2002, primarily related to the receipt of
net proceeds of $292.0 million from our offering of
$300 million aggregate principal amount of 3 1/4%
Convertible Subordinated Notes. The Notes are convertible into
an aggregate of approximately 32.4 million shares of common
stock. We also received net proceeds of $28.8 million
related to exercises of employee stock options, offset by
$105.0 million used to repurchase 18.2 million shares
of our common stock and $10 million used to redeem our
Series B Preferred Stock. Cash used in financing activities
was $182.2 million in 2001, primarily related to
$191.8 million used to repurchase shares of our common
stock partially offset by $13.0 million net proceeds from
exercises of employee stock options.

As of December 31, 2002, we did not have any
material commitments for capital expenditures. Our principal
commitments at December 31, 2002 consisted primarily of our
commitments related to the $300 million of 3 1/4%
Convertible Subordinated Notes, obligations under operating
leases and guaranteed payments under our strategic agreements.
We had entered into agreements that provided for us to make
aggregate guaranteed payments in the following estimated
amounts, net of sublease income, under operating leases and our
strategic relationships. The lease amounts include leases
identified in our restructuring and integration efforts.

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|                         |  |               |        |               |  |       |       |  |  |   |        | 
|------------------------ |  | ------------- | ------ | ------------- |  | ----- | ----- |  |  | - | ------ | 
|                         |  |               |        | Strategic     |  |      
|Year Ending December 31, |  | Leases        |        | Relationships |  | Total
|                         |  |               |        |               |  |      
|                         |  |              
|                         |  | (in millions)
|2003                     |  | $             | 25,647 |               |  | $     | 2,461 |  |  | $ | 28,108 | 
|2004                     |  |               | 23,057 |               |  |       | 1,262 |  |  |   | 24,319 | 
|2005                     |  |               | 18,870 |               |  |       | 754   |  |  |   | 19,624 | 
|2006                     |  |               | 15,658 |               |  |       | 500   |  |  |   | 16,158 | 
|2007                     |  |               | 13,576 |               |  |       | 125   |  |  |   | 13,701 | 
|Thereafter               |  |               | 45,229 |               |  |       |      |  |  |   | 45,229 | 

We believe that we will have sufficient cash
resources to meet our presently anticipated working capital and
capital expenditure requirements, including the capital
requirements related to the roll-out of our new products in
2003, for the foreseeable future. Our future liquidity and
capital requirements will depend upon numerous factors,
including the success of the integration of our businesses,
retention of customers at current volume and revenue levels, our
existing and new application and service offerings, competing
technological and market developments, potential future
acquisitions and additional repurchases of our common stock. In
addition, we have been incurring, and expect to continue to
incur, costs relating to our own compliance with the Healthcare
Insurance Portability and Accountability Act of 1996, or HIPAA,
and for assistance we provide to our customers in their
compliance efforts. Our ability to perform our services in
compliance with HIPAA and the cost to us of doing so will depend
on, among other things, the status of the compliance efforts of
our payer and provider customers and the extent of the need to
adjust our systems and procedures in response to changes in
their systems and procedures. We may need to raise additional
funds to support expansion, develop new or enhanced applications
and services, respond to competitive pressures, acquire
complementary businesses or technologies or take advantage of
unanticipated opportunities. If required, we may raise such
additional funds through public or private debt or equity
financing, strategic relationships or other arrangements. There
can be no assurance that such financing will be available on
acceptable terms, if at all, or that such financing will not be
dilutive to our stockholders.

Recent Accounting Pronouncements

In December 2002, the FASB issued Statement of
Financial Accounting Standards (SFAS) No. 148,
Accounting for Stock-Based Compensation 
Transition and Disclosure  An Amendment of FASB
Statement No. 123. SFAS No. 148 provides
alternative methods of transition for a voluntary change to the
fair value method of accounting for stock-based employee
compensation. In addition, the statement requires us to disclose
in both annual and interim financial statements the method of
accounting for stock-based compensation and the effect of the
method used on our reported results. The statement is effective
for annual periods ending after December 15, 2002 and
interim periods beginning after December 15, 2002. We apply
the intrinsic value method of accounting for stock-based
employee compensation. The adoption of SFAS No. 148 did not
have a material impact on our consolidated financial position or
results of operations.

In November 2002, the FASB issued Interpretation
No. 45, Guarantors Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others (FIN 45). The
interpretation elaborates on the disclosures to be made in our
interim and annual financial statements about obligations under
certain guarantees. It also requires us to recognize, at the
inception of a guarantee, a liability for the fair value of the
obligation undertaken in issuing the guarantee. The disclosure
requirements are effective for financial statements of interim
and annual periods ending after December 15, 2002. The
initial measurement and recognition provisions are required to
be applied on a prospective basis to guarantees issued or
modified after December 31, 2002. We expect that the
adoption of FIN 45 will not have a material impact on our
consolidated financial position or results of operations.

In June 2002, the FASB issued SFAS No. 146,
Accounting for Costs Associated with Exit or Disposal
Activities. SFAS No. 146 requires recording costs
associated with exit or disposal activities at

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their fair values when a liability has been
incurred. Under previous guidance, certain exit costs were
accrued upon managements commitment to an exit plan, which
is generally before an actual liability has been incurred. SFAS
No. 146 is effective for exit or disposal activities
initiated after December 31, 2002. We expect that the
adoption of SFAS No. 146 will have an impact on the timing
of the recording of any future restructuring charges.


Effective January 1, 2002, we adopted
EITF 01-14, Income Statement Characterization of
Reimbursements Received for Out-of-Pocket Expenses
Incurred, which requires reimbursements received for
out-of-pocket expenses to be classified as revenue as opposed to
being offset against the related expense. Application of EITF
No. 01-14 is required for financial reporting periods
beginning after December 15, 2001. Upon application,
comparative financial statements for prior periods are required
to be reclassified to comply with this guidance. As a result of
applying EITF No. 01-14, we reclassified reimbursements we
received for out-of pocket expenses related to postage for
customized billing statements mailed to patients on behalf of
healthcare providers.

In August 2001, the FASB issued SFAS
No. 144, Accounting For Impairment of Long-Lived
Assets. We adopted this pronouncement beginning
January 1, 2002. SFAS No. 144 prescribes the
accounting for long-lived assets (excluding goodwill) to be
disposed of by sale. SFAS No. 144 retains the requirement
of SFAS No. 121 to measure long-lived assets classified as
held for sale at the lower of its carrying value or fair market
value less the cost to sell. Therefore, discontinued operations
are no longer measured on a net realizable basis, and future
operating results are no longer recognized before they occur.
The adoption of SFAS No. 144 did not have any impact on our
consolidated financial condition or results of operations.

In June 2001, the FASB issued SFAS No. 143,
Accounting for Asset Retirement Obligations, which
establishes accounting standards for recognition and measurement
of a liability for the costs of asset retirement obligations.
Under SFAS No. 143, the future costs of retiring a tangible
long-lived asset will be recorded as a liability at its present
value when the retirement obligation arises, and will be
amortized to expense over the life of the asset. SFAS
No. 143 is effective for fiscal years beginning after
June 15, 2002. We expect that the adoption of SFAS
No. 143 will not have a material impact on our consolidated
financial position or results of operations.

Effective July 1, 2001 and January 1,
2002, we adopted SFAS No. 141, Business
Combinations and SFAS No. 142, Goodwill and
Other Intangible Assets, respectively. SFAS No. 141
requires all business combinations initiated after June 30,
2001 to be accounted for using the purchase method of
accounting. SFAS No. 142 requires that goodwill and certain
intangibles no longer be amortized, but instead tested for
impairment at least annually. As a result of our adoption of
SFAS No. 141 and SFAS No. 142, (i) no
amortization was recorded for goodwill resulting from business
combinations completed after June 30, 2001,
(ii) effective January 1, 2002, the amortization of
goodwill was eliminated, and (iii) certain amounts
previously classified as intangible assets were reclassified as
goodwill and consequently, no longer subject to amortization.
Additionally, there was no impairment of goodwill upon adoption
of SFAS No. 142 on January 1, 2002, or in connection
with the annual impairment test that was performed during the
quarter ended December 31, 2002.

Factors That May Affect Our Future Financial
Condition or Results of Operations

This section describes circumstances or events
that could have a negative effect on our financial results or
operations or that could change, for the worse, existing trends
in some or all of our businesses. The occurrence of one or more
of the circumstances or events described below could have a
material adverse effect on our financial condition, results of
operations and cash flows or on the trading prices of the common
stock and convertible notes that we have issued. The risks and
uncertainties described below are not the only ones facing
WebMD. Additional risks and uncertainties that are not currently
known to us or that we currently believe are immaterial may also
adversely affect our business and operations.



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Risks Related to Our Relationships with
Customers and Strategic Partners



| |                                                                                                                                                                                                                                   
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | WebMD Envoys transaction volume and
    financial results could be adversely affected if we do not
    maintain relationships with practice management system vendors
    and large submitters of healthcare EDI
    transactions

We have developed relationships with practice
management system vendors and large submitters of healthcare
claims to increase the usage of our WebMD Envoy transaction
services. WebMD Medical Manager is a competitor of these
practice management system vendors. These vendors, as a result
of our ownership of WebMD Medical Manager or for other reasons,
may choose in the future to diminish or terminate their
relationships with WebMD Envoy. Some other large submitters of
claims compete with, or may have significant relationships with
entities that compete with, WebMD Envoy or WebMD Health. To the
extent that we are not able to maintain mutually satisfactory
relationships with the larger practice management system vendors
and large submitters of healthcare EDI transactions, WebMD
Envoys transaction volume and financial results could be
adversely affected.



| |                                                                                                                                                                              
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | WebMD Envoys transaction volume and
    financial results could be adversely affected if payers and
    providers conduct EDI transactions without using a
    clearinghouse

There can be no assurance that healthcare payers
and providers will continue to use WebMD Envoy and other
independent companies to transmit healthcare transactions. Some
payers currently offer electronic data transmission services to
healthcare providers that establish a direct link between the
provider and payer, bypassing third party EDI service providers
such as WebMD Envoy. Any significant increase in the utilization
of direct links between healthcare providers and payers could
have a material adverse effect on WebMD Envoys transaction
volume and financial results. We cannot provide assurance that
we will be able to maintain our existing links to payers or
develop new connections on satisfactory terms, if at all.



| |                                                                                                                           
| | --------------------------------------------------------------------------------------------------------------------------
| | Loss of a small number of advertisers and
    sponsors could have a material adverse effect on WebMD
    Healths revenues

A substantial portion of WebMD Healths
revenues come from a relatively small number of advertisers and
sponsors. We expect this to continue in the future. Thus, the
loss of one or a small number of relationships with advertisers
and sponsors or reduction of their purchases could have a
material adverse effect on our Portal Services revenues. We may
lose such relationships or experience a reduction in purchases
if customers decide not to renew their commitments or renew at
lower levels, which may occur if we fail to meet our
customers expectations or needs or to keep up with our
competition or for reasons outside our control, including
changes in economic and regulatory conditions affecting the
healthcare industry or changes specific to the businesses of
particular customers. See Developments in the healthcare
industry could adversely affect our business on
page 62 and Government Regulation beginning on
page 27.



| |                                                                                           
| | ------------------------------------------------------------------------------------------
| | Third parties may bring claims as a result
    of the activities of our strategic partners

We could be subject to claims by third parties,
and to liability, as a result of the activities, products or
services of our strategic partners. We state on our Web sites
that we do not control or endorse the products or services of
our strategic partners. However, there can be no assurance that
the statements made in our portal will be found to be sufficient
to ensure that we are not held responsible for such activities,
products or services. Furthermore, even if these claims do not
result in liability to us,

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investigating and defending these claims could be
expensive, time-consuming and result in adverse publicity that
could harm our business.




---

Risks Related to the Performance of Our
Healthcare Information Services and Technology
Solutions



| |                                                                                                                                                         
| | --------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our ability to generate revenue could
    suffer if we do not continue to update and improve our existing
    products and services and develop new ones

We must introduce new healthcare information
services and technology solutions and improve the functionality
of our existing products and services in a timely manner in
order to retain existing customers and attract new ones.
However, we may not be successful in responding to technological
developments and changing customer needs. The pace of change in
the markets we serve is rapid, and there are frequent new
product and service introductions by our competitors and by
vendors whose products and services we use in providing our own
products and services. If we do not respond successfully to
technological changes and evolving industry standards, our
products and services may become obsolete. Technological changes
may also result in the offering of competitive products and
services at lower prices than we are charging for our products
and services, which could result in our losing sales unless we
lower the prices we charge.

We rely on a combination of internal development,
strategic relationships, licensing and acquisitions to develop
our products and services. The cost of developing new healthcare
information services and technology solutions is inherently
difficult to estimate. Our development of proposed products and
services may take longer than originally expected, require more
testing than originally anticipated and require the acquisition
of additional personnel and other resources. In addition, there
can be no assurance that the products we develop or license will
be able to compete with the alternatives available to our
customers. See Competition for Our Healthcare Information
Services and Technology Solutions beginning on
page 20.



| |                                                                                                                                            
| | -------------------------------------------------------------------------------------------------------------------------------------------
| | New or newly integrated products and
    services will not become profitable unless they achieve
    sufficient levels of market acceptance

There can be no assurance that healthcare
providers and payers will accept from us new products and
services or products and services that result from integrating
existing and/or acquired products and services, including the
products and services we are developing to integrate our
transaction services and portal services into the physician
office workflow, such as our handheld solution.

Even providers and payers who are already our
customers may not purchase new or newly integrated products or
services, especially when they are initially offered. Providers
using our existing products and services may refuse to adopt new
or newly integrated products and services when they have made
extensive investments in hardware, software and training
relating to those existing products and services. Similarly,
other healthcare participants may not accept new or newly
integrated products and services that we develop for their use.
In addition, there can be no assurance that any pricing strategy
that we implement for any such products and services will be
economically viable or acceptable to the target markets. Failure
to achieve broad penetration in target markets with respect to
new or newly integrated products and services could have a
material adverse effect on our business prospects.



| |                                                                                                                                               
| | ----------------------------------------------------------------------------------------------------------------------------------------------
| | Achieving market acceptance of new or newly
    integrated products and services is likely to require
    significant efforts and expenditures

Achieving market acceptance for new or newly
integrated products and services is likely to require
substantial marketing efforts and expenditure of significant
funds to create awareness and demand by participants in the
healthcare industry. In addition, deployment of new or newly
integrated products and services may require the use of
additional resources for training our existing sales force and
customer service personnel and for hiring and training
additional salespersons and customer service personnel. There

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can be no assurance that the revenue
opportunities from new or newly integrated products and services
will justify amounts spent for their development, marketing and
roll-out.




| |                                                                                                                                                                                                                       
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We could be subject to breach of warranty
    claims if our software products, information technology systems
    or transmission systems contain errors, experience failures or
    do not meet customer expectations

We could face breach of warranty or other claims
or additional development costs if the software and systems we
sell or license to customers or use to provide services contain
undetected errors, experience failures, do not perform in
accordance with their documentation, or do not meet the
expectations that our customers have for them. These software
and systems are inherently complex and, despite testing and
quality control, we cannot be certain that errors will not be
found in prior versions, current versions or future versions or
enhancements. In particular, during times when we are making
significant changes or improvements to our products and
services, such as those required by HIPAA, there is increased
risk of error.

Undetected errors in the software and systems we
provide or those we use to provide services could cause serious
problems for which our customers may seek compensation from us.
For example, errors in our transaction processing systems can
result in healthcare payers paying the wrong amount or making
payments to the wrong payee. We attempt to limit, by contract,
our liability for damages arising from negligence, errors or
mistakes. However, contractual limitations on liability may not
be enforceable in certain circumstances or may otherwise not
provide sufficient protection to us from liability for damages.
Even if these claims do not result in liability to us,
investigating and defending against them could be expensive and
time consuming and could divert managements attention away
from our operations. In addition, negative publicity caused by
these events may delay market acceptance of our products and
services, including unrelated products and services.



| |                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------
| | We could be subject to product liability
    claims if our products malfunction or provide inaccurate
    information

We provide products and services that assist in
healthcare decision-making, including some that relate to
patient medical histories and treatment plans. If these products
malfunction or fail to provide accurate and timely information,
we could be subject to product liability claims. Even if these
claims do not result in liability to us, investigating and
defending against them could be expensive and time consuming and
could divert managements attention away from our
operations. In addition, negative publicity caused by these
events may delay market acceptance of our products and services,
including unrelated products and services.

We attempt to limit, by contract, our liability
for damages arising from negligence, errors or mistakes.
However, contractual limitations on liability may not be
enforceable in certain circumstances or may otherwise not
provide sufficient protection to us from liability for damages.
We maintain general liability insurance coverage, including
coverage for errors and omissions. However, it is possible that
claims could exceed the amount of our applicable insurance
coverage or that this coverage may not continue to be available
on acceptable terms or in sufficient amounts.



| |                                                                                                           
| | ----------------------------------------------------------------------------------------------------------
| | We could lose customers and revenues if we
    fail to meet the performance standards in our
    contracts

Many of our customer contracts contain
performance standards. If we fail to meet these standards, our
customers may seek to terminate their agreements with us,
withhold payments due to us, seek refunds from us of part or all
of the fees charged under those agreements or initiate
litigation or other dispute resolution procedures. Despite
testing and quality control, we cannot be certain that we will
meet these performance standards. To the extent we fail to
achieve these standards, our revenues and customer relationships
could be adversely affected.

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| |                                                                                                                                         
| | ----------------------------------------------------------------------------------------------------------------------------------------
| | If our systems or the Internet experience
    security breaches or are otherwise perceived to be insecure, our
    business could suffer

A security breach could damage our reputation or
result in liability. We retain and transmit confidential
information, including patient health information, in our
processing centers and other facilities. It is critical that
these facilities and infrastructure remain secure and be
perceived by the marketplace as secure. We may be required to
expend significant capital and other resources to protect
against security breaches and hackers or to alleviate problems
caused by breaches. Despite the implementation of security
measures, this infrastructure or other systems that we interface
with, including the Internet and related systems, may be
vulnerable to physical break-ins, hackers, improper employee or
contractor access, computer viruses, programming errors, attacks
by third parties or similar disruptive problems. Any compromise
of our security, whether as a result of our own systems or
systems that they interface with, could reduce demand for our
services.



| |                                                                                            
| | -------------------------------------------------------------------------------------------
| | Performance problems with WebMD
    Envoys systems could adversely affect our
    business

Our payer and provider customer satisfaction and
our business could be harmed if WebMD Envoy experiences delays,
failures or loss of data in its systems. We currently process
our payer and provider transactions and data at our facilities
and at a data center in Tampa, Florida that is operated by an
independent third party. We have contingency plans for
emergencies with our systems; however, we have limited backup
facilities to process information if these facilities are not
functioning. The occurrence of a major catastrophic event or
other system failure at any of our facilities or at the third
party facility could interrupt data processing or result in the
loss of stored data, which could have a material adverse impact
on our business.



| |                                                                                                                             
| | ----------------------------------------------------------------------------------------------------------------------------
| | WebMD Envoys ability to provide
    transaction services depends on services provided by 
     telecommunications companies

WebMD Envoy relies on a limited number of
suppliers to provide some of the telecommunications services
necessary for its transaction services. The telecommunications
industry has been subject to significant changes as a result of
changes in technology, regulation and the underlying economy.
Recently, many telecommunications companies have experienced
financial problems and some have sought bankruptcy protection.
Some of these companies have discontinued telecommunications
services for which they had contractual obligations to WebMD
Envoy. WebMD Envoys inability to source telecommunications
services at reasonable prices due to a loss of competitive
suppliers could affect its ability to maintain its margins until
it is able to raise its prices to its customers and, if it is
not able to raise its prices, could have a material adverse
effect on its financial results.



---

Risks Related to Providing Products and
Services to the Healthcare Industry



| |                                                                                
| | -------------------------------------------------------------------------------
| | Developments in the healthcare industry
    could adversely affect our business

Almost all of the revenues of WebMD Health, WebMD
Envoy and WebMD Medical Manager come from customers in various
parts of the healthcare industry. In addition, a significant
portion of Porexs revenues come from products used in
healthcare or related applications. Developments that result in
a reduction of expenditures by customers or potential customers
in the healthcare industry could have a material adverse effect
on our business. General reductions in expenditures by
healthcare industry participants could result from, among other
things:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | government regulation or private initiatives that
    affect the manner in which healthcare providers interact with
    patients, payers or other healthcare industry participants,
    including changes in pricing or means of delivery of healthcare
    products and services (for additional discussion of the
    potential effects of regulatory matters on our business and on
    participants in the healthcare industry, see Government
    Regulation beginning on page 27);

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| |   |                                                                                                                                                                                                           
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | consolidation of healthcare industry participants;                                                                                                                                                        
|
| |  | reductions in governmental funding for
    healthcare; and                                                                                                                                                
|
| |  | adverse changes in business or economic
    conditions affecting healthcare payers or providers,
    pharmaceutical companies, medical device manufacturers or other
    healthcare industry participants.

Even if general expenditures by industry
participants remain the same or increase, developments in the
healthcare industry may result in reduced spending on
information technology and services or in some or all of the
specific segments of that market we serve or are planning to
serve. For example, use of our products and services could be
affected by:



| |   |                                                                                                                                                                                                                                                                                           
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | changes in the billing patterns of healthcare
    providers;                                                                                                                                                                                                                              
|
| |  | changes in the design of health insurance plans;                                                                                                                                                                                                                                          
|
| |  | changes in the contracting methods payers use in
    their relationships with providers; and                                                                                                                                                                                              
|
| |  | decreases in marketing expenditures by
    pharmaceutical companies or medical device manufacturers,
    including as a result of governmental regulation or private
    initiatives that discourage or prohibit promotional activities
    by pharmaceutical or medical device companies.

In addition, expectations of our customers
regarding pending or potential industry developments may also
affect their budgeting processes and spending plans with respect
to products and services of the types we provide.

The healthcare industry has changed significantly
in recent years and we expect that significant changes will
continue to occur. However, the timing and impact of
developments in the healthcare industry are difficult to
predict. We cannot provide assurance that the markets for our
products and services will continue to exist at current levels
or that we will have adequate technical, financial and marketing
resources to react to changes in those markets.



| |                                                                                                                                                                                                        
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Government regulation of healthcare and
    healthcare information technology, including HIPAA, creates
    risks and challenges with respect to our compliance efforts and
    our business strategies

General.The
healthcare industry is highly regulated and is subject to
changing political, regulatory and other influences. These
factors affect the purchasing practices and operations of
healthcare organizations. Federal and state legislatures and
agencies periodically consider programs to reform or revise the
United States healthcare system. These programs may contain
proposals to increase governmental involvement in healthcare,
lower reimbursement rates or otherwise change the environment in
which healthcare industry participants operate. Healthcare
industry participants may respond by reducing their investments
or postponing investment decisions, including investments in our
applications and services. We are unable to predict future
proposals with any certainty or to predict the effect they would
have on our business. Existing laws and regulations also could
create liability, cause us to incur additional cost or restrict
our operations.

HIPAA.As described
under Government Regulation  Health Insurance
Portability and Accountability Act of 1996 beginning on
page 27 and WebMD Envoy  HIPAA on
page 14, the effect of HIPAA on our business is difficult
to predict and there can be no assurances that we will
adequately address the business risks created by the HIPAA and
its implementation or that we will be able to take advantage of
any resulting business opportunities. We may incur significant
expenses relating to compliance with HIPAA. Our ability to
perform our transaction services in compliance with HIPAA and
the cost to us of doing so will depend on, among other things,
the status of the compliance efforts of our payer and provider
customers and the extent of the need to adjust our systems and
procedures in response to changes in their systems and
procedures. We cannot control when or how payers, providers,
practice management system vendors or other healthcare
participants will comply with HIPAAs transaction standards
or predict how their compliance efforts will affect their
relationships with us, including the volume of transactions for
which they use our services. In addition, our technological and
strategic

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responses to HIPAA may result in conflicts with,
or other adverse changes in our relationships with, some
healthcare industry participants, including some who are
existing or potential customers for our products and services or
existing or potential strategic partners. Furthermore, we are
unable to predict what changes to HIPAA, or the regulations
issued pursuant to HIPAA, might be made in the future or how
those changes could affect our business or the costs of
compliance with HIPAA.


Healthcare
Relationships.A federal law commonly
known as the Medicare/ Medicaid anti-kickback law and several
similar state laws prohibit payments that are intended to induce
healthcare providers either to refer patients or to acquire or
arrange for or recommend the acquisition of healthcare products
or services. These laws are broad and may apply to some of our
activities or our relationships with our customers, advertisers
or strategic partners. Other federal and state laws generally
prohibit individuals or entities from knowingly presenting, or
causing to be presented, claims for payment from Medicare,
Medicaid, or other third-party payers that are false or
fraudulent, or are for items or services that were not provided
as claimed. Since we provide transaction services to healthcare
providers, we cannot provide assurance that the government will
regard errors in transactions processed by us as inadvertent and
not in violation of these laws. Anti-kickback and false claims
laws prescribe civil and criminal penalties for noncompliance
that can be substantial. Even an unsuccessful challenge by
regulatory authorities or our practices could cause us adverse
publicity and be costly for us to respond to.

Regulation of Medical
Devices.Certain of Porexs
products are FDA-regulated medical devices, such as plastic and
reconstructive surgical implants, intravenous administration
sets, blood filters, and tissue expanders. These products are
subject to comprehensive government regulation under the Food,
Drug and Cosmetic Act and implementing regulations. In addition,
the FDA regulates WebMD Medical Managers DIMDX
System as a medical image management device. If the FDA finds
that we have not complied with required procedures, it can bring
a wide variety of enforcement actions that could result in
severe civil and criminal sanctions. Porex is also subject to
similar regulation in international markets, with similar risks.
Future medical devices that Porex or WebMD Medical Manager wish
to bring to market may be required to obtain 510(k) clearance or
premarket approval from the FDA, as well as similar clearances
and approvals from governmental authorities outside of the
United States, which can be expensive, time-consuming and
burdensome to obtain.

For more information regarding healthcare
regulation to which we are or may be subject, see
Government Regulation beginning on page 27.



---

Risks Related to Our Web Sites and Our Use of
the Internet



| |                                                                              
| | -----------------------------------------------------------------------------
| | Government regulation of the Internet could
    adversely affect our business

The Internet and its associated technologies are
subject to government regulation. Our failure, or the failure of
our business partners, to accurately anticipate the application
of applicable laws and regulations, or any other failure to
comply, could create liability for us, result in adverse
publicity, or negatively affect our business. In addition, new
laws and regulations, or new interpretations of existing laws
and regulations, may be adopted with respect to the Internet or
other online services covering user privacy, patient
confidentiality, consumer protection and other issues, including
pricing, content, copyrights and patents, distribution, and
characteristics and quality of products and services. We cannot
predict whether these laws or regulations will change or how
such changes will affect our business. Government regulation of
the Internet could limit the effectiveness of the Internet for
the methods of healthcare e-commerce that we are providing or
developing or even prohibit the sale of particular products and
services.

For more information regarding government
regulation of the Internet to which we are or may be subject,
see Government Regulation beginning on page 27.

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| |                                                                                                                            
| | ---------------------------------------------------------------------------------------------------------------------------
| | We face potential liability related to the
    privacy and security of personal information we collect on our
    Web sites

Internet user privacy has become a controversial
issue both in the United States and abroad. We have privacy
policies posted on our consumer portal and our professional
portal that we believe comply with applicable laws requiring
notice to users about our information collection, use and
disclosure practices. However, whether and how existing privacy
and consumer protection laws in various jurisdictions apply to
the Internet is still uncertain and may take years to resolve.
Any legislation or regulation in the area of privacy of personal
information could affect the way we operate our Web sites and
could harm our business. Further, we can give no assurance that
the statements on our portals, or our practices, will be found
sufficient to protect us from liability or adverse publicity in
this area.

For more information regarding regulation of the
collection, use and disclosure of personal information to which
we may be subject, see Government Regulation
beginning on page 27.



| |                                                                                                                                            
| | -------------------------------------------------------------------------------------------------------------------------------------------
| | We must demonstrate the value of the WebMD
    Medscape Health Network to advertisers and sponsors in order to
    generate revenue from it

We generate WebMD Health revenues from
advertising and sponsorships on the WebMD Medscape Health
Network, with a majority of these revenues coming from a small
number of customers. The Internet advertising and sponsorship
market is new and continues to evolve, and no standards have
been widely accepted to measure its effectiveness as compared to
traditional media advertising. We cannot provide assurance that
we will be able to continue to generate sufficient advertising
or sponsorship revenue from the WebMD Medscape Health Network to
operate it profitably.

We sometimes enter into relationships with
advertisers and sponsors in which we agree to be compensated
based on specific negotiated criteria designed to demonstrate
the value of our portal services. The amount of compensation
that we receive from such arrangements may be less than we
believed it would be at the time of entering into such
arrangements and at the time of performing the services.



| |                                                                                                                                      
| | -------------------------------------------------------------------------------------------------------------------------------------
| | Implementation of changes in hardware and
    software platforms used to deliver our Web sites may result in
    performance problems

From time to time, we implement changes to the
hardware and software platforms we use for creating and
delivering our Web sites. During and after the implementation of
those changes, a platform may not perform as expected, which
could result in interruptions in the operation of our Web sites,
an increase in response time of those sites or an inability to
track performance metrics. Any significant interruption in our
ability to operate our Web sites could have an adverse effect on
our relationship with users and sponsors and, as a result, on
our financial results.



| |                                                                      
| | ---------------------------------------------------------------------
| | Our Internet-based services rely on third
    party service providers

Our Web sites are designed to operate
24 hours a day, seven days a week, without interruption. To
do so, we rely on communications and hosting services provided
by third parties. We do not maintain redundant systems or
facilities for some of these services. To operate without
interruption, both we and our service providers must guard
against:



| |   |                                                                             
| | - | ----------------------------------------------------------------------------
| |  | damage from fire, power loss and other natural
    disasters;               
|
| |  | communications failures;                                                    
|
| |  | software and hardware errors, failures or crashes;                          
|
| |  | security breaches, computer viruses and similar
    disruptive problems; and
|
| |  | other potential interruptions.                                              

We have experienced periodic system interruptions
in the past, and we cannot guarantee that they will not occur
again. In addition, our Web sites may, at times, be required to
accommodate higher than usual

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volumes of traffic. At those times, our Web sites
may experience slower response times or system failures. Any
sustained or repeated interruptions or disruptions in these
systems or increase in their response times could result in
reduced usage of our Web sites and could damage our
relationships with strategic partners, advertisers and sponsors.
Although we maintain insurance for our business, we cannot
guarantee that our insurance will be adequate to compensate us
for all losses that may occur or to provide for costs associated
with business interruptions.




| |                                                                                                                    
| | -------------------------------------------------------------------------------------------------------------------
| | Our Internet-based services are dependent
    on the development and maintenance of the Internet
    infrastructure

Our ability to deliver our Internet-based
services is dependent on the development and maintenance of the
infrastructure of the Internet by third parties. This includes
maintenance of a reliable network backbone with the necessary
speed, data capacity and security, as well as timely development
of complementary products such as high-speed modems, for
providing reliable Internet access and services. The Internet
has experienced, and is likely to continue to experience,
significant growth in the number of users and the amount of
traffic. If the Internet continues to experience increased
usage, the Internet infrastructure may be unable to support the
demands placed on it. In addition, the performance of the
Internet may be harmed by increased usage.

The Internet has experienced a variety of outages
and other delays as a result of damages to portions of its
infrastructure, and it could face outages and delays in the
future. These outages and delays could reduce the level of
Internet usage as well as the availability of the Internet to us
for delivery of our Internet-based services. In addition, our
customers who utilize our Web-based services depend on Internet
service providers, online service providers and other Web site
operators for access to our Web site. All of these providers
have experienced significant outages in the past and could
experience outages, delays and other difficulties in the future
due to system failures unrelated to our systems. Any significant
interruptions in our services or increases in response time
could result in a loss of potential or existing users of and
advertisers and sponsors on our Web site and, if sustained or
repeated, could reduce the attractiveness of our services.



| |                                                                            
| | ---------------------------------------------------------------------------
| | Third parties may challenge the
    enforceability of our online agreements

The law governing the validity and enforceability
of online agreements and other electronic transactions is
evolving. We could be subject to claims by third parties that
our online agreements with consumers and physicians that provide
the terms and conditions for use of our portal services and
physician services are unenforceable. A finding by a court that
these agreements are invalid could harm our business and require
costly changes to our portals.



| |                                                                                                                                                       
| | ------------------------------------------------------------------------------------------------------------------------------------------------------
| | Third parties may bring claims against us
    as a result of content provided on our Web site, which may be
    expensive and time consuming to defend

We could be subject to third party claims based
on the nature and content of information supplied on our Web
site by us or third parties, including content providers,
medical advisors or users. We could also be subject to liability
for content that may be accessible through our Web site or third
party Web sites linked from our Web site or through content and
information that may be posted by users in chat rooms, bulletin
boards or on Web sites created by professionals using our Web
site application. Even if these claims do not result in
liability to us, investigating and defending against these
claims could be expensive and time consuming and could divert
managements attention away from our operations.



| |                                                                                                                 
| | ----------------------------------------------------------------------------------------------------------------
| | Some of our services will not be widely
    adopted until broadband connectivity is more generally
    available

Some of our services and planned services require
a continuous broadband connection between the physicians
office and our data center and/or the Internet. The availability
of broadband connectivity varies widely from location to
location and even within a single geographic area, due to
factors such as the distance of a site from the central
switching office. The future availability of broadband
connections is

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unpredictable and is not within our control.
While we expect that many physician office locations will remain
without ready access to broadband connectivity for some period
of time, we cannot predict how long that will be. Accordingly,
the lack of these broadband connections will continue to place
limitations on the number of sites that are able to utilize our
Internet-based services and the revenue we can expect to
generate from those services.




---

Risks Related to Porexs Business and
Industry



| |                                                                                                                                                            
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------
| | Porexs success depends upon demand
    for its products, which in some cases ultimately depends upon
    end-user demand for the products of its customers

Demand for our Porex products may change
materially as a result of economic or market conditions and
other trends that affect the industries in which it
participates. In addition, because a significant portion of our
Porex products are components that are eventually integrated
into or used with products manufactured by customers for resale
to end-users, the demand for these product components is
dependent on product development cycles and marketing efforts of
these other manufacturers, as well as variations in their
inventory levels, which are factors that we are unable to
control. Accordingly, the amount of Porexs sales to
manufacturer customers can be difficult to predict and subject
to wide quarter-to-quarter variances.



| |                                                                                      
| | -------------------------------------------------------------------------------------
| | Porexs success may depend upon
    satisfying rapidly changing customer requirements

A significant portion of our Porex products are
integrated into end products used in various industries, some of
which are characterized by rapidly changing technology, evolving
industry standards and practices and frequent new product
introductions. Accordingly, Porexs success will depend to
a substantial degree on our ability to develop and introduce in
a timely manner products that meet changing customer
requirements and to differentiate our offerings from those of
our competitors. If we do not introduce new Porex products in a
timely manner and make enhancements to existing products to meet
the changing needs of our Porex customers, some of our products
could become obsolete over time, in which case our customer
relationships, revenue and operating results would be negatively
impacted.



| |                                                                                                                                            
| | -------------------------------------------------------------------------------------------------------------------------------------------
| | Potential new or enhanced Porex products
    may not achieve sufficient sales to be profitable or justify the
    cost of their development

We cannot be certain, when we engage in Porex
research and development activities, whether potential new
products or product enhancements will be accepted by the
customers for which they are intended. Achieving market
acceptance for new or enhanced products may require substantial
marketing efforts and expenditure of significant funds to create
awareness and demand by potential customers. In addition, sales
and marketing efforts with respect to these products may require
the use of additional resources for training our existing Porex
sales forces and customer service personnel and for hiring and
training additional salespersons and customer service personnel.
There can be no assurance that the revenue opportunities from
new or enhanced products will justify amounts spent for their
development and marketing. In addition, there can be no
assurance that any pricing strategy that we implement for any
new or enhanced Porex products will be economically viable or
acceptable to the target markets.



| |                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------
| | Porex may not be able to source the raw
    materials it needs or may have to pay more for those raw
    materials

Some of Porexs products require high-grade
plastic resins with specific properties as raw materials. While
Porex has not experienced any material difficulty in obtaining
adequate supplies of high-grade plastic resins that meet its
requirements, it relies on a limited number of sources for some
of these plastic resins. If Porex experiences a reduction or
interruption in supply from these sources, it may not be able to
access alternative sources of supply within a reasonable period
of time or at commercially reasonable rates, which could have a
material adverse effect on its business and financial results.

67



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Porex also uses a variety of plastic resins that
are generally available from a number of suppliers. However, the
raw materials for these plastic resins are petroleum based and
may be subject to significant and rapid price increases based on
factors affecting the pricing of petroleum products in general,
which could have a material adverse effect on the margins of
some of our plastic products.



| |                                                                                                                                   
| | ----------------------------------------------------------------------------------------------------------------------------------
| | Disruptions in Porexs manufacturing
    operations could have a material adverse effect on its business
    and financial results

Any significant disruption in Porexs
manufacturing operations, including as a result of fire, power
interruptions, equipment malfunctions, labor disputes, material
shortages, earthquakes, floods, computer viruses, sabotage,
terrorist acts or other force majeure, could have a material
adverse effect on Porexs ability to deliver products to
customers and, accordingly, its financial results.



| |                                                                                                                                                      
| | -----------------------------------------------------------------------------------------------------------------------------------------------------
| | The nature of Porexs products exposes
    it to product liability claims that may not be adequately
    covered by indemnity agreements or insurance

The products sold by Porex, whether sold directly
to end-users or sold to other manufacturers for inclusion in the
products that they sell, expose it to potential risk of product
liability claims, particularly with respect to Porexs life
sciences, clinical, surgical and medical products. Some of
Porexs products are designed to be permanently implanted
in the human body. Design defects and manufacturing defects with
respect to such products sold by Porex or failures that occur
with the products of Porexs manufacturer customers that
contain components made by Porex could result in product
liability claims and/or a recall of one or more of Porexs
products. Porex also manufactures products that are used in the
processing of blood for medical procedures and the delivery of
medication to patients. Porex believes that it carries adequate
insurance coverage against product liability claims and other
risks. We cannot assure you, however, that claims in excess of
Porexs insurance coverage will not arise. In addition,
Porexs insurance policies must be renewed annually.
Although Porex has been able to obtain adequate insurance
coverage at an acceptable cost in the past, we cannot assure you
that Porex will continue to be able to obtain adequate insurance
coverage at an acceptable cost.

In most instances, Porex enters into indemnity
agreements with its manufacturing customers. These indemnity
agreements generally provide that these customers would
indemnify Porex from liabilities that may arise from the sale of
their products that incorporate Porex components to, or the use
of such products by, end-users. While Porex generally seeks
contractual indemnification from its customers, any such
indemnification is limited, as a practical matter, to the
creditworthiness of the indemnifying party. If Porex does not
have adequate contractual indemnification available, product
liability claims, to the extent not covered by insurance, could
have a material adverse effect on its business, operating
results and financial condition.

Since March 1991, Porex has been named as one of
many co-defendants in a number of actions brought by recipients
of mammary implants distributed by Porex in the United States.
For a description of these actions, see the information under
Legal Proceedings  Porex Mammary Implant
Litigation.



| |                                                                                                                                                                                        
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Economic, political and other risks
    associated with Porexs international sales and
    geographically diverse operations could adversely affect
    Porexs operations and results

Since Porex sells its products worldwide, its
business is subject to risks associated with doing business
internationally. In addition, Porex has manufacturing assets in
the United Kingdom, Germany and Malaysia. Accordingly,
Porexs operations and financial results could be harmed by
a variety of factors, including:



| |   |                                                                                                                        
| | - | -----------------------------------------------------------------------------------------------------------------------
| |  | changes in foreign currency exchange rates;                                                                            
|
| |  | changes in a specific countrys or
    regions political or economic conditions, particularly in
    emerging markets;
|
| |  | trade protection measures and import or export
    licensing requirements;                                             

68



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| |   |                                                                                  
| | - | ---------------------------------------------------------------------------------
| |  | potentially negative consequences from changes in
    tax laws;                  
|
| |  | difficulties in managing international and
    geographically diverse operations;
|
| |  | differing protection of intellectual property; and                               
|
| |  | unexpected changes in regulatory requirements.                                   



| |                                                                     
| | --------------------------------------------------------------------
| | Environmental regulation could adversely
    affect Porexs business

Porex is subject to foreign and domestic
environmental laws and regulations and is subject to scheduled
and random checks by environmental authorities. Porexs
business involves the handling, storage and disposal of
materials that are classified as hazardous. Although
Porexs safety procedures for handling, storage and
disposal of these materials are designed to comply with the
standards prescribed by applicable laws and regulations, Porex
may be held liable for any environmental damages that result
from Porexs operations. Porex may be required to pay
fines, remediation costs and damages, which could have a
material adverse effect on its results of operations.



---

Risks Applicable to Our Entire
Company



| |                                                                  
| | -----------------------------------------------------------------
| | We face significant competition for our
    products and services

The markets in which we operate are intensely
competitive, continually evolving and, in some cases, subject to
rapid technological change. Many of our competitors have greater
financial, technical, product development, marketing and other
resources than we do. These organizations may be better known
than we are and have more customers than we do. We cannot
provide assurance that we will be able to compete successfully
against these organizations or any alliances they have formed or
may form. For more information about the competition we face,
see Competition for Our Healthcare Information Services
and Technology Solutions beginning on page 20 and
Porex  Competition beginning on
page 24.



| |                                                                                                                 
| | ----------------------------------------------------------------------------------------------------------------
| | The performance of our businesses depends
    on attracting and retaining qualified executives and
    employees

Our performance depends on attracting and
retaining key personnel, including executives, product managers,
software developers and other technical personnel and sales and
marketing personnel. Failure to do so could have a material
adverse effect on the performance of our business and the
results of our operations.



| |                                                                                            
| | -------------------------------------------------------------------------------------------
| | We may not be successful in protecting our
    intellectual property and proprietary rights

Our intellectual property is important to all of
our businesses. We rely on a combination of trade secret, patent
and other intellectual property laws and confidentiality
procedures and non-disclosure contractual provisions to protect
our intellectual property. We believe that our non-patented
proprietary technologies and business and manufacturing
processes are protected under trade secret, contractual and
other intellectual property rights. However, those rights do not
afford the statutory exclusivity provided by patented processes.
In addition, the steps that we take to protect our intellectual
property, proprietary information and trade secrets may prove to
be inadequate and, whether or not adequate, may be expensive.

There can be no assurance that we will be able to
detect potential or actual misappropriation or infringement of
our intellectual property, proprietary information or trade
secrets. Even if we detect misappropriation or infringement by a
third party, there can be no assurance that we will be able to
enforce our rights at a reasonable cost, or at all. In addition,
our rights to intellectual property, proprietary information and
trade secrets may not prevent independent third-party
development and commercialization of competing products or
services.

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| |                                                                                                                                                                                               
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Third parties may claim that we are
    infringing their intellectual property, and we could suffer
    significant litigation or licensing expenses or be prevented
    from selling products

We could be subject to claims that we are
misappropriating or infringing intellectual property or other
proprietary rights of others. These claims, even if not
meritorious, could be expensive to defend and divert
managements attention from our operations. If we become
liable to third parties for infringing these rights, we could be
required to pay a substantial damage award and to develop
non-infringing technology, obtain a license or cease selling the
products or services that use or contain the infringing
intellectual property. We may be unable to develop
non-infringing products or services or obtain a license on
commercially reasonable terms, or at all. We may also be
required to indemnify our customers if they become subject to
third party claims relating to intellectual property that we
license or otherwise provide to them.



| |                                                      
| | -----------------------------------------------------
| | We have incurred and may continue to incur
    losses

We began operations in January 1996 and have
incurred net losses from operations in each year since our
inception and, as of December 31, 2002, we had an
accumulated deficit of $10.2 billion. Although we generated
net income, determined in accordance with generally accepted
accounting principles, in the quarter ended September 30,
2002, we incurred a net loss for the year ended
December 31, 2002. We currently intend to continue to
invest in infrastructure development, applications development,
sales and marketing, and acquisitions in order to execute on our
business plan and whether we continue to incur losses in a
particular period will depend on, among other things, the amount
of such investments and whether those investments lead to
increased revenues.



| |                                    
| | -----------------------------------
| | We may be subject to
    litigation

Our business and operations may subject us to
claims, litigation and other proceedings brought by private
parties and governmental authorities. For information regarding
certain proceedings to which we are currently a party, see
Legal Proceedings beginning on page 37.



| |                                                                                                                                                                                 
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Business combinations and other
    transactions may be difficult to complete and, if completed, may
    have negative consequences for our business and our
    securityholders

We intend to seek to acquire or to engage in
business combinations with companies engaged in complementary
businesses. In addition, we may enter into joint ventures,
strategic alliances or similar arrangements with third parties.
These transactions may result in changes in the nature and scope
of our operations and changes in our financial condition. Our
success in completing these types of transactions will depend
on, among other things, our ability to locate suitable
candidates and negotiate mutually acceptable terms with them, as
well as the availability of financing. Significant competition
for these opportunities exists, which may increase the cost of
and decrease the opportunities for these types of transactions.
Financing for these transactions may come from several sources,
including:



| |   |                                                                                                                  
| | - | -----------------------------------------------------------------------------------------------------------------
| |  | cash and cash equivalents on hand and marketable
    securities,                                                 
|
| |  | proceeds from the incurrence of indebtedness, and                                                                
|
| |  | proceeds from the issuance of additional common
    stock, preferred stock, convertible debt or other securities.

Our issuance of additional securities could:



| |   |                                                                                                            
| | - | -----------------------------------------------------------------------------------------------------------
| |  | cause substantial dilution of the percentage
    ownership of our stockholders at the time of the issuance,
|
| |  | cause substantial dilution of our earnings per
    share, and                                              
|
| |  | adversely affect the prevailing market price for
    our outstanding securities.                           

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We do not intend to seek securityholder approval
for any such acquisition or security issuance unless required by
applicable law or regulation or the terms of existing securities.



| |                                                                                                                                                             
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our business will suffer if we fail to
    successfully integrate acquired businesses and technologies or
    to assess the risks in particular transactions

We have in the past acquired, and may in the
future acquire, businesses, technologies, services, product
lines and other assets. The successful integration of the
acquired businesses and assets into our operations, on a
cost-effective basis, can be critical to our future performance.
The amount and timing of the expected benefits of any
acquisition are subject to significant risks and uncertainties.
These risks and uncertainties include, but are not limited to,
those relating to:



| |   |                                                                                                                                                                                                
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | our ability to maintain relationships with the
    customers of the acquired business;                                                                                                         
|
| |  | our ability to cross-sell products and services
    to customers with which we have established relationships and
    those with which the acquired business has established
    relationships;
|
| |  | our ability to retain or replace key personnel;                                                                                                                                                
|
| |  | potential conflicts in payer, provider, strategic
    partner, sponsor or advertising relationships;                                                                                           
|
| |  | our ability to coordinate organizations that are
    geographically diverse and may have different business cultures;
    and                                                                  
|
| |  | compliance with regulatory requirements.                                                                                                                                                       

We cannot guarantee that any acquired businesses
will be successfully integrated with our operations in a timely
or cost-effective manner, or at all. Failure to successfully
integrate acquired businesses or to achieve anticipated
operating synergies, revenue enhancements or cost savings could
have a material adverse effect on our business, financial
condition and results of operations.

Although our management attempts to evaluate the
risks inherent in each transaction and to value acquisition
candidates appropriately, we cannot assure you that we will
properly ascertain all such risks or that acquired businesses
and assets will perform as we expect or enhance the value of our
company as a whole. In addition, acquired companies or
businesses may have larger than expected liabilities that are
not covered by the indemnification, if any, we are able to
obtain from the seller.



| |                                                                                                              
| | -------------------------------------------------------------------------------------------------------------
| | We may not be able to raise additional
    funds when needed for our business or to exploit
    opportunities

Our future liquidity and capital requirements
will depend upon numerous factors, including the success of the
integration of our businesses, our existing and new applications
and service offerings, competing technologies and market
developments, potential future acquisitions and additional
repurchases of our common stock. We may need to raise additional
funds to support expansion, develop new or enhanced applications
and services, respond to competitive pressures, acquire
complementary businesses or technologies or take advantage of
unanticipated opportunities. If required, we may raise such
additional funds through public or private debt or equity
financing, strategic relationships or other arrangements. There
can be no assurance that such financing will be available on
acceptable terms, if at all, or that such financing will not be
dilutive to our stockholders.

71



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|         |                                                               
|-------- | --------------------------------------------------------------
|Item 7A. | Quantitative and Qualitative Disclosures
    about Market Risk

Interest Rate Sensitivity

The primary objective of our investment
activities is to preserve principal and maintain adequate
liquidity, while at the same time maximizing the yield we
receive from our investment portfolio. This objective is
accomplished by adherence to our investment policy, which
establishes the list of eligible types of securities and credit
requirements for each investment.

Changes in prevailing interest rates will cause
the principal amount of the investment to fluctuate. To minimize
this risk, we maintain our portfolio of cash equivalents,
short-term investments and marketable securities in commercial
paper, non-government debt securities, money market funds and
highly liquid United States Treasury notes. We view these high
grade securities within our portfolio as having similar market
risk characteristics.

Principal amounts expected to mature are
$10.8 million, $300.0 million and $141.1 million
during 2003, 2004 and 2006, respectively. These include
investments totaling $155.0 million in federal agency notes
that are callable subjecting us to interest rate risk on the
reinvestment of these securities. We believe that the impact of
any call and resulting reinvestment of proceeds would not have a
material effect on our financial condition or results of
operations.

We have not utilized derivative financial
instruments in our investment portfolio.

Exchange Rate Sensitivity

Currently, substantially all of our sales and
expenses are denominated in United States dollars; however,
Porex is exposed to fluctuations in foreign currency exchange
rates, primarily the rate of exchange of the United States
dollar against the Euro. This exposure arises primarily as a
result of translating the results of Porexs foreign
operations to the United States dollar at exchange rates that
have fluctuated from the beginning of the accounting period.
Porex has not engaged in foreign currency hedging activities to
date. Foreign currency translation gains (losses) were
$2.5 million, $(0.7) million and $1.5 million, in
2002, 2001 and 2000, respectively. We believe that future
exchange rate sensitivity related to Porex will not have a
material effect on our financial condition or results of
operations.






|        |                                                
|------- | -----------------------------------------------
|Item 8. | Financial Statements and Supplementary
    Data

Financial Statements

Our financial statements required by this item
are contained on pages F-1 through F-42 of this Annual
Report on Form 10-K. See Item 15(a)(1) for a listing
of financial statements provided.






|        |                                                                                         
|------- | ----------------------------------------------------------------------------------------
|Item 9. | Changes in and Disagreements with
    Accountants on Accounting and Financial Disclosure

None.

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PART III

Information required by Items 10, 11, 12 and
13 of Part III is omitted from this Annual Report and will
be filed in a definitive proxy statement or by an amendment to
this Annual Report not later than 120 days after the end of
the fiscal year covered by this Annual Report.






|         |                                                       
|-------- | ------------------------------------------------------
|Item 10. | Directors and Executive Officers of the
    Registrant

We will provide information that is responsive to
this Item 10 in our definitive proxy statement or in an
amendment to this Annual Report not later than 120 days
after the end of the fiscal year covered by this Annual Report,
in either case under the caption Directors and Executive
Officers, and possibly elsewhere therein. That information
is incorporated in this Item 10 by reference.






|         |                       
|-------- | ----------------------
|Item 11. | Executive Compensation

We will provide information that is responsive to
this Item 11 regarding compensation paid to our executive
officers in our definitive proxy statement or in an amendment to
this Annual Report not later than 120 days after the end of
the fiscal year covered by this Annual Report, in either case
under the caption Executive Compensation, and
possibly elsewhere therein. That information is incorporated in
this Item 11 by reference.






|         |                                                                   
|-------- | ------------------------------------------------------------------
|Item 12. | Security Ownership of Certain Beneficial
    Owners and Management

We will provide information that is responsive to
this Item 12 regarding ownership of our securities by some
beneficial owners and our directors and executive officers in
our definitive proxy statement or in an amendment to this Annual
Report not later than 120 days after the end of the fiscal
year covered by this Annual Report, in either case under the
caption Security Ownership of Certain Beneficial Owners
and Management, and possibly elsewhere therein. That
information is incorporated in this Item 12 by reference.






|         |                                                   
|-------- | --------------------------------------------------
|Item 13. | Certain Relationships and Related
    Transactions

We will provide information that is responsive to
this Item 13 regarding transactions with related parties in
our definitive proxy statement or in an amendment to this Annual
Report not later than 120 days after the end of the fiscal
year covered by this Annual Report, in either case under the
caption Certain Relationships and Related
Transactions, and possibly elsewhere therein. That
information is incorporated in this Item 13 by reference.






|         |                        
|-------- | -----------------------
|Item 14. | Controls and Procedures

WebMD management, including the Chief Executive
Officer and Chief Financial Officer, have conducted an
evaluation of the effectiveness of WebMDs disclosure
controls and procedures pursuant to Exchange Act
Rule 13a-15. Based on that evaluation, which was completed
during the 90 days prior to the date on which this Annual
Report was filed with the Commission, the Chief Executive
Officer and Chief Financial Officer concluded that the
disclosure controls and procedures are effective in ensuring
that all material information required to be filed in this
Annual Report has been made known to them in a timely fashion.
There have been no significant changes in internal controls, or
in factors that could significantly affect internal controls,
subsequent to the date the Chief Executive Officer and Chief
Financial Officer completed their evaluation.

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PART IV






|         |                                                                    
|-------- | -------------------------------------------------------------------
|Item 15. | Exhibits, Financial Statement Schedules and
    Reports on Form 8-K

(a)(1)-(2) Financial Statements and
Schedules

The financial statements and schedules listed in
the accompanying Index to Consolidated Financial Statements and
Supplemental Data on page F-1 are filed as part of this
Report.

(a)(3) Exhibits

See Index to Exhibits beginning on
page E-1, which is incorporated by reference herein. The
Index to Exhibits lists all exhibits filed or furnished with
this Report and identifies which of those exhibits are
management contracts and compensation plans.

(b) Reports on Form 8-K

During the last quarter of the fiscal year ended
December 31, 2002, the registrant filed the following
Report on Form 8-K:



| |   |                                                                                                                                                                                                                                             
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Report on Form 8-K filed on October 24,
    2002 pursuant to which the registrant announced that it had
    issued a press release reporting preliminary results for the
    third quarter of 2002 and a plan to expand its management team.

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SIGNATURES

Pursuant to the requirements of Section 13
or 15(d) of the Securities Exchange Act of 1934, the registrant
has duly caused this Annual Report to be signed on its behalf by
the undersigned, thereto duly authorized, on the 26th day of
March, 2003.



| |                  
| | -----------------
| | WEBMD CORPORATION



| |     |                  
| | --- | -----------------
| | By: | /s/ ANTHONY VUOLO

| |                             
| | ----------------------------
| |                             
| | Anthony Vuolo               
| | Executive Vice President and
| | Chief Financial Officer     

POWER OF ATTORNEY

KNOW BY ALL PERSONS BY THESE PRESENTS, that each
person whose signature appears below constitutes and appoints
jointly and severally, Anthony Vuolo and Charles A. Mele, and
each one of them, his attorneys-in-fact, each with the power of
substitution, for him in any and all capacities, to sign any and
all amendments to this Annual Report on Form 10-K and to
file the same, with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that each said
attorneys-in-fact, or his substitute or substitutes, may do or
cause to be done by virtue hereof.

Pursuant to the requirements of the Securities
Exchange Act of 1934, this Annual Report has been signed below
by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.

|                                           |  |                                                                                                       |  |                |  | 
|------------------------------------------ |  | ----------------------------------------------------------------------------------------------------- |  | -------------- |  | 
|                                           |  |                                                                                                       |  |               
|Signature                                  |  | Capacity                                                                                              |  | Date          
|                                           |  |                                                                                                       |  |               
|                                          
|/s/ MARTIN J. WYGODMartin J. Wygod         |  | Chairman of the Board of Directors and Chief
    Executive Officer (principal executive officer)      |  | March 26, 2003
|                                          
|/s/ ANTHONY VUOLOAnthony Vuolo             |  | Executive Vice President and Chief Financial
    Officer (principal financial and accounting officer) |  | March 26, 2003
|                                          
|/s/ MARK J. ADLER, M.D.Mark J. Adler, M.D. |  | Director                                                                                              |  | March 26, 2003
|                                          
|/s/ PAUL A. BROOKEPaul A. Brooke           |  | Director                                                                                              |  | March 26, 2003
|                                          
|/s/ NEIL F. DIMICKNeil F. Dimick           |  | Director                                                                                              |  | March 26, 2003
|                                          
|/s/ ROGER C. HOLSTEINRoger C. Holstein     |  | Director                                                                                              |  | March 26, 2003

75



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|                                       |  |          |  |                |  | 
|-------------------------------------- |  | -------- |  | -------------- |  | 
|                                       |  |          |  |               
|Signature                              |  | Capacity |  | Date          
|                                       |  |          |  |               
|                                      
|/s/ JAMES V. MANNINGJames V. Manning   |  | Director |  | March 26, 2003
|                                      
|/s/ HERMAN SARKOWSKYHerman Sarkowsky   |  | Director |  | March 26, 2003
|                                      
|/s/ MICHAEL A. SINGERMichael A. Singer |  | Director |  | March 26, 2003
|                                      
|/s/ JOSEPH E. SMITHJoseph E. Smith     |  | Director |  | March 26, 2003

76



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CERTIFICATIONS PURSUANT TO

SECTION 302 OF THE


SARBANES-OXLEY ACT OF 2002


I, Martin J. Wygod, certify that:



| |                                                                                                                                                                                                                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. I have reviewed this annual report on
    Form 10-K of WebMD Corporation;                                                                                                                                                                                                                                                                   
|
| | 2. Based on my knowledge, this annual report
    does not contain any untrue statement of a material fact or omit
    to state a material fact necessary to make the statements made,
    in light of the circumstances under which such statements were
    made, not misleading with respect to the period covered by this
    annual report;
|
| | 3. Based on my knowledge, the financial
    statements, and other financial information included in this
    annual report, fairly present in all material respects the
    financial condition, results of operations and cash flows of the
    registrant as of, and for, the periods presented in this annual
    report;                   
|
| | 4. The registrants other certifying
    officers and I are responsible for establishing and maintaining
    disclosure controls and procedures (as defined in Exchange Act
    Rules 13a-14 and 15d-14) for the registrant and have:                                                                                                          



| |                                                                                                                                                                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) designed such disclosure controls and
    procedures to ensure that material information relating to the
    registrant, including its consolidated subsidiaries, is made
    known to us by others within those entities, particularly during
    the period in which this annual report is being prepared;
|
| | b) evaluated the effectiveness of the
    registrants disclosure controls and procedures as of a
    date within 90 days prior to the filing date of this annual
    report (the Evaluation Date); and                                                                                                      
|
| | c) presented in this annual report our
    conclusions about the effectiveness of the disclosure controls
    and procedures based on our evaluation as of the Evaluation Date;                                                                                                                                



| |                                                                                                                                                                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 5. The registrants other certifying
    officers and I have disclosed, based on our most recent
    evaluation, to the registrants auditors and the audit
    committee of registrants board of directors (or persons
    performing the equivalent functions):



| |                                                                                                                                                                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) all significant deficiencies in the
    design or operation of internal controls which could adversely
    affect the registrants ability to record, process,
    summarize and report financial data and have identified for the
    registrants auditors any material weaknesses in internal
    controls; and
|
| | b) any fraud, whether or not material, that
    involves management or other employees who have a significant
    role in the registrants internal controls; and                                                                                                                                                    



| |                                                                                                                                                                                                                                                                                                                                                                                                           
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 6. The registrants other certifying
    officers and I have indicated in this annual report whether
    there were significant changes in internal controls or in other
    factors that could significantly affect internal controls
    subsequent to the date of our most recent evaluation, including
    any corrective actions with regard to significant deficiencies
    and material weaknesses.

Date: March 26, 2003



| |                                     
| | ------------------------------------
| | /s/ MARTIN J. WYGOD                 
| |                                     
| | Martin J. Wygod                     
| | Chairman and Chief Executive Officer
| | (Principal executive officer)       

77



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##### Table of Contents



I, Anthony Vuolo, certify that:



| |                                                                                                                                                                                                                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. I have reviewed this annual report on
    Form 10-K of WebMD Corporation;                                                                                                                                                                                                                                                                   
|
| | 2. Based on my knowledge, this annual report
    does not contain any untrue statement of a material fact or omit
    to state a material fact necessary to make the statements made,
    in light of the circumstances under which such statements were
    made, not misleading with respect to the period covered by this
    annual report;
|
| | 3. Based on my knowledge, the financial
    statements, and other financial information included in this
    annual report, fairly present in all material respects the
    financial condition, results of operations and cash flows of the
    registrant as of, and for, the periods presented in this annual
    report;                   
|
| | 4. The registrants other certifying
    officers and I are responsible for establishing and maintaining
    disclosure controls and procedures (as defined in Exchange Act
    Rules 13a-14 and 15d-14) for the registrant and have:                                                                                                          



| |                                                                                                                                                                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) designed such disclosure controls and
    procedures to ensure that material information relating to the
    registrant, including its consolidated subsidiaries, is made
    known to us by others within those entities, particularly during
    the period in which this annual report is being prepared;
|
| | b) evaluated the effectiveness of the
    registrants disclosure controls and procedures as of a
    date within 90 days prior to the filing date of this annual
    report (the Evaluation Date); and                                                                                                      
|
| | c) presented in this annual report our
    conclusions about the effectiveness of the disclosure controls
    and procedures based on our evaluation as of the Evaluation Date;                                                                                                                                



| |                                                                                                                                                                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 5. The registrants other certifying
    officers and I have disclosed, based on our most recent
    evaluation, to the registrants auditors and the audit
    committee of registrants board of directors (or persons
    performing the equivalent functions):



| |                                                                                                                                                                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) all significant deficiencies in the
    design or operation of internal controls which could adversely
    affect the registrants ability to record, process,
    summarize and report financial data and have identified for the
    registrants auditors any material weaknesses in internal
    controls; and
|
| | b) any fraud, whether or not material, that
    involves management or other employees who have a significant
    role in the registrants internal controls; and                                                                                                                                                    



| |                                                                                                                                                                                                                                                                                                                                                                                                           
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 6. The registrants other certifying
    officers and I have indicated in this annual report whether
    there were significant changes in internal controls or in other
    factors that could significantly affect internal controls
    subsequent to the date of our most recent evaluation, including
    any corrective actions with regard to significant deficiencies
    and material weaknesses.

Date: March 26, 2003



| |                                                         
| | --------------------------------------------------------
| | /s/ ANTHONY VUOLO                                       
| |                                                         
| | Anthony Vuolo                                           
| | Executive Vice President and Chief Financial
    Officer
| | (Principal financial officer)                           

78



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##### Table of Contents



WebMD Corporation

Index to Consolidated Financial Statements and
Supplemental Data


The following financial statements of the Company
and its subsidiaries required to be included in
Item 15(a)(1) of Form 10-K are listed below:

|                                 |                                                                                                                                                                   |      |  |     | 
|-------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---- |  | --- | 
|                                 |                                                                                                                                                                   | Page
|                                 |                                                                                                                                                                   |     
|Historical Financial Statements: |                                                                                                                                                                   |      |  |    
|                                 | Report of Independent Auditors                                                                                                                                    |      |  | F-2 | 
|                                 | Consolidated Balance Sheets at December 31,
    2002 and 2001                                                                                                     |      |  | F-3 | 
|                                 | Consolidated Statements of Operations for the
    Years Ended December 31, 2002, 2001 and 2000                                                                    |      |  | F-4 | 
|                                 | Consolidated Statements of Stockholders
    Equity for the Years Ended December 31, 2002, 2001 and
    2000                                                      |      |  | F-5 | 
|                                 | Consolidated Statements of Cash Flows for the
    Years Ended December 31, 2002, 2001 and 2000                                                                    |      |  | F-6 | 
|                                 | Notes to Consolidated Financial Statements                                                                                                                        |      |  | F-7 | 
|Supplemental Financial Data:     |                                                                                                                                                                   |      |  |    
|                                 | The following financial supplementary data of the
    Registrant and its subsidiaries required to be included in
    Item 15(a)(2) of Form 10-K are listed below: |      |  |     | 
|                                 | Schedule II  Valuation and
    Qualifying Accounts                                                                                                               |      |  | S-1 | 

All other schedules not listed above have been
omitted as not applicable or because the required information is
included in the Consolidated Financial Statements or in the
notes thereto. Columns omitted from schedules filed have been
omitted because the information is not applicable.

F-1



---



##### Table of Contents








REPORT OF INDEPENDENT AUDITORS


The Board of Directors and Stockholders

WebMD Corporation


We have audited the accompanying consolidated
balance sheets of WebMD Corporation as of December 31, 2002
and 2001, and the related consolidated statements of operations,
stockholders equity, and cash flows for each of the three
years in the period ended December 31, 2002. These
financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with
auditing standards generally accepted in the United States.
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.

In our opinion, the financial statements referred
to above present fairly, in all material respects, the
consolidated financial position of WebMD Corporation at
December 31, 2002 and 2001, and the consolidated results of
its operations and its cash flows for each of the three years in
the period ended December 31, 2002, in conformity with
accounting principles generally accepted in the United States.

As discussed in Note 10 to the financial
statements, the Company changed its accounting for goodwill and
other indefinite lived intangible assets in 2002.



| |                      
| | ---------------------
| | /S/ ERNST & YOUNG LLP

New York, New York

February 21, 2003


F-2



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##### Table of Contents



WebMD Corporation






Consolidated Balance Sheets


(In thousands, except share and per share
data)


|                                                                                                                                                                                     |                                                                                                                                                                            |                                                                                       |           |             |           |   |           |             |           | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------- | --------- | ----------- | --------- | - | --------- | ----------- | --------- | 
|                                                                                                                                                                                     |                                                                                                                                                                            |                                                                                      
|                                                                                                                                                                                     |                                                                                                                                                                            | December 31,                                                                         
|                                                                                                                                                                                     |                                                                                                                                                                            |                                                                                      
|                                                                                                                                                                                     |                                                                                                                                                                            | 2002                                                                                  |           | 2001       
|                                                                                                                                                                                     |                                                                                                                                                                            |                                                                                       |           |            
|ASSETS                                                                                                                                                                               |                                                                                                                                                                            |                                                                                       |           |             |           |   |           |            
|Current assets:                                                                                                                                                                      |                                                                                                                                                                            |                                                                                       |           |             |           |   |           |            
|                                                                                                                                                                                     | Cash and cash equivalents                                                                                                                                                  |                                                                                       | $         | 179,541     |           |   | $         | 286,273     |          
|                                                                                                                                                                                     | Short-term investments                                                                                                                                                     |                                                                                       |           | 10,888      |           |   |           | 100,249     |          
|                                                                                                                                                                                     | Accounts receivable, net of allowance for
    doubtful accounts of $22,825 in 2002 and $27,391 in 2001.                                                                    |                                                                                       |           | 170,467     |           |   |           | 166,582     |          
|                                                                                                                                                                                     | Inventory                                                                                                                                                                  |                                                                                       |           | 18,804      |           |   |           | 19,185      |          
|                                                                                                                                                                                     | Current portion of prepaid content and
    distribution services                                                                                                           |                                                                                       |           | 25,406      |           |   |           | 28,818      |          
|                                                                                                                                                                                     | Other current assets                                                                                                                                                       |                                                                                       |           | 26,197      |           |   |           | 16,852      |          
|                                                                                                                                                                                     |                                                                                                                                                                            |                                                                                       |           |             |           |   |           |            
|                                                                                                                                                                                     |                                                                                                                                                                            | Total current assets                                                                  |           |             | 431,303   |   |           |             | 617,959   | 
|Marketable debt securities                                                                                                                                                           |                                                                                                                                                                            |                                                                                       | 449,289   |             |           |   | 3,062     |            
|Marketable equity securities                                                                                                                                                         |                                                                                                                                                                            |                                                                                       | 7,427     |             |           |   | 15,707    |            
|Property and equipment, net                                                                                                                                                          |                                                                                                                                                                            |                                                                                       | 94,737    |             |           |   | 94,208    |            
|Prepaid content and distribution services                                                                                                                                            |                                                                                                                                                                            |                                                                                       | 48,532    |             |           |   | 71,579    |            
|Goodwill, net                                                                                                                                                                        |                                                                                                                                                                            |                                                                                       | 629,055   |             |           |   | 587,254   |            
|Intangible assets, net                                                                                                                                                               |                                                                                                                                                                            |                                                                                       | 79,536    |             |           |   | 188,524   |            
|Other assets                                                                                                                                                                         |                                                                                                                                                                            |                                                                                       | 26,369    |             |           |   | 23,161    |            
|                                                                                                                                                                                     |                                                                                                                                                                            |                                                                                       |           |             |           |   |           |            
|                                                                                                                                                                                     |                                                                                                                                                                            | $                                                                                     | 1,766,248 |             |           | $ | 1,601,454 |            
|                                                                                                                                                                                     |                                                                                                                                                                            |                                                                                       |           |             |           |   |           |            
|LIABILITIES AND STOCKHOLDERS
    EQUITY                                                                                                                                             |                                                                                                                                                                            |                                                                                       |           |             |           |   |           |            
|Current liabilities:                                                                                                                                                                 |                                                                                                                                                                            |                                                                                       |           |             |           |   |           |            
|                                                                                                                                                                                     | Accounts payable                                                                                                                                                           |                                                                                       | $         | 11,494      |           |   | $         | 19,315      |          
|                                                                                                                                                                                     | Accrued expenses                                                                                                                                                           |                                                                                       |           | 212,600     |           |   |           | 241,706     |          
|                                                                                                                                                                                     | Deferred revenue                                                                                                                                                           |                                                                                       |           | 81,179      |           |   |           | 65,861      |          
|                                                                                                                                                                                     | Current portion of long-term debt                                                                                                                                          |                                                                                       |           | 6,546       |           |   |           | 209         |          
|                                                                                                                                                                                     |                                                                                                                                                                            |                                                                                       |           |             |           |   |           |            
|                                                                                                                                                                                     |                                                                                                                                                                            | Total current liabilities                                                             |           |             | 311,819   |   |           |             | 327,091   | 
|Convertible subordinated notes                                                                                                                                                       |                                                                                                                                                                            |                                                                                       | 300,000   |             |           |   |          |            
|Long-term debt                                                                                                                                                                       |                                                                                                                                                                            |                                                                                       | 119       |             |           |   | 7,624     |            
|Other long-term liabilities                                                                                                                                                          |                                                                                                                                                                            |                                                                                       | 509       |             |           |   | 1,227     |            
|                                                                                                                                                                                    
|Series B convertible redeemable preferred
    stock, $.0001 par value; 200 shares authorized; no shares issued
    at December 31, 2002; 100 shares issued at December 31,
    2001. |                                                                                                                                                                            |                                                                                       |          |             |           |   | 10,000    |            
|Commitments and contingencies                                                                                                                                                        |                                                                                                                                                                            |                                                                                       |           |             |           |   |           |            
|Stockholders equity:                                                                                                                                                                |                                                                                                                                                                            |                                                                                       |           |             |           |   |           |            
|                                                                                                                                                                                     | Preferred stock, $.0001 par value; 5,000,000
    shares authorized:                                                                                                        |                                                                                       |           |             |           |   |           |             |          
|                                                                                                                                                                                     |                                                                                                                                                                            | Series A convertible preferred stock;
    213,000 shares authorized; no shares issued |           |             |          |   |           |             |          | 
|                                                                                                                                                                                     | Common stock, $.0001 par value; 600,000,000
    shares authorized; 374,661,064 shares issued at
    December 31, 2002; 366,956,160 shares issued at
    December 31, 2001. |                                                                                       |           | 37          |           |   |           | 37          |          
|                                                                                                                                                                                     | Additional paid-in capital                                                                                                                                                 |                                                                                       |           | 11,682,443  |           |   |           | 11,652,743  |          
|                                                                                                                                                                                     | Deferred stock compensation                                                                                                                                                |                                                                                       |           | (17,805     | )         |   |           | (42,173     | )        
|                                                                                                                                                                                     | Treasury stock, at cost; 74,254,669 shares at
    December 31, 2002; 56,091,935 shares at December 31,
    2001.                                                           |                                                                                       |           | (327,542    | )         |   |           | (222,582    | )        
|                                                                                                                                                                                     | Accumulated deficit                                                                                                                                                        |                                                                                       |           | (10,195,048 | )         |   |           | (10,145,346 | )        
|                                                                                                                                                                                     | Accumulated other comprehensive income                                                                                                                                     |                                                                                       |           | 11,716      |           |   |           | 12,833      |          
|                                                                                                                                                                                     |                                                                                                                                                                            |                                                                                       |           |             |           |   |           |            
|                                                                                                                                                                                     |                                                                                                                                                                            | Total stockholders equity                                                            |           |             | 1,153,801 |   |           |             | 1,255,512 | 
|                                                                                                                                                                                     |                                                                                                                                                                            |                                                                                       |           |             |           |   |           |            
|                                                                                                                                                                                     |                                                                                                                                                                            | $                                                                                     | 1,766,248 |             |           | $ | 1,601,454 |            
|                                                                                                                                                                                     |                                                                                                                                                                            |                                                                                       |           |             |           |   |           |            

See accompanying notes.

F-3



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##### Table of Contents



WebMD Corporation






Consolidated Statements of
Operations


(In thousands, except share and per share
data)


|                                                                                                      |                                                    |                          |             |         |   |      |             |           |  |   |             |           | 
|----------------------------------------------------------------------------------------------------- | -------------------------------------------------- | ------------------------ | ----------- | ------- | - | ---- | ----------- | --------- |  | - | ----------- | --------- | 
|                                                                                                      |                                                    |                         
|                                                                                                      |                                                    | Years Ended December 31,
|                                                                                                      |                                                    |                         
|                                                                                                      |                                                    | 2002                     |             | 2001    |   | 2000
|                                                                                                      |                                                    |                          |             |         |   |     
|Revenue(1)                                                                                            |                                                    | $                        | 925,877     |         |   | $    | 901,028     |           |  | $ | 591,602     |          
|Costs and expenses:                                                                                   |                                                    |                          |             |         |   |      |             |           |  |   |             |          
|                                                                                                      | Cost of operations                                 |                          |             | 545,142 |   |      |             | 604,201   |  |   |             | 441,008   | 
|                                                                                                      | Development and engineering                        |                          |             | 43,849  |   |      |             | 43,839    |  |   |             | 59,957    | 
|                                                                                                      | Sales, marketing, general and administrative       |                          |             | 291,710 |   |      |             | 457,540   |  |   |             | 538,497   | 
|                                                                                                      | Depreciation, amortization and other               |                          |             | 130,074 |   |      |             | 2,400,804 |  |   |             | 2,190,273 | 
|                                                                                                      | Impairment of long-lived and other assets          |                          |             | 609     |   |      |             | 3,826,893 |  |   |             |          | 
|                                                                                                      | Restructuring and integration
    (benefit) charge |                          |             | (4,690  | ) |      |             | 266,755   |  |   |             | 452,919   | 
|                                                                                                      | (Gain) loss on investments                         |                          |             | (6,547  | ) |      |             |          |  |   |             | 40,365    | 
|                                                                                                      | Interest income                                    |                          |             | 19,662  |   |      |             | 30,544    |  |   |             | 51,533    | 
|                                                                                                      | Interest expense                                   |                          |             | 8,940   |   |      |             | 1,101     |  |   |             | 910       | 
|                                                                                                      | Other income, net                                  |                          |             | 3,844   |   |      |             |          |  |   |             |          | 
|                                                                                                      |                                                    |                          |             |         |   |      |             |           |  |   |             |          
|Loss before income tax (benefit) provision                                                            |                                                    |                          | (59,704     | )       |   |      | (6,669,561  | )         |  |   | (3,080,794  | )        
|                                                                                                      |                                                    |                          |             |         |   |      |             |           |  |   |             |          
|                                                                                                      | Income tax (benefit) provision                     |                          |             | (10,002 | ) |      |             | 2,757     |  |   |             | 814       | 
|                                                                                                      |                                                    |                          |             |         |   |      |             |           |  |   |             |          
|Net loss                                                                                              |                                                    | $                        | (49,702     | )       |   | $    | (6,672,318  | )         |  | $ | (3,081,608  | )        
|                                                                                                      |                                                    |                          |             |         |   |      |             |           |  |   |             |          
|Basic and diluted net loss per common share                                                           |                                                    | $                        | (0.16       | )       |   | $    | (19.14      | )         |  | $ | (12.59      | )        
|                                                                                                      |                                                    |                          |             |         |   |      |             |           |  |   |             |          
|Weighted-average shares outstanding used in
    computing basic and diluted net loss per common share |                                                    |                          | 304,167,570 |         |   |      | 348,569,519 |           |  |   | 244,688,375 |          
|                                                                                                      |                                                    |                          |             |         |   |      |             |           |  |   |             |          



---



|    |                                                                                                
|--- | -----------------------------------------------------------------------------------------------
|(1) | Includes revenue from related parties of $3,000
    and $45,277 in 2001 and 2000, respectively.

See accompanying notes.

F-4



---



##### Table of Contents



WebMD Corporation







Consolidated Statements of Stockholders
Equity


(In thousands, except share data)


|                                                                                                                                |  |                 |      |                 |  |                      |         |            |  |        |          |        |  |         |          |   |  |  |             |  |  |   |    |  |  |   |            |  
|------------------------------------------------------------------------------------------------------------------------------- |  | --------------- | ---- | --------------- |  | -------------------- | ------- | ---------- |  | ------ | -------- | ------ |  | ------- | -------- | - |  |  | ----------- |  |  | - | -- |  |  | - | ---------- | -
|                                                                                                                                |  |                 |      |                 |  |                     
|                                                                                                                                |  |                 |      |                 |  | Stockholders Equity
|                                                                                                                                |  |                 |      |                
|                                                                                                                                |  | Convertible     |      |                 |  |                     
|                                                                                                                                |  | Redeemable      |      | Convertible     |  |                      |         |           
|                                                                                                                                |  | Preferred Stock |      | Preferred Stock |  | Common Stock         |         | Additional
|                                                                                                                                |  |                 |      |                 |  |                      |         | Paid-In   
|                                                                                                                                |  | Shares          |      | Amount          |  | Shares               |         | Amount     |  | Shares |          | Amount |  | Capital
|                                                                                                                                |  |                 |      |                 |  |                      |         |            |  |        |          |        |  |        
|Balances at December 31, 1999                                                                                                   |  |                 |     |                 |  | $                    |        |            |  |        |         |        |  | $       |         |   |  |  | 153,569,296 |  |  | $ | 16 |  |  | $ | 4,370,165  |  
|Net loss                                                                                                                        |  |                 |     |                 |  |                      |        |            |  |        |         |        |  |         |         |   |  |  |            |  |  |   |   |  |  |   |           |  
|Net increase in unrealized gains on securities                                                                                  |  |                 |     |                 |  |                      |        |            |  |        |         |        |  |         |         |   |  |  |            |  |  |   |   |  |  |   |           |  
|Foreign currency translation adjustment                                                                                         |  |                 |     |                 |  |                      |        |            |  |        |         |        |  |         |         |   |  |  |            |  |  |   |   |  |  |   |           |  
|Comprehensive loss                                                                                                              |  |                 |     |                 |  |                      |        |            |  |        |         |        |  |         |         |   |  |  |            |  |  |   |   |  |  |   |           |  
|Issuance of common stock for option exercises,
    warrant exercises, ESPP and 401(k) issuances                                 |  |                 |     |                 |  |                      |        |            |  |        |         |        |  |         |         |   |  |  | 9,106,550   |  |  |   | 1  |  |  |   | 35,581     |  
|Issuance of stock in connection with private
    placements, strategic alliances and services                                   |  |                 |     |                 |  |                      |        |            |  |        | 155,951  |        |  |         | 602,550  |   |  |  | 17,071,930  |  |  |   | 2  |  |  |   | 1,019,183  |  
|Reacquisition of warrants in connection with
    termination of a strategic alliance                                            |  |                 |     |                 |  |                      |        |            |  |        |         |        |  |         |         |   |  |  |            |  |  |   |   |  |  |   | (33,199    | )
|Accretion of preferred stock                                                                                                    |  |                 |     |                 |  |                      |        |            |  |        |         |        |  |         | 108,196  |   |  |  |            |  |  |   |   |  |  |   |           |  
|Issuance of common and preferred stock and
    assumption of options and warrants in connection with the 2000
    mergers       |  |                 | 100  |                 |  |                      | 10,000  |            |  |        |         |        |  |         |         |   |  |  | 181,485,867 |  |  |   | 17 |  |  |   | 5,499,835  |  
|Deferred stock compensation                                                                                                     |  |                 |     |                 |  |                      |        |            |  |        |         |        |  |         |         |   |  |  |            |  |  |   |   |  |  |   | 83,752     |  
|Stock compensation expense                                                                                                      |  |                 |     |                 |  |                      |        |            |  |        |         |        |  |         |         |   |  |  |            |  |  |   |   |  |  |   | 53,144     |  
|Purchase of treasury stock                                                                                                      |  |                 |     |                 |  |                      |        |            |  |        |         |        |  |         |         |   |  |  |            |  |  |   |   |  |  |   |           |  
|                                                                                                                                |  |                
|Balances at December 31, 2000                                                                                                   |  |                 | 100  |                 |  |                      | 10,000  |            |  |        | 155,951  |        |  |         | 710,746  |   |  |  | 361,233,643 |  |  |   | 36 |  |  |   | 11,028,461 |  
|Net loss                                                                                                                        |  |                 |     |                 |  |                      |        |            |  |        |         |        |  |         |         |   |  |  |            |  |  |   |   |  |  |   |           |  
|Net increase in unrealized gains on securities                                                                                  |  |                 |     |                 |  |                      |        |            |  |        |         |        |  |         |         |   |  |  |            |  |  |   |   |  |  |   |           |  
|Foreign currency translation adjustment                                                                                         |  |                 |     |                 |  |                      |        |            |  |        |         |        |  |         |         |   |  |  |            |  |  |   |   |  |  |   |           |  
|Comprehensive loss                                                                                                              |  |                 |     |                 |  |                      |        |            |  |        |         |        |  |         |         |   |  |  |            |  |  |   |   |  |  |   |           |  
|Issuance of common stock for option exercises,
    ESPP, 401(k) and other issuances                                             |  |                 |     |                 |  |                      |        |            |  |        |         |        |  |         |         |   |  |  | 3,722,517   |  |  |   | 1  |  |  |   | 12,994     |  
|Issuance, net of reductions, and exercise of
    warrants in connection with strategic alliances and services                   |  |                 |     |                 |  |                      |        |            |  |        |         |        |  |         |         |   |  |  | 2,000,000   |  |  |   |   |  |  |   | 24,739     |  
|Reacquisition of convertible preferred stock and
    issuance of warrants in connection with revision of strategic
    alliance |  |                 |     |                 |  |                      |        |            |  |        | (155,951 | )      |  |         | (710,746 | ) |  |  |            |  |  |   |   |  |  |   | 559,575    |  
|Stock compensation expense                                                                                                      |  |                 |     |                 |  |                      |        |            |  |        |         |        |  |         |         |   |  |  |            |  |  |   |   |  |  |   | 40,909     |  
|Purchase of treasury stock                                                                                                      |  |                 |     |                 |  |                      |        |            |  |        |         |        |  |         |         |   |  |  |            |  |  |   |   |  |  |   |           |  
|Adjustment to deferred stock compensation for
    terminations                                                                  |  |                 |     |                 |  |                      |        |            |  |        |         |        |  |         |         |   |  |  |            |  |  |   |   |  |  |   | (13,935    | )
|                                                                                                                                |  |                
|Balances at December 31, 2001                                                                                                   |  |                 | 100  |                 |  |                      | 10,000  |            |  |        |         |        |  |         |         |   |  |  | 366,956,160 |  |  |   | 37 |  |  |   | 11,652,743 |  
|Net loss                                                                                                                        |  |                 |     |                 |  |                      |        |            |  |        |         |        |  |         |         |   |  |  |            |  |  |   |   |  |  |   |           |  
|Net decrease in unrealized gains on securities                                                                                  |  |                 |     |                 |  |                      |        |            |  |        |         |        |  |         |         |   |  |  |            |  |  |   |   |  |  |   |           |  
|Foreign currency translation adjustment                                                                                         |  |                 |     |                 |  |                      |        |            |  |        |         |        |  |         |         |   |  |  |            |  |  |   |   |  |  |   |           |  
|Comprehensive loss                                                                                                              |  |                 |     |                 |  |                      |        |            |  |        |         |        |  |         |         |   |  |  |            |  |  |   |   |  |  |   |           |  
|Issuance of common stock for option exercises,
    ESPP, 401(k) and other issuances                                             |  |                 |     |                 |  |                      |        |            |  |        |         |        |  |         |         |   |  |  | 7,704,904   |  |  |   |   |  |  |   | 28,774     |  
|Issuance, net of repurchase, of warrants in
    connection with strategic alliances and services                                |  |                 |     |                 |  |                      |        |            |  |        |         |        |  |         |         |   |  |  |            |  |  |   |   |  |  |   | 29         |  
|Redemption of convertible redeemable preferred
    stock                                                                        |  |                 | (100 | )               |  |                      | (10,000 | )          |  |        |         |        |  |         |         |   |  |  |            |  |  |   |   |  |  |   |           |  
|Deferred stock compensation                                                                                                     |  |                 |     |                 |  |                      |        |            |  |        |         |        |  |         |         |   |  |  |            |  |  |   |   |  |  |   | 2,500      |  
|Stock compensation expense                                                                                                      |  |                 |     |                 |  |                      |        |            |  |        |         |        |  |         |         |   |  |  |            |  |  |   |   |  |  |   | 392        |  
|Purchase of treasury stock                                                                                                      |  |                 |     |                 |  |                      |        |            |  |        |         |        |  |         |         |   |  |  |            |  |  |   |   |  |  |   |           |  
|Adjustment to deferred stock compensation for
    terminations                                                                  |  |                 |     |                 |  |                      |        |            |  |        |         |        |  |         |         |   |  |  |            |  |  |   |   |  |  |   | (1,995     | )
|                                                                                                                                |  |                
|Balances at December 31, 2002                                                                                                   |  |                 |     |                 |  | $                    |        |            |  |        |         |        |  | $       |         |   |  |  | 374,661,064 |  |  | $ | 37 |  |  | $ | 11,682,443 |  
|                                                                                                                                |  |                 |      |                 |  |                      |         |            |  |        |          |        |  |         |          |   |  |  |             |  |  |   |    |  |  |   |            |  

[Additional columns below]

[Continued from above table, first column(s) repeated]

|                                                                                                                                |  |                      |          |                |  |             |            |               |  |               |          |        |  |   |             |   |  |   |        |   |  |   |            |  
|------------------------------------------------------------------------------------------------------------------------------- |  | -------------------- | -------- | -------------- |  | ----------- | ---------- | ------------- |  | ------------- | -------- | ------ |  | - | ----------- | - |  | - | ------ | - |  | - | ---------- | -
|                                                                                                                                |  |                     
|                                                                                                                                |  | Stockholders Equity
|                                                                                                                                |  |                     
|                                                                                                                                |  |                      |          |                |  |             |            | Accumulated   |  |              
|                                                                                                                                |  | Deferred             |          | Treasury Stock |  |             |            | Other         |  | Total        
|                                                                                                                                |  | Stock                |          |                |  | Accumulated |            | Comprehensive |  | Stockholders
|                                                                                                                                |  | Compensation         |          | Shares         |  | Amount      |            | Deficit       |  | Income        |          | Equity
|                                                                                                                                |  |                      |          |                |  |             |            |               |  |               |          |       
|Balances at December 31, 1999                                                                                                   |  | $                    | (5,089   | )              |  |             |           |               |  | $             |         |        |  | $ | (391,420    | ) |  | $ |       |   |  | $ | 3,973,672  |  
|Net loss                                                                                                                        |  |                      |         |                |  |             |           |               |  |               |         |        |  |   | (3,081,608  | ) |  |   |       |   |  |   | (3,081,608 | )
|Net increase in unrealized gains on securities                                                                                  |  |                      |         |                |  |             |           |               |  |               |         |        |  |   |            |   |  |   | 4,996  |   |  |   | 4,996      |  
|Foreign currency translation adjustment                                                                                         |  |                      |         |                |  |             |           |               |  |               |         |        |  |   |            |   |  |   | 1,450  |   |  |   | 1,450      |  
|                                                                                                                                |  |                      |          |                |  |             |            |               |  |               |          |        |  |   |             |   |  |   |        |   |  |   |            |  
|Comprehensive loss                                                                                                              |  |                      |         |                |  |             |           |               |  |               |         |        |  |   |            |   |  |   |       |   |  |   | (3,075,162 | )
|Issuance of common stock for option exercises,
    warrant exercises, ESPP and 401(k) issuances                                 |  |                      |         |                |  |             |           |               |  |               |         |        |  |   |            |   |  |   |       |   |  |   | 35,582     |  
|Issuance of stock in connection with private
    placements, strategic alliances and services                                   |  |                      |         |                |  |             |           |               |  |               |         |        |  |   |            |   |  |   |       |   |  |   | 1,621,735  |  
|Reacquisition of warrants in connection with
    termination of a strategic alliance                                            |  |                      |         |                |  |             |           |               |  |               |         |        |  |   |            |   |  |   |       |   |  |   | (33,199    | )
|Accretion of preferred stock                                                                                                    |  |                      |         |                |  |             |           |               |  |               |         |        |  |   |            |   |  |   |       |   |  |   | 108,196    |  
|Issuance of common and preferred stock and
    assumption of options and warrants in connection with the 2000
    mergers       |  |                      | (117,402 | )              |  |             |           |               |  |               |         |        |  |   |            |   |  |   |       |   |  |   | 5,382,450  |  
|Deferred stock compensation                                                                                                     |  |                      | (94,435  | )              |  |             |           |               |  |               |         |        |  |   |            |   |  |   |       |   |  |   | (10,683    | )
|Stock compensation expense                                                                                                      |  |                      | 72,459   |                |  |             |           |               |  |               |         |        |  |   |            |   |  |   |       |   |  |   | 125,603    |  
|Purchase of treasury stock                                                                                                      |  |                      |         |                |  |             | 5,163,509  |               |  |               | (30,759  | )      |  |   |            |   |  |   |       |   |  |   | (30,759    | )
|                                                                                                                                |  |                     
|Balances at December 31, 2000                                                                                                   |  |                      | (144,467 | )              |  |             | 5,163,509  |               |  |               | (30,759  | )      |  |   | (3,473,028  | ) |  |   | 6,446  |   |  |   | 8,097,435  |  
|Net loss                                                                                                                        |  |                      |         |                |  |             |           |               |  |               |         |        |  |   | (6,672,318  | ) |  |   |       |   |  |   | (6,672,318 | )
|Net increase in unrealized gains on securities                                                                                  |  |                      |         |                |  |             |           |               |  |               |         |        |  |   |            |   |  |   | 7,097  |   |  |   | 7,097      |  
|Foreign currency translation adjustment                                                                                         |  |                      |         |                |  |             |           |               |  |               |         |        |  |   |            |   |  |   | (710   | ) |  |   | (710       | )
|                                                                                                                                |  |                      |          |                |  |             |            |               |  |               |          |        |  |   |             |   |  |   |        |   |  |   |            |  
|Comprehensive loss                                                                                                              |  |                      |         |                |  |             |           |               |  |               |         |        |  |   |            |   |  |   |       |   |  |   | (6,665,931 | )
|Issuance of common stock for option exercises,
    ESPP, 401(k) and other issuances                                             |  |                      |         |                |  |             |           |               |  |               |         |        |  |   |            |   |  |   |       |   |  |   | 12,995     |  
|Issuance, net of reductions, and exercise of
    warrants in connection with strategic alliances and services                   |  |                      |         |                |  |             |           |               |  |               |         |        |  |   |            |   |  |   |       |   |  |   | 24,739     |  
|Reacquisition of convertible preferred stock and
    issuance of warrants in connection with revision of strategic
    alliance |  |                      |         |                |  |             |           |               |  |               |         |        |  |   |            |   |  |   |       |   |  |   | (151,171   | )
|Stock compensation expense                                                                                                      |  |                      | 88,359   |                |  |             |           |               |  |               |         |        |  |   |            |   |  |   |       |   |  |   | 129,268    |  
|Purchase of treasury stock                                                                                                      |  |                      |         |                |  |             | 50,928,426 |               |  |               | (191,823 | )      |  |   |            |   |  |   |       |   |  |   | (191,823   | )
|Adjustment to deferred stock compensation for
    terminations                                                                  |  |                      | 13,935   |                |  |             |           |               |  |               |         |        |  |   |            |   |  |   |       |   |  |   |           |  
|                                                                                                                                |  |                     
|Balances at December 31, 2001                                                                                                   |  |                      | (42,173  | )              |  |             | 56,091,935 |               |  |               | (222,582 | )      |  |   | (10,145,346 | ) |  |   | 12,833 |   |  |   | 1,255,512  |  
|Net loss                                                                                                                        |  |                      |         |                |  |             |           |               |  |               |         |        |  |   | (49,702     | ) |  |   |       |   |  |   | (49,702    | )
|Net decrease in unrealized gains on securities                                                                                  |  |                      |         |                |  |             |           |               |  |               |         |        |  |   |            |   |  |   | (3,640 | ) |  |   | (3,640     | )
|Foreign currency translation adjustment                                                                                         |  |                      |         |                |  |             |           |               |  |               |         |        |  |   |            |   |  |   | 2,523  |   |  |   | 2,523      |  
|                                                                                                                                |  |                      |          |                |  |             |            |               |  |               |          |        |  |   |             |   |  |   |        |   |  |   |            |  
|Comprehensive loss                                                                                                              |  |                      |         |                |  |             |           |               |  |               |         |        |  |   |            |   |  |   |       |   |  |   | (50,819    | )
|Issuance of common stock for option exercises,
    ESPP, 401(k) and other issuances                                             |  |                      |         |                |  |             |           |               |  |               |         |        |  |   |            |   |  |   |       |   |  |   | 28,774     |  
|Issuance, net of repurchase, of warrants in
    connection with strategic alliances and services                                |  |                      |         |                |  |             |           |               |  |               |         |        |  |   |            |   |  |   |       |   |  |   | 29         |  
|Redemption of convertible redeemable preferred
    stock                                                                        |  |                      |         |                |  |             |           |               |  |               |         |        |  |   |            |   |  |   |       |   |  |   |           |  
|Deferred stock compensation                                                                                                     |  |                      | (2,500   | )              |  |             |           |               |  |               |         |        |  |   |            |   |  |   |       |   |  |   |           |  
|Stock compensation expense                                                                                                      |  |                      | 24,873   |                |  |             |           |               |  |               |         |        |  |   |            |   |  |   |       |   |  |   | 25,265     |  
|Purchase of treasury stock                                                                                                      |  |                      |         |                |  |             | 18,162,734 |               |  |               | (104,960 | )      |  |   |            |   |  |   |       |   |  |   | (104,960   | )
|Adjustment to deferred stock compensation for
    terminations                                                                  |  |                      | 1,995    |                |  |             |           |               |  |               |         |        |  |   |            |   |  |   |       |   |  |   |           |  
|                                                                                                                                |  |                     
|Balances at December 31, 2002                                                                                                   |  | $                    | (17,805  | )              |  |             | 74,254,669 |               |  | $             | (327,542 | )      |  | $ | (10,195,048 | ) |  | $ | 11,716 |   |  | $ | 1,153,801  |  
|                                                                                                                                |  |                      |          |                |  |             |            |               |  |               |          |        |  |   |             |   |  |   |        |   |  |   |            |  

See accompanying notes.

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##### Table of Contents



WebMD Corporation






Consolidated Statements of Cash
Flows


(In thousands)


|                                                                                              |                                                              |                                           |                                                         |         |         |          |            |           |         |          |            |           |         |           |  
|--------------------------------------------------------------------------------------------- | ------------------------------------------------------------ | ----------------------------------------- | ------------------------------------------------------- | ------- | ------- | -------- | ---------- | --------- | ------- | -------- | ---------- | --------- | ------- | --------- | -
|                                                                                              |                                                              |                                          
|                                                                                              |                                                              | Years Ended December 31,                 
|                                                                                              |                                                              |                                          
|                                                                                              |                                                              | 2002                                      |                                                         | 2001    |         | 2000    
|                                                                                              |                                                              |                                           |                                                         |         |         |         
|Cash flows from operating
    activities:                                                     |                                                              |                                           |                                                         |         |         |          |            |           |         |          |            |          
|Net loss                                                                                      |                                                              | $                                         | (49,702                                                 | )       |         | $        | (6,672,318 | )         |         | $        | (3,081,608 | )        
|Adjustments to reconcile net loss to net cash
    provided by (used in) operating activities: |                                                              |                                           |                                                         |         |         |          |            |           |         |          |            |          
|                                                                                              | Depreciation, amortization and other                         |                                           |                                                         | 130,074 |         |          |            | 2,400,804 |         |          |            | 2,190,273 |        
|                                                                                              | Impairment of long-lived and other assets                    |                                           |                                                         | 609     |         |          |            | 3,826,893 |         |          |            |          |        
|                                                                                              | Amortization of debt issuance costs                          |                                           |                                                         | 1,109   |         |          |            |          |         |          |            |          |        
|                                                                                              | Non-cash content and distribution services                   |                                           |                                                         | 25,706  |         |          |            | 45,474    |         |          |            | 87,473    |        
|                                                                                              | Non-cash stock based compensation                            |                                           |                                                         | 25,265  |         |          |            | 78,451    |         |          |            | 72,459    |        
|                                                                                              | Non-cash portion of restructuring and integration
    charge |                                           |                                                         | 617     |         |          |            | 185,498   |         |          |            | 380,013   |        
|                                                                                              | (Gain) loss on investments                                   |                                           |                                                         | (6,547  | )       |          |            |          |         |          |            | 40,365    |        
|                                                                                              | Changes in operating assets and liabilities:                 |                                           |                                                         |         |         |          |            |           |         |          |            |           |        
|                                                                                              |                                                              | Accounts receivable                       |                                                         |         | (2,449  | )        |            |           | 47,477  |          |            |           | (32,254 | )        
|                                                                                              |                                                              | Inventory                                 |                                                         |         | 381     |          |            |           | (891    | )        |            |           | 1,047   |          
|                                                                                              |                                                              | Prepaid content and distribution services |                                                         |         | 753     |          |            |           | (7,609  | )        |            |           | 5,171   |          
|                                                                                              |                                                              | Other assets                              |                                                         |         | (4,541  | )        |            |           | 20,282  |          |            |           | 16,948  |          
|                                                                                              |                                                              | Accounts payable                          |                                                         |         | (8,328  | )        |            |           | (5,114  | )        |            |           | (46,307 | )        
|                                                                                              |                                                              | Accrued expenses                          |                                                         |         | (32,380 | )        |            |           | (44,724 | )        |            |           | (91,315 | )        
|                                                                                              |                                                              | Deferred revenue                          |                                                         |         | 12,530  |          |            |           | 11,508  |          |            |           | 3,223   |          
|                                                                                              |                                                              |                                           |                                                         |         |         |          |            |           |         |          |            |          
|                                                                                              |                                                              |                                           | Net cash provided by (used in) operating
    activities |         |         | 93,097   |            |           |         | (114,269 | )          |           |         | (454,512  | )
|                                                                                             
|Cash flows from investing
    activities:                                                     |                                                              |                                           |                                                         |         |         |          |            |           |         |          |            |          
|Proceeds from maturities and sales of
    available-for-sale securities                       |                                                              |                                           | 108,991                                                 |         |         |          | 124,725    |           |         |          | 5,667      |          
|Proceeds from maturities and redemption of
    held-to-maturity securities                    |                                                              |                                           | 59,095                                                  |         |         |          | 1,014      |           |         |          | 23,089     |          
|Purchases of available-for-sale securities                                                    |                                                              |                                           | (207,833                                                | )       |         |          |           |           |         |          | (49,600    | )        
|Purchases of held-to-maturity securities                                                      |                                                              |                                           | (300,970                                                | )       |         |          | (1,014     | )         |         |          | (51        | )        
|Purchases of property and equipment                                                           |                                                              |                                           | (28,474                                                 | )       |         |          | (30,998    | )         |         |          | (32,530    | )        
|Cash paid in business combinations, net of cash
    acquired                                  |                                                              |                                           | (33,471                                                 | )       |         |          | (17,334    | )         |         |          | (299,014   | )        
|                                                                                              |                                                              |                                           |                                                         |         |         |          |            |           |         |          |            |          
|                                                                                              |                                                              |                                           | Net cash (used in) provided by investing
    activities |         |         | (402,662 | )          |           |         | 76,393   |            |           |         | (352,439  | )
|                                                                                             
|Cash flows from financing
    activities:                                                     |                                                              |                                           |                                                         |         |         |          |            |           |         |          |            |          
|Proceeds from issuance of common stock                                                        |                                                              |                                           | 28,764                                                  |         |         |          | 12,995     |           |         |          | 1,065,848  |          
|Purchase of treasury shares                                                                   |                                                              |                                           | (104,960                                                | )       |         |          | (191,823   | )         |         |          | (30,759    | )        
|Payment of notes payable and other                                                            |                                                              |                                           | (4,054                                                  | )       |         |          | (3,367     | )         |         |          | (7,486     | )        
|Net proceeds from issuance of convertible debt                                                |                                                              |                                           | 292,000                                                 |         |         |          |           |           |         |          |           |          
|Redemption of Series B Preferred Stock                                                        |                                                              |                                           | (10,000                                                 | )       |         |          |           |           |         |          |           |          
|                                                                                              |                                                              |                                           |                                                         |         |         |          |            |           |         |          |            |          
|                                                                                              |                                                              |                                           | Net cash provided by (used in) financing
    activities |         |         | 201,750  |            |           |         | (182,195 | )          |           |         | 1,027,603 |  
|Effects of foreign currency translation adjustment                                            |                                                              |                                           | 1,083                                                   |         |         |          | (312       | )         |         |          | 385        |          
|                                                                                              |                                                              |                                           |                                                         |         |         |          |            |           |         |          |            |          
|Net (decrease) increase in cash and cash
    equivalents                                      |                                                              |                                           | (106,732                                                | )       |         |          | (220,383   | )         |         |          | 221,037    |          
|Cash and cash equivalents at beginning of year                                                |                                                              |                                           | 286,273                                                 |         |         |          | 506,656    |           |         |          | 285,619    |          
|                                                                                              |                                                              |                                           |                                                         |         |         |          |            |           |         |          |            |          
|Cash and cash equivalents at end of year                                                      |                                                              | $                                         | 179,541                                                 |         |         | $        | 286,273    |           |         | $        | 506,656    |          
|                                                                                              |                                                              |                                           |                                                         |         |         |          |            |           |         |          |            |          

See accompanying notes.

F-6



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##### Table of Contents



WebMD Corporation

Notes to Consolidated Financial
Statements

December 31, 2002


(In thousands, except share and per share
data)


1.     Summary of
Significant Accounting Policies

Organization

WebMD Corporation (the Company) was
incorporated in December 1995 and commenced operations in
January 1996 as Healtheon Corporation. In May 1998, the Company
merged with ActaMed Corporation (ActaMed) in a
transaction accounted for as a pooling of interests. In November
1999, the Company completed the acquisitions of WebMD, Inc.,
MedE America Corporation (MedE America) and
Greenberg News Networks, Inc. (Medcast) and changed
its name from Healtheon Corporation to Healtheon/ WebMD
Corporation. In January 2000, the Company completed its
acquisition of Kinetra LLC (Kinetra). In May 2000,
the Company completed its acquisition of Envoy Corporation
(Envoy). In September 2000, the Company completed
its acquisitions of Medical Manager Corporation (Medical
Manager), CareInsite, Inc. (CareInsite) and
OnHealth Network Company (OnHealth) and changed its
name from Healtheon/ WebMD Corporation to WebMD Corporation. All
financial information has been presented to reflect the combined
operations of the Company and ActaMed for all years presented
and for the WebMD, Inc., MedE America, Medcast, Kinetra, Envoy,
Medical Manager, CareInsite, OnHealth and other acquisitions for
the period subsequent to the respective acquisition dates.

The Company has aligned its business into four
operating segments as follows:

Transaction Services or WebMD Envoytransmits transactions between
healthcare payers and physicians, pharmacies, dentists,
hospitals, laboratory companies and other healthcare providers
using dial-up, Internet, and dedicated communication methods.
This group provides connectivity and transaction services
through an integrated electronic transaction processing system.
These services assist the groups customers in automating
key administrative and clinical functions. In addition, this
group provides automated patient billing services to providers,
including statement printing and mailing services. This segment
includes certain operations from the former Healtheon and the
ActaMed, WebMD, Inc., MedE America, Kinetra, Envoy and
CareInsite acquisitions.

Physician Services or WebMD Medical Managerdevelops and markets integrated
physician practice management systems, including administrative,
financial and clinical applications and services, under The
Medical Manager, Intergy, ULTIA and Medical Manager Network
Services brands. These systems and services allow physician
offices to automate their scheduling, billing and other
administrative tasks, to maintain electronic medical records and
to automate documentation of patient encounters. This segment
includes certain operations of Medical Manager and subsequent
Physician Services acquisitions.

Portal Services or WebMD Healthprovides online healthcare information
and related resources and services for consumers and healthcare
professionals, both directly and through its relationships with
leading general consumer Internet portals. The group also
provides online content for use by media and healthcare partners
in their Web sites. The group develops and sells online and
offline programs for advertisers and sponsors, particularly
those who are interested in influencing healthcare decisions.
This segment includes certain operations of the former Healtheon
and the ActaMed, WebMD, Inc., Medcast, OnHealth, Medscape and
WellMed acquisitions.

Plastic Technologies or Porexdevelops, manufactures and distributes
proprietary porous and solid plastic products and components
used in healthcare, industrial and consumer applications, as
well as in finished products used in medical device, research,
clinical laboratory and surgical markets. This segment includes
the Porex operations of the Medical Manager acquisition.

F-7



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##### Table of Contents



WebMD Corporation


Notes to Consolidated Financial
Statements  (Continued)

Principles of Consolidation

The accompanying consolidated financial
statements include the accounts of the Company and its
subsidiaries after elimination of all material intercompany
accounts and transactions. Porex Corporation and the
Companys other Plastic Technologies subsidiaries
(collectively referred to as Porex) had previously
been reported as asset held for sale during the period from
September 12, 2000 to September 12, 2001 and as a
discontinued operation subsequent to September 12, 2001.
During February 2003, the Company terminated its divestiture
plan for Porex. Accordingly, the assets and operations of Porex
have been reclassified within continuing operations since
September 12, 2000. The operations of Porex have been
included in a separate operating segment, Plastic
Technologies.

Accounting Estimates

The preparation of financial statements in
conformity with accounting principles generally accepted in the
United States requires management to make estimates and
assumptions that affect the amounts reported in the financial
statements. Actual results could differ from these estimates.
Significant estimates and assumptions by management affect: the
Companys allowance for doubtful accounts, the carrying
value of inventory, the carrying value of prepaid content and
distribution services, the carrying value of long-lived assets
(including goodwill and intangible assets), the amortization
period of long-lived assets (excluding goodwill and intangibles
with indefinite lives), the capitalization of software
development costs, the carrying value of short-term and
long-term investments, deferred taxes, certain accrued expenses,
revenue recognition, restructuring costs and the value
attributed to warrants issued for services.

Cash and Cash Equivalents

All highly liquid investments with an original
maturity from the date of purchase of three months or less are
considered to be cash equivalents. These short-term investments
are stated at cost, which approximates market. The
Companys cash and cash equivalents are invested in various
investment-grade commercial paper, money market accounts and
federal agency notes.

Marketable Securities

Management determines the appropriate
classification of its investments in debt securities at the time
of purchase and re-evaluates such determinations at each balance
sheet date. Debt securities are classified as held to maturity
when the Company has the positive intent and ability to hold the
securities to maturity. Held to maturity securities are carried
at amortized cost. Debt securities that the Company does not
have the intent or ability to hold to maturity are classified as
available-for-sale. Investments in marketable equity securities
are classified as available-for-sale. Available-for-sale
securities are carried at fair value as of the balance sheet
date.

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WebMD Corporation


Notes to Consolidated Financial
Statements  (Continued)

Inventory

Inventory is stated at the lower of cost or
market value using the first-in, first-out basis. Cost includes
raw materials, direct labor, and manufacturing overhead. Market
is based on current replacement cost for raw materials and
supplies and on net realizable value for work-in-process and
finished goods. Inventory consisted of the following as of
December 31, 2002 and 2001:

|                           |  |      |        |      |  |   |        | 
|-------------------------- |  | ---- | ------ | ---- |  | - | ------ | 
|                           |  | 2002 |        | 2001
|                           |  |      |        |     
|Raw materials and supplies |  | $    | 5,869  |      |  | $ | 6,225  | 
|Work-in-process            |  |      | 1,481  |      |  |   | 1,649  | 
|Finished goods and other   |  |      | 11,454 |      |  |   | 11,311 | 
|                           |  |      |        |      |  |   |        | 
|                           |  | $    | 18,804 |      |  | $ | 19,185 | 
|                           |  |      |        |      |  |   |        | 

Long-Lived Assets

Property and
Equipment

Property and equipment are stated at cost, net of
accumulated depreciation. Depreciation is computed using the
straight-line method over the estimated useful life of the
related asset, generally three to twelve years for equipment and
up to thirty-nine years for buildings. Leasehold improvements
and equipment acquired under capital leases are depreciated over
the shorter of the lease term or the estimated useful life of
the related asset. Expenditures for maintenance, repair and
renewals of minor items are charged to expense as incurred.
Major betterments are capitalized.

Goodwill and
Intangible Assets

Goodwill and intangible assets result from
acquisitions accounted for under the purchase method. Goodwill
and intangible assets with indefinite lives are no longer being
amortized but are subject to impairment by applying a fair value
based test. Intangible assets related to acquired technology,
customer lists, trademarks and other intangibles are being
amortized on a straight-line basis over the estimated useful
life of the related asset, generally one to nine years, with the
exception of certain technology and trademarks that have useful
lives of nineteen to forty years.

Recoverability

In accordance with Statement of Financial
Accounting Standards (SFAS) No. 142,
Goodwill and Other Intangible Assets (SFAS
No. 142), the Company reviews the carrying value of
goodwill and intangible assets with indefinite lives annually.
The Company measures impairment losses by comparing carrying
value to fair value. Fair value is determined using discounted
cash flow methodology.

In accordance with SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived
Assets, long-lived assets used in operations are reviewed
for impairment whenever events or changes in circumstances
indicate that carrying amounts may not be recoverable. For
long-lived assets to be held and used, the Company recognizes an
impairment loss only if its carrying amount is not recoverable
through its undiscounted cash flows and measures the impairment
loss based on the difference between the carrying amount and
fair value. Long-lived assets held for sale are reported at the
lower of cost or fair value less costs to sell.

Prior to January 1, 2002, the Company
accounted for its long-lived assets under SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of. In accordance with
SFAS No. 121, the Company reviewed the recoverability of
long-lived assets using an undiscounted cash flow methodology,
whenever events or changes in circumstances indicated that
carrying

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WebMD Corporation


Notes to Consolidated Financial
Statements  (Continued)

amounts may not be recoverable. The Company
measured impairment losses using a discounted cash flow
methodology.

Software Development Costs

Software to
be Sold, Leased or Otherwise Marketed

SFAS No. 86 Accounting for the Costs
of Computer Software to be Sold, Leased or Otherwise
Marketed, requires the capitalization of certain software
development costs subsequent to the establishment of
technological feasibility. Based upon the Companys product
development process, technological feasibility is established
upon the completion of a working model. The costs incurred from
the time a working model is available until general release are
immaterial. There were no software costs capitalized in 2002,
2001 or 2000.

Internal Use
Software

The Company accounts for internal use software
development costs in accordance with Statement of Position
No. 98-1, Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use
(SOP 98-1). Software development costs that are
incurred in the preliminary project stage are expensed as
incurred. Once the specified criteria of SOP 98-1 have been
met, internal and external direct costs incurred in developing
or obtaining computer software are capitalized. Training and
data conversion costs are expensed as incurred. Capitalized
software costs are amortized over a three-year period. In 2000,
the Company capitalized $3,422 of internal direct costs in
connection with the implementation of certain software projects.
There were no such costs capitalized in 2002 and 2001. As of
December 31, 2002 and 2001, included in other assets, were
remaining capitalized software costs, net of accumulated
amortization, of $1,269 and $2,544 respectively.

Revenue Recognition

Revenue is derived from the Companys
Transaction Services, Physician Services, Portal Services and
Plastic Technologies segments.

The Companys transaction services include
administrative services, such as transaction processing for
medical, dental, pharmacy claims, automated patient statements,
and clinical lab and reporting services, such as lab test orders
and results. Healthcare payers and providers pay fees to the
Company for these services, generally on a per transaction
basis. Transaction fees vary according to the type of
transaction and other factors, such as volume level commitments.
The Company also charges one-time implementation fees to
providers and payers, that are recognized ratably over the
contract term. Revenue from transaction services, which are
generally priced on a per transaction or monthly basis, is
recognized when the services are provided.

The Companys physician services include
sales of The Medical Manager and Intergy practice management
systems and related hardware, as well as the support and
maintenance of these systems. Revenue from software licenses is
recognized in accordance with SOP No. 97-2, Software
Revenue Recognition, as amended by SOP 98-9,
Modification of SOP 97-2, Software Revenue
Recognition, With Respect to Certain Transactions.
Software license fee revenue is recognized when a customer
enters into a noncancelable license agreement, the software
product has been delivered, there are no uncertainties
surrounding product acceptance, there are no significant future
performance obligations, the license fees are fixed or
determinable and collection of the license fee is considered
probable. Amounts received in advance of meeting these criteria
are deferred. Revenue from multiple-element software
arrangements is recognized using the residual method as vendor
specific objective evidence (VSOE) of fair value
exists for the undelivered elements, but not for all the
delivered elements. The residual method requires revenue

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WebMD Corporation


Notes to Consolidated Financial
Statements  (Continued)

to be allocated to the undelivered elements based
on the fair value of such elements, as indicated by VSOE. VSOE
is based on the price charged when an element is sold
separately. Revenue from the sale of hardware is recognized upon
delivery to the customer. Revenue from support and maintenance
contracts is recognized ratably over the contract period, which
typically does not exceed one year. The Company also markets a
variety of transaction processing services to physician
practices, such as medical claim processing and automated
patient statements. Payment for these services is typically
monthly on a per transaction or fixed fee basis. Revenues are
recognized when these services are provided.

The Companys portal services include
advertising, sponsorship, healthcare management tools,
continuing medical education (CME), content
syndication and distribution, and e-commerce transactions
related to the Companys online distribution channels and
the online and offline distribution channels of the
Companys strategic partners. Revenue from advertising is
recognized as advertisements are delivered. Revenues from
sponsorship arrangements and healthcare management tools are
recognized ratably over the term of the applicable agreement.
Revenue from CME arrangements is recognized over the period the
Company satisfies the minimum credit hour requirements of the
applicable agreements. Revenue from fixed fee content license or
carriage fees is recognized ratably over the term of the
applicable agreement. E-commerce revenue is recognized when a
subscriber or consumer utilizes the Companys
Internet-based services or purchases goods or services through
the Companys Web site or co-branded Web site with one of
its strategic partners. Subscription revenue, including
subscription revenue from sponsorship arrangements, is
recognized over the subscription period. Subscription fees to
the Companys physician portal were discontinued as of
December 31, 2000. When contractual arrangements contain
multiple elements, revenue is allocated to the elements based on
their relative fair values, determined using prices charged when
elements are sold separately.

The Companys Plastic Technologies segment
develops, manufactures and distributes porous and solid plastic
products and components. For standard products, revenue is
recognized upon shipment of product, net of sales returns and
allowances, in accordance with Staff Accounting Bulletin (SAB)
No. 101, Revenue Recognition in Financial
Statements and SFAS No. 48 Revenue Recognition
When Right of Return Exists. These statements establish
that revenue can be recorded when persuasive evidence of an
arrangement exists, delivery has occurred and all significant
obligations have been satisfied, the fee is fixed or
determinable and collection is considered probable. Appropriate
reserves are established for anticipated returns and allowances
based on past experience. For sales of certain custom products,
revenue is recognized upon completion and customer acceptance.
The amount of cash received at the time a customers order
is placed is recorded as a liability. The liability is reversed
at the time revenue is recognized.

Effective January 1, 2002, the Company
adopted EITF 01-14, Income Statement Characterization
of Reimbursements Received for Out-of-Pocket
Expenses Incurred, which requires reimbursements received
for out-of-pocket expenses to be classified as revenue as
opposed to an offset against the related expense. Upon
application, comparative financial statements for prior periods
are required to be reclassified. The Company reclassified
amounts it had paid for expenses related to postage, primarily
for the mailing of customized billing statements to patients on
behalf of healthcare providers. This reclassification resulted
in an increase in previously reported revenue and cost of
operations of $73,408 for 2001 and $39,357 for 2000 within the
Transaction Services segment. Postage expense included in cost
of operations in 2002 was $81,309.

Revenue from related parties consists of revenues
for services provided to News Corporation during the three
months ended March 31, 2001. Revenue from News Corporation
ceased being considered from a related party as of
February 15, 2001 when News Corporation surrendered the
Companys Series A convertible preferred stock.

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WebMD Corporation


Notes to Consolidated Financial
Statements  (Continued)

The Company recognizes revenue related to the
nonmonetary exchange of advertising for advertising
(Barter) when such exchanges are objectively
determinable based on the criteria set forth in Accounting
Principles Board Opinion No. 29, Accounting for
Nonmonetary Transactions for contractual agreements
entered into prior to January 20, 2000. Revenues from these
exchanges are recorded at the fair value of the products and
services provided or received, whichever is more clearly
evident. For contractual arrangements after January 20,
2000, the Company recognizes revenue based on the criteria set
forth in Emerging Issues Task Force (EITF) Issue
No. 99-17, Accounting for Advertising Barter
Transactions (EITF 99-17).
EITF 99-17 requires that an entity recognize revenue and
expenses from advertising barter transactions at the fair value
of the advertising surrendered only when an entity received cash
for similar transactions. There were no revenues recognized from
Barter transactions in 2002. Revenue recognized from
arrangements deemed to be Barter transactions totaled
approximately $19,009 and $21,743 in 2001 and 2000,
respectively. The costs related to these transactions were equal
to the revenues and are included in sales, marketing, general
and administrative expenses.

Foreign Currency

The financial statements and transactions of the
Companys foreign manufacturing facilities are maintained
in their local currency. In accordance with SFAS No. 52
Foreign Currency Translation, the translation of
foreign currencies into U.S. dollars is performed for
balance sheet accounts using current exchange rates in effect at
the balance sheet date and for revenue and expense accounts
using an average exchange rate for the period. The gains or
losses resulting from translation are included as a component of
accumulated other comprehensive income within stockholders
equity. Foreign currency transaction gains and losses are
included in net loss and were not material in any of the periods
presented.

Concentration of Credit Risk

None of the Companys customers individually
accounted for more than 10% of the Companys consolidated
revenue in 2002, 2001 or 2000.

The Companys revenues are principally
generated in the United States. An adverse change in economic
conditions in the United States could negatively affect the
Companys revenues and results of operations.

The Company places its short-term investments in
a variety of financial instruments and, by policy, limits the
amount of credit exposure through diversification and by
restricting its investments to highly rated securities.

Income Taxes

Income taxes are accounted for using the
liability method in accordance with SFAS No. 109,
Accounting for Income Taxes. Under this method,
deferred income taxes are recognized for the future tax
consequence of differences between the tax and financial
reporting basis of assets and liabilities at each year end. A
valuation allowance is established to reduce deferred tax assets
to the amounts expected to be realized.

Accounting for Stock-Based
Compensation

As described more fully in Note 15, the
Company accounts for its stock-based employee compensation plans
using the intrinsic value method under the recognition and
measurement principles of APB Opinion No. 25,
Accounting for Stock Issued to Employees, and
related interpretations. No stock-based employee compensation
cost is reflected in net loss, with respect to options granted
with an exercise price equal to the market value of the
underlying common stock on the date of grant. Stock-based awards

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WebMD Corporation


Notes to Consolidated Financial
Statements  (Continued)

to non-employees are accounted for based on
provisions of SFAS No. 123, Accounting for
Stock-Based Compensation and EITF 96-18,
Accounting for Equity Instruments That Are Issued to Other
Than Employees for Acquiring, or in Conjunction with Selling,
Goods or Services. In accordance with SFAS No. 148
Accounting for Stock-Based Compensation 
Transition and Disclosure  An Amendment of FASB
Statement No. 123, the following table illustrates
the effect on net loss and loss per share if the Company had
applied the fair value recognition provisions of SFAS
No. 123 to stock-based employee compensation:

|                                                                                                                 |                                 |                          |          |          |   |      |            |            |   |   |            |            |  
|---------------------------------------------------------------------------------------------------------------- | ------------------------------- | ------------------------ | -------- | -------- | - | ---- | ---------- | ---------- | - | - | ---------- | ---------- | -
|                                                                                                                 |                                 |                         
|                                                                                                                 |                                 | Years Ended December 31,
|                                                                                                                 |                                 |                         
|                                                                                                                 |                                 | 2002                     |          | 2001     |   | 2000
|                                                                                                                 |                                 |                          |          |          |   |     
|Net loss as reported                                                                                             |                                 | $                        | (49,702  | )        |   | $    | (6,672,318 | )          |   | $ | (3,081,608 | )         
|Deduct: Stock-based employee compensation expense
    included in reported net loss                              |                                 |                          | 25,265   |          |   |      | 129,268    |            |   |   | 125,603    |           
|Add: Total stock-based employee compensation
    expense determined under fair value based method for all awards |                                 |                          | (119,670 | )        |   |      | (317,166   | )          |   |   | (290,314   | )         
|                                                                                                                 |                                 |                          |          |          |   |      |            |            |   |   |            |           
|                                                                                                                 | Pro forma net loss              |                          | $        | (144,107 | ) |      | $          | (6,860,216 | ) |   | $          | (3,246,319 | )
|                                                                                                                 |                                 |                          |          |          |   |      |            |            |   |   |            |           
|Loss per share:                                                                                                  |                                 |                          |          |          |   |      |            |            |   |   |            |           
|                                                                                                                 | Basic and diluted  as reported |                          | $        | (.16     | ) |      | $          | (19.14     | ) |   | $          | (12.59     | )
|                                                                                                                 |                                 |                          |          |          |   |      |            |            |   |   |            |           
|                                                                                                                 | Basic and diluted  pro forma   |                          | $        | (.47     | ) |      | $          | (19.68     | ) |   | $          | (13.27     | )
|                                                                                                                 |                                 |                          |          |          |   |      |            |            |   |   |            |           

The pro forma results above are not intended to
be indicative of or a projection of future results. Refer to
Note 15 for assumptions used in computing the fair value amounts
above.

Net Loss Per Common Share

Basic net loss per common share and diluted net
loss per common share are presented in conformity with SFAS
No. 128, Earnings Per Share, (SFAS
No. 128) for all periods presented. In accordance
with SFAS No. 128, basic net loss per common share has been
computed using the weighted-average number of shares of common
stock outstanding during the period.

The Company has excluded all convertible
redeemable preferred stock, convertible preferred stock,
convertible subordinated notes and restricted stock as well as
all outstanding warrants and all outstanding stock options from
the calculation of diluted loss per common share because all
such securities are anti-dilutive for the periods presented. The
total number of shares excluded from the calculations of diluted
loss per share were 168,533,819 in 2002, 159,058,030 in 2001 and
169,664,930 in 2000.

Recent Accounting Pronouncements

In December 2002, the FASB issued SFAS
No. 148, Accounting for Stock-Based Compensation
 Transition and Disclosure  An Amendment of FASB
Statement No. 123, (SFAS No. 148).
The statement provides alternative methods of transition for a
voluntary change to the fair value method of accounting for
stock-based employee compensation. In addition, the statement
requires disclosure in both annual and interim financial
statements the method of accounting for stock-based compensation
and the effect of the method used on reported results. The
statement is effective for annual periods ending after
December 15, 2002 and interim periods beginning after
December 15, 2002. The Company applies the intrinsic value
method of accounting for stock-based employee compensation. The
adoption of SFAS No. 148 did not have a material impact on
the Companys consolidated financial position or results of
operations.

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WebMD Corporation


Notes to Consolidated Financial
Statements  (Continued)

In November 2002, the FASB issued Interpretation
No. 45, Guarantors Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others (FIN 45). The
interpretation elaborates on the disclosures to be made in the
Companys interim and annual financial statements about
obligations under certain guarantees. It also requires the
Company to recognize, at the inception of a guarantee, a
liability for the fair value of the obligation undertaken in
issuing the guarantee. The disclosure requirements are effective
for financial statements of interim and annual periods ending
after December 15, 2002. The initial measurement and
recognition provisions are required to be applied on a
prospective basis to guarantees issued or modified after
December 31, 2002. The Company expects that the adoption of
FIN 45 will not have a material impact on its consolidated
financial position or results of operations.

In June 2002, the FASB issued SFAS No. 146,
Accounting for Costs Associated with Exit or Disposal
Activities. SFAS No. 146 requires recording costs
associated with exit or disposal activities at their fair values
when a liability has been incurred. Under previous guidance,
certain exit costs were accrued upon managements
commitment to an exit plan, which is generally before an actual
liability has been incurred. SFAS No. 146 is effective for
exit or disposal activities initiated after December 31,
2002. The Company expects that the adoption of SFAS No. 146
will have an impact on the timing of the recording of any future
restructuring charges.

In August 2001, the FASB issued SFAS
No. 144, Accounting For Impairment of Long-Lived
Assets (SFAS No. 144). We adopted this
pronouncement beginning January 1, 2002. SFAS No. 144
prescribes the accounting for long-lived assets (excluding
goodwill) to be disposed of by sale. SFAS No. 144 retains
the requirement of SFAS No. 121 to measure long-lived
assets classified as held for sale at the lower of its carrying
value or fair market value less the cost to sell. Therefore,
discontinued operations are no longer measured on a net
realizable basis, and future operating results are no longer
recognized before they occur. The adoption of SFAS No. 144
on January 1, 2002 did not have any impact on the
Companys consolidated financial condition or results of
operations.

In June 2001, the FASB issued SFAS No. 143,
Accounting for Asset Retirement Obligations
(SFAS No. 143), which establishes accounting
standards for recognition and measurement of a liability for the
costs of asset retirement obligations. Under SFAS 143, the
future costs of retiring a tangible long-lived asset will be
recorded as a liability at its present value when the retirement
obligation arises, and will be amortized to expense over the
life of the asset. SFAS No. 143 is effective for fiscal
years beginning after June 15, 2002. The Company expects
that the adoption of SFAS No. 143 will not have a material
impact on its consolidated financial position or results of
operations.

Effective July 1, 2001 and January 1,
2002, the Company adopted SFAS No. 141, Business
Combinations and SFAS No. 142, Goodwill and
Other Intangible Assets, respectively. SFAS No. 141
requires all business combinations initiated after June 30,
2001 to be accounted for using the purchase method of
accounting. SFAS No. 142 requires that goodwill and certain
intangibles no longer be amortized, but instead tested for
impairment at least annually. As a result of the Companys
adoption of SFAS No. 141 and SFAS No. 142, (i) no
amortization was recorded for goodwill resulting from business
combinations completed after June 30, 2001,
(ii) effective January 1, 2002, the amortization of
goodwill was eliminated, and (iii) certain amounts
previously classified as intangible assets were reclassified as
goodwill and consequently, no longer subject to amortization.
Additionally, there was no impairment of goodwill upon adoption
of SFAS No. 142 on January 1, 2002, or in connection
with the annual impairment test that was performed during the
quarter ended December 31, 2002.

Reclassifications

Certain reclassifications have been made to the
financial statements to conform with the current year
presentation.

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WebMD Corporation


Notes to Consolidated Financial
Statements  (Continued)

2.     Business
Combinations

2002 Acquisitions

On October 31, 2002, the Company acquired
WellMed, Inc. (WellMed), which develops and markets
healthcare information technology applications, including online
healthcare decision support and health management tools for use
by consumers. The total purchase consideration for WellMed was
approximately $19,031, comprised of $18,781 in cash and
estimated acquisition costs of $250. The acquisition was
accounted for using the purchase method of accounting and,
accordingly, the purchase price was allocated to the tangible
and intangible assets acquired and the liabilities assumed on
the basis of their respective fair values. In connection with
the preliminary allocation of the purchase price, goodwill of
$17,973 and an intangible asset subject to amortization of
$2,700 were recorded. The Company expects that substantially all
of the goodwill recorded will be deductible for tax purposes.
The intangible asset represents the fair value of acquired
unpatented technology and has a useful life of 3 years. The
results of operations of WellMed have been included in the
financial statements of the Company from October 31, 2002,
the closing date of the acquisition. WellMeds results of
operations are included in the Portal Services segment.

In 2002, the Company acquired 21 physician
services companies for a total cost of $14,400, which was paid
in cash. These acquisitions were accounted for using the
purchase method of accounting with the purchase price being
allocated to assets acquired and liabilities assumed based on
their fair values. In connection with the preliminary allocation
of the purchase price, goodwill of $11,784 and intangible assets
subject to amortization of $4,049 were recorded. The Company
expects that substantially all of the goodwill recorded will be
deductible for tax purposes. The intangible assets are comprised
of $1,281 related to non-compete agreements with estimated
useful lives of one to five years and $2,768 related to customer
relationships with estimated useful lives of nine years. The
results of operations of these companies have been included in
the financial statements of the Company from the respective
acquisition closing dates and are included in the Physician
Services segment.

2001 Acquisitions

On December 26, 2001, the Company completed
its acquisition of the portal assets of MedicaLogic/ Medscape,
Inc. (Medscape). Medscape operates both consumer and
professional websites. The total purchase consideration for
these assets was approximately $9,852, comprised of $9,242 in
cash and acquisition costs of $610. The acquisition was
accounted for using the purchase method of accounting and,
accordingly, the purchase price was allocated to the tangible
and intangible assets acquired and the liabilities assumed on
the basis of their respective fair values. In connection with
the allocation of the purchase price, goodwill of $5,732 and
intangible assets subject to amortization totaling $2,420 were
recorded. The Company expects that substantially all of the
goodwill recorded will be deductible for tax purposes. The
intangible assets are comprised of $800 related to a tradename
and $1,620 related to customer relationships with useful lives
of 3 and 5 years, respectively. The results of operations
of Medscape have been included in the financial statements of
the Company from December 26, 2001, the closing date of the
acquisition. Medscapes results of operations are included
in the Portal Services segment.

In 2001, the Company acquired ten physician
services companies for a total cost of $8,159, which was paid
primarily in cash. These acquisitions were accounted for using
the purchase method of accounting with the purchase price being
allocated to assets acquired and liabilities assumed based on
their fair values. In connection with the allocation of the
purchase price, goodwill of $9,879 and intangible assets subject
to amortization of $3,453 were recorded. The Company expects
that substantially all of the goodwill recorded will be
deductible for tax purposes. Amortization of goodwill related to
business combinations completed prior to June 30, 2001 has
been provided based on an estimated useful life of three years.
The intangible

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WebMD Corporation


Notes to Consolidated Financial
Statements  (Continued)

assets are comprised of $886 related to
non-compete agreements with estimated useful lives of one to
five years and $2,567 related to customer relationships with
estimated useful lives of nine years. The results of operations
of these companies have been included in the financial
statements of the Company from the respective acquisition
closing dates and are included in the Physician Services segment.

2000 Acquisitions

Medical
Manager and CareInsite

On September 12, 2000, the Company completed
its acquisition of Medical Manager, a provider of physician
practice management systems in the U.S., and its publicly traded
subsidiary CareInsite, a developer of an Internet-based
healthcare e-commerce network that links physicians, suppliers
and patients. The Company exchanged 2.5 shares of its common
stock for each share of Medical Manager common stock, 1.3 shares
of its common stock for each share of CareInsite common stock
and one share of its newly created Series B preferred stock
for each share of CareInsite preferred stock. The total purchase
consideration for Medical Manager and CareInsite was
approximately $2,906,586, comprised of the issuance of
134,370,010 shares of the Companys common stock having an
aggregate value of $2,145,722, the issuance of 100 shares of the
Companys Series B convertible redeemable preferred
stock with a value of $10,000, the assumption of options and
warrants to purchase 81,084,865 shares of common stock with an
aggregate fair value of $710,475 and estimated acquisition costs
of $40,389, consisting principally of investment banking fees,
professional service fees, including attorneys, accountants and
printers, filing and registration costs. Both acquisitions were
accounted for using the purchase method of accounting and,
accordingly, the purchase prices are allocated to the tangible
and intangible assets acquired and the liabilities assumed on
the basis of their respective fair values. In connection with
the allocation of purchase price, the Company recorded $90,200
for identifiable intangibles (primarily customer lists,
trademarks and workforce) and $2,384,831 in goodwill. The
identifiable intangibles are being amortized over their
estimated useful lives of three to five years, with the
exception of certain technology and trademarks related to Porex,
that have useful lives of nineteen to forty years. Goodwill was
being amortized over three years with the exception of goodwill
related to Porex which was being amortized over forty years.
Medical Managers and CareInsites results of
operations have been included in the Companys consolidated
financial statements from September 12, 2000, the closing
date of the acquisition.

In connection with the acquisition of Medical
Manager and the related integration and consolidation, the
Companys Board of Directors approved managements
plan to dispose of Porex Corporation and its other plastics and
filtration technologies subsidiaries (collectively referred to
as Porex). In February 2003, the Company terminated
its formal efforts to dispose of this business. See Note 6.

OnHealth

On September 12, 2000, the Company completed
its acquisition of OnHealth, a source of consumer-oriented
health and wellness information, products and services on the
Web. The Company exchanged 0.189435 shares of its common stock
for each share of OnHealth common stock. The total purchase
consideration was approximately $363,010, comprised of $25,000
in loans to OnHealth, approximately 4,678,609 shares of common
stock having an aggregate fair value of $287,267, the assumption
of options and warrants to purchase 1,384,113 shares of common
stock with an aggregate fair value of $46,893 and estimated
acquisition costs of $3,850 consisting principally of investment
banking fees, professional service fees, including attorneys,
accountants and printers, filing and registration costs. The
acquisition was accounted for using the purchase method of
accounting and, accordingly, the purchase price is allocated to
the tangible and intangible assets acquired and the liabilities
assumed on the basis of their respective fair values. In
connection with the allocation of purchase price, total goodwill
recorded in connection with the

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WebMD Corporation


Notes to Consolidated Financial
Statements  (Continued)

purchase was $374,634 and was being amortized
over three years. OnHealths results of operations have
been included in the consolidated financial statements from
September 12, 2000, the closing date of the acquisition.

Envoy

On May 26, 2000, the Company completed its
acquisition of Envoy, a provider of electronic data interchange
and transaction processing services to participants in the
healthcare market, from Envoys parent, Quintiles
Transnational Corp. (Quintiles). The total purchase
consideration was approximately $2,440,240, comprised of a
$400,000 cash payment, 35,000,000 shares of common stock having
an aggregate fair value of $2,022,781 and an estimated $17,459
in acquisition costs (consisting principally of investment
banking fees, professional service fees, including attorneys,
accountants and printers, filing and registration costs). Stock
received by Quintiles in the transaction was subject to
restrictions on sale for one to two years from the date of
issuance. The acquisition was accounted for using the purchase
method of accounting and accordingly, the purchase price is
allocated to the tangible and intangible assets acquired and
liabilities assumed on the basis of their respective fair
values. In connection with the allocation of the purchase price,
the Company recorded $159,200 for identifiable intangibles
(primarily customer lists and trademarks) and goodwill of
$2,211,565. The identifiable intangibles are being amortized
over their estimated useful lives of one to three years.
Goodwill was being amortized over three years. Envoys
results of operations have been included in the Companys
consolidated financial statements from May 26, 2000, the
closing date of the acquisition. In October 2001, the Company
reacquired the 35,000,000 shares of common stock owned by
Quintiles. See Notes 3 and 14.

Kinetra

On January 31, 2000, the Company completed
its acquisition of Kinetra, a joint venture between Electronic
Data Systems Corporation and Eli Lilly and Company that provided
electronic data interchange and transaction processing services
and e-commerce services to participants in the healthcare
market. The total purchase consideration for Kinetra was
approximately $291,538, comprised of 7,437,248 shares of common
stock having an aggregate value of $286,288, $5,250 of
acquisition costs and a nominal amount of cash. The acquisition
was accounted for using the purchase method of accounting and,
accordingly, the purchase price is allocated to the tangible and
intangible assets acquired and the liabilities assumed on the
basis of their respective fair values. In connection with the
allocation of the purchase price, the Company recorded $49,000
for identifiable intangibles (primarily customer lists,
trademarks and acquired technology) and goodwill of $235,000.
The identifiable intangibles are being amortized over their
estimated useful lives of one to three years. Goodwill was being
amortized over three years. Kinetras results of operations
have been included in the Companys consolidated financial
statements from January 31, 2000, the closing date of the
acquisition.

Unaudited Pro
Forma Information

The following unaudited pro forma financial
information for 2000 gives effect to the 2000 acquisitions of
Kinetra, Envoy, Medical Manager, CareInsite and OnHealth
including the amortization of goodwill and other intangible
assets as if they had occurred as of the beginning of 2000. The
information is provided for illustrative purposes only and is
not necessarily indicative of the operating results that would
have occurred if the transactions had been consummated at the
dates indicated, nor is it necessarily indicative of future
operating results of the combined companies, and should not be
construed as representative of these amounts for any future
periods. The 2002 and 2001 acquisitions have been excluded as
the pro forma impact of such acquisitions was not significant.

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WebMD Corporation


Notes to Consolidated Financial
Statements  (Continued)

|                                     |  |              |            |  
|------------------------------------ |  | ------------ | ---------- | -
|                                     |  | Year Ended  
|                                     |  | December 31,
|                                     |  | 2000        
|                                     |  |             
|Net revenue                          |  | $            | 916,994    |  
|                                     |  |              |            |  
|Net loss                             |  | $            | (4,140,130 | )
|                                     |  |              |            |  
|Basic and diluted net loss per share |  | $            | (11.58     | )
|                                     |  |              |            |  

3.     Significant
Transactions

Quintiles Transnational Corporation

As part of the transaction in which the Company
acquired Envoy from Quintiles Transnational Corp. in May 2000,
Quintiles and the Company entered into a Data Rights Agreement
and an Internet Product Development and Marketing Agreement. In
February 2000, Quintiles filed an action for breach of the Data
Rights Agreement against the Company. On October 12, 2001,
the Company and Quintiles entered into an agreement to settle
this litigation (Settlement Agreement). Pursuant to
the Settlement Agreement, the Company and Quintiles terminated
the Data Rights Agreement and the Internet Product Development
and Marketing Agreement and all other agreements between them.
Pursuant to the court order in the litigation, Quintiles
continued to receive de-identified data from the Company until
February 28, 2002. The Company and Envoy have no further
obligation to provide, and no longer provide, any data to
Quintiles.

In accordance with the terms of the Settlement
Agreement, the Company purchased from Quintiles all 35,000,000
shares of WebMD common stock held by Quintiles for $185,000 in
cash. The fair market value of the repurchased shares on the
date of settlement was $126,000 and has been recorded as
treasury stock. The excess of the purchase price of the shares
over their fair market value was $59,000 and has been recorded
as a component of restructuring and integration charges along
with a benefit of $7,000 related to the release from certain
obligations in relation to the Companys acquisition of
Envoy.

The Settlement Agreement also provides that
Quintiles will have the right to receive a payment (payable at
the Companys option in cash, stock, or a combination of
cash and stock) in the event that, on or before June 30,
2004, a transaction closes in which the Company is acquired at a
price per the Companys common share greater than $4.00 or
in which Envoy is sold at an aggregate price of greater than
$500,000. The Company is under no obligation to pursue either of
these types of transactions. In the event an acquisition of the
Company agreed to on or before June 30, 2003 closes on or
before June 30, 2004, the payment to Quintiles will equal the
amount by which the price paid in the acquisition exceeds $4.00
per share, multiplied by 35,000,000. In the event a sale of
Envoy agreed to on or before June 30, 2003 closes on or
before June 30, 2004, the payment to Quintiles will equal
10% of the amount by which the price received in the sale
exceeds $500,000. If the acquisition of the Company or sale of
Envoy is agreed to after June 30, 2003 and closes on or
before June 30, 2004, the payment will be 80% of the
above-mentioned payments.

America Online, Inc.

In May 2001, the Company entered into an
agreement for a strategic alliance with AOL Time Warner, Inc.
(AOL). The term of the agreement is three years
expiring May 2004. Under the agreement, the Company is the
primary provider of healthcare content, tools and services for
use on AOL properties that include AOL, AOL.com, CompuServe and
Netscape.com. In addition, the Company created a co-branded
personalized health service for AOL that features the
Companys personalized news, health assessment and
monitoring tools, communities and newsletters, integrated with
AOLs calendaring and reminders. The Company and AOL
intend, through the co-branded services, to provide users with
the

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WebMD Corporation


Notes to Consolidated Financial
Statements  (Continued)

ability to communicate with their health plans,
physicians, pharmacies and other providers. The Company and AOL
will share revenue from advertising (whether or not related to
healthcare), commerce and programming on the health channels of
the AOL properties and on the co-branded service, with the
Company receiving 80% of revenues up to an agreed-upon annual
threshold and 60% thereafter. In connection with the strategic
alliance, the Company issued to AOL a warrant to purchase
2,408,908 shares of the Companys common stock at an
exercise price of $9.25 per share. The warrant was valued at
approximately $17,500 using the Black-Scholes option pricing
model and is being amortized over the term of the strategic
alliance as a non-cash distribution expense included in sales,
marketing, general and administrative expense.

News Corporation

Pursuant to an agreement signed and publicly
announced in December 1999 and closed in January 2000, the
Company entered into a strategic relationship with News
Corporation. On December 29, 2000, this strategic alliance
was revised by the parties. On February 15, 2001, the
Company completed all transactions related to its revised
strategic relationship with News Corporation. The original
relationship and the new relationship are each described below.

Original
Relationship

The financial terms of the strategic relationship
included: $700,000 in media services by News Corporation,
comprised of $400,000 domestically and $300,000 internationally
over 10 years; $100,000 cash investment commitment by News
Corporation in an international joint venture; a $60,000
five-year licensing agreement for syndication of WebMD daily
broadcast content; and the transfer to the Company of 50%
interests in The Health Network, a health-focused cable network,
and thehealthnetwork.com. The Company issued an aggregate of
155,951 shares of Series A preferred stock, convertible
into 21,282,645 shares of the Companys common stock. In
addition, affiliates of News Corporation purchased 2,000,000
shares of the Companys common stock for an aggregate
purchase price of $100,000 in cash.

Current
Relationship

The Company retained the right to receive
$205,000 in domestic media services from News Corporation over
ten years expiring in 2010 and will continue to provide content
for use across News Corporations media properties for four
years for cash payments totaling $12,000 annually expiring in
2004. News Corporation transferred its 50% interest in the
international joint venture to the Company and was relieved of
its commitment to provide any future capital to the
international joint venture and its commitment to provide any
international media services. The Company transferred its
interest in The Health Network to News Corporation. The Company
was also relieved of all future capital commitments to The
Health Network. In connection with the revisions to the
relationship, News Corporation surrendered 155,951 shares of
WebMDs Series A convertible preferred stock. The
Company granted to News Corporation a warrant to acquire
3,000,000 shares of its common stock at an exercise price of $15
per share. The Company included approximately $17,759,
determined using the Black-Scholes option pricing model, as a
non-cash restructuring charge related to this issuance.

Microsoft

The Company entered into a five-year strategic
alliance with Microsoft in May 1999. In March 2001, the Company
executed a non-binding letter of intent with Microsoft with
respect to a new relationship. In April 2001, the Company
entered into definitive agreements with Microsoft to implement
the new relationship, which is effective as of January 1,
2001. In connection with the original strategic relationship,
Microsoft acquired shares of common stock and a warrant to
purchase shares of common stock of

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WebMD Corporation


Notes to Consolidated Financial
Statements  (Continued)

WebMD, Inc. These securities were converted into
securities of the Company as a result of the merger of the
Company and WebMD, Inc. in November 1999. As of
December 31, 2001, Microsoft had a warrant to purchase
13,676,389 shares of the Companys common stock at an
exercise price of $30.16 per share. The warrant is fully vested
and expires on May 12, 2004. The original relationship and
the new relationship are each described below.

Original
Relationship

Under the terms of the original strategic
relationship, the Company developed, hosted and maintained on
its servers a health channel for MSN and was required to pay
Microsoft an aggregate of $162,000 in carriage fees for the
distribution of that content. In addition, Microsoft and the
Company each committed co-marketing funds of $50,000 over the
first two years of the term. As of December 31, 2000, the
Company had recorded $30,562 as sales, marketing, general and
administrative expense related to the carriage fees.

Microsoft was required to remit to the Company
100% of the net revenue over the term of the agreement from
banner and other advertising and e-commerce transactions
generated on the health channel or advertising that Microsoft
placed on WebMD.com each year during the term until the Company
received an amount equal to that years carriage fees,
including guaranteed minimum amounts of $22,500 in each of the
first two years of the term, and was required to share revenue
equally with the Company after that. The Company was required to
pay Microsoft a 25% commission on the portion of the revenue
received up to the annual guaranteed minimum amounts for all
advertisements placed by Microsoft. The Company recognized this
advertising revenue when Microsoft notified it that
advertisements had been placed on the health channel and billed
by Microsoft, not based on the guaranteed minimum amounts.
During 2000, the Company recognized $5,996, net of commissions,
related to health channel advertising.

Microsoft agreed to sponsor up to
5.0 million subscriber months, for $29.95 per month, of
subscriptions to the Companys physician Web site over the
term of the agreement. The Company was required to pay a $5 per
month commission on all subscriptions placed by Microsoft.
During 2000, the Company recorded $16,114 as revenue, net of
commissions, related to subscriptions sponsored by Microsoft.

The Company was required to share with Microsoft
50% of net revenue from banner and other advertising on the
Companys physician Web site generated by sponsored
subscriptions until Microsoft received the amount it had
incurred for its sponsored subscriptions. Thereafter, the
Company was required to share 25% of this revenue with
Microsoft. In addition, the Company was required to share with
Microsoft 15% of the Companys net revenue from e-commerce
transactions and additional services not included in the basic
subscription to the Companys physician Web site generated
by these sponsored subscriptions. There were no obligations to
Microsoft as of December 31, 2000 relating to this
provision.

Current
Relationship

The parties entered into two definitive
agreements to implement the new relationship. The first
agreement related to technology matters and was terminated by
the parties on September 14, 2001. No payments were made by
either party under the terminated agreement. Under the second
agreement, the Company programs the majority of the MSN health
channel, and the Company and MSN share revenues derived from
advertising, sponsorship and e-commerce on the MSN health
channel site, with the Company receiving 100% of revenues up to
an agreed upon annual threshold (or until an agreed upon maximum
for the contract period is reached) and 60% thereafter. The
Company no longer pays carriage fees to Microsoft. The term of
this agreement is scheduled to expire on June 30, 2004. In
connection with the new relationship, the parties agreed that
Microsoft would no longer be responsible for funding the

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WebMD Corporation


Notes to Consolidated Financial
Statements  (Continued)

sponsorship of subscriptions to the
Companys physician portal, and the Company would no longer
be required to share with Microsoft revenue generated by
physician usage of the Companys healthcare portals.

E.I. du Pont de Nemours and Company

Prior to its merger with the Company, WebMD, Inc.
entered into a strategic relationship under which E.I. du Pont
de Nemours and Company (DuPont) agreed to be the
exclusive provider of life science content. DuPont also agreed
to certain co-promotion, marketing and banner rights on the
Companys Web site. DuPont agreed to pay carriage fees
totaling $26,000 over three years. In addition, DuPont agreed to
sponsor approximately 6 million subscriber months during
the five-year term of the agreement. The Company and DuPont
agreed to share in the revenue generated by the Web site for
advertising, third party carriage fees and e-commerce. In
connection with the agreement, the Company issued a warrant to
DuPont to purchase 9,946,966 shares of common stock at $8.00 per
share. The warrant vested immediately upon issuance and expires
five years from the issuance date.

In December 2000, in connection with its
restructuring and integration efforts, the Company and DuPont
agreed to terminate their strategic alliance. In connection with
the termination of the existing agreement, DuPont surrendered a
portion of its warrant to purchase common stock of the Company,
and retained a right to purchase 3,000,000 shares of the
Companys common stock at an exercise price of $8.00 per
share. The Company recorded $33,199 in paid in capital related
to the reacquisition of a portion of the warrant and a non-cash
charge of $33,785 related to the write-off of prepaid content
and distribution services as a component of restructuring and
integration charges in 2000.

4.     Impairment of
Long-Lived and Other Assets

During 2001, the Company identified certain
indicators of possible impairment of its long-lived assets,
primarily goodwill and other acquired intangible assets. The
indicators of possible impairment that were identified included
a decline in the price of the Companys common stock to its
lowest price in the previous twelve months accompanied by a
significant decline in the volatility of the Companys
stock price, a sustained decline in valuations in the e-health,
technology and Internet sectors and the impact of recent trends
in general economic conditions.

The Company reviewed substantially all of its
long-lived assets for impairment. The Companys long-lived
assets primarily related to goodwill and other acquired
intangible assets recorded in connection with the acquisitions
of WebMD, Inc., MedE America and Medcast in November 1999 and
the acquisitions of Kinetra, Envoy, Medical Manager, CareInsite
and OnHealth during 2000. The Company utilized its common stock
as the primary consideration for the acquisitions.

The Company evaluated its long-lived assets for
impairment by determining identifiable cash flows to related
asset groupings at the lowest level that were largely
independent of the cash flows of other asset groupings. The
projected undiscounted cash flows for each asset grouping was
compared to the related carrying value. As a result of these
comparisons, the Company determined its long-lived assets were
impaired.

The Company determined the amount of the
impairment by comparing the fair value of each asset grouping to
the related carrying value. The fair value for each asset
grouping was determined primarily using a discounted cash flow
approach. As a result of these comparisons and the adjustment of
$26,495 to reflect the carrying value of the Companys
Plastic Technologies business to fair value (see Note 6), the
Company recorded a write-down of $3,826,893 related to its
long-lived assets reflecting the difference between the carrying
value and fair value of the asset groupings. The write-down
consisted of $3,689,728 of goodwill, $94,186 of other acquired
intangibles and $42,979 of other long-lived assets consisting of

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WebMD Corporation


Notes to Consolidated Financial
Statements  (Continued)

computer equipment, leasehold improvements,
office equipment and furniture and fixtures. The Company
continues to use the majority of the other long-lived assets.

During 2002, the Companys Plastic
Technologies segment recorded an impairment charge of $609
related to equipment to be disposed of following the cessation
of a product line.

5.     Restructuring
and Integration Charges

In September 2000, the Companys Board of
Directors approved a restructuring and integration plan, with
the objective of eliminating duplication and redundancies which
resulted from the acquisitions made by the Company since
November 1999 and consolidating the Companys operational
infrastructure into a common platform to more efficiently serve
its customers.

As part of the Companys restructuring and
integration efforts, the Company also undertook a review of its
existing strategic relationships in light of several criteria,
including strategic relevance to both the Company and the other
party, potential conflicts with other relationships as a result
of the numerous acquisitions made by the Company, profitability
and impact on future revenue streams. As a result of this
process, the Company entered into discussions to revise or
terminate many of those relationships. In some cases, the
Company and the other party have agreed to redefine the
relationships in a manner that better serves the needs of each
party. In other cases, these discussions have resulted in the
termination of relationships.

In connection with the Companys
restructuring and integration efforts, the Company recorded a
total charge in 2000 of $452,919 that consists of: (i) $320,879
relating to the restructuring of contracts primarily associated
with News Corporation and DuPont, of which $312,791 represented
non-cash charges, (ii) personnel-related restructuring
costs of $70,173, of which $53,144 represented non-cash stock
option compensation charges primarily related to the resignation
of certain executives, pursuant to the applicable employment and
separation arrangements, with the remaining personnel-related
charge relating to severance and outplacement services for
approximately 1,100 employees that the Company identified and
notified of termination, principally as a result of eliminating
duplicate functions within the combined company,
(iii) facilities charges of $51,262, comprised of cash
charges of $37,184 related to estimated future lease obligations
and lease cancellation penalties and $14,078 of non-cash fixed
asset write-offs related to vacating duplicate facilities, and
(iv) cash charges of $10,605 related to integration costs,
consisting primarily of employee retention arrangements related
to exit activities, moving and relocation expenses, as well as
outside professional fees related to the integration of the
Companys business. Integration costs are recorded as
expense in the period in which they arise.

The Companys restructuring and integration
efforts continued in 2001, and a new plan to include the impact
of eliminating duplicate functions resulting from the
acquisition of Medscape (Medscape Restructuring) was
initiated. As a result of the Medscape Restructuring, 115
employees were notified of termination in December 2001. In
connection with the continuing restructuring and integration
efforts, a charge was recorded in 2001 of $266,755, that
consists of: (i) $123,206 primarily relating to the
restructuring of the original strategic relationship with
Microsoft, of which $133,500 represented non-cash charges for
the write-off of intangible assets associated with the
Companys original Microsoft agreement recorded as part of
the Companys acquisition of WebMD, Inc. in 1999 offset by
a $15,610 cash benefit for the settlement of certain obligations
from the original strategic relationship with Microsoft, as well
as net cash payments of $5,316 made to exit contractual
obligations, (ii) $52,000 cash charge associated with the
settlement of the original Quintiles agreements, of which
$59,000 was a cash charge recorded for the difference between
the purchase price and fair value of the 35,000,000 shares of
the Companys common stock acquired in October 2001, offset
by a $7,000 cash benefit related to the release of the Company
from certain obligations in relation to the Companys
acquisition of Envoy, (iii) personnel-related costs of
$67,604, of which $51,998 primarily represented non-cash stock
option compensation charges related to the

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WebMD Corporation


Notes to Consolidated Financial
Statements  (Continued)

resignation or termination of certain employees
pursuant to the applicable employment and separation
arrangements, with the remaining personnel-related charge
relating to severance and outplacement services for
approximately 615 employees that the Company identified and
notified of termination during 2001, of which $2,777 related to
115 employees notified of termination as a result of the
Medscape Restructuring, (iv) $15,538 of cash charges related to
estimated future lease obligations and lease cancellation
penalties related primarily to additional anticipated costs of
exiting previously vacated facilities as a result of declines in
rental values in certain markets and vacating additional
facilities identified during 2001, and (v) $8,407 of cash
charges related to integration costs, consisting of employee
retention arrangements related to exit activities, moving and
relocation expenses, as well as outside professional fees
related to the integration of the Companys business.

During 2002, the Company recorded a benefit of
$5,850 relating to its restructuring and integration activity
resulting from the settlements of certain contractual
obligations. This benefit was partially offset by a
restructuring charge of $1,160 in our Plastic Technologies
segment in connection with the consolidation of a manufacturing
plant into other facilities within that segment. The $1,160
charge included the write-off of $617 of obsolete equipment,
$448 of costs to exit a lease and $95 of severance for 26
employees.

The following table presents cash activity in the
restructuring and integration related accrual:

|                             |  |           |         |            |  |       |         |       |  |   |         |   |  |   |         |  
|---------------------------- |  | --------- | ------- | ---------- |  | ----- | ------- | ----- |  | - | ------- | - |  | - | ------- | -
|                             |  | Severance |         | Facilities |  | Other |         | Total
|                             |  |           |         |            |  |       |         |      
|Initial accrual              |  | $         | 17,029  |            |  | $     | 37,184  |       |  | $ | 18,693  |   |  | $ | 72,906  |  
|Cash payments                |  |           | (8,430  | )          |  |       | (1,341  | )     |  |   | (10,010 | ) |  |   | (19,781 | )
|                             |  |           |         |            |  |       |         |       |  |   |         |   |  |   |         |  
|Balance at December 31, 2000 |  |           | 8,599   |            |  |       | 35,843  |       |  |   | 8,683   |   |  |   | 53,125  |  
|Accrual                      |  |           | 15,606  |            |  |       | 15,538  |       |  |   | 50,113  |   |  |   | 81,257  |  
|Cash payments                |  |           | (20,749 | )          |  |       | (10,484 | )     |  |   | (58,796 | ) |  |   | (90,029 | )
|                             |  |           |         |            |  |       |         |       |  |   |         |   |  |   |         |  
|Balance at December 31, 2001 |  | $         | 3,456   |            |  | $     | 40,897  |       |  | $ |        |   |  | $ | 44,353  |  
|                             |  |           |         |            |  |       |         |       |  |   |         |   |  |   |         |  
|Accrual                      |  |           | 95      |            |  |       | 448     |       |  |   | (5,850  | ) |  |   | (5,307  | )
|Cash payments                |  |           | (3,307  | )          |  |       | (7,732  | )     |  |   | 5,850   |   |  |   | (5,189  | )
|                             |  |           |         |            |  |       |         |       |  |   |         |   |  |   |         |  
|Balance at December 31, 2002 |  | $         | 244     |            |  | $     | 33,613  |       |  | $ |        |   |  | $ | 33,857  |  
|                             |  |           |         |            |  |       |         |       |  |   |         |   |  |   |         |  

The Company has substantially completed its
restructuring and integration efforts. The balance of the
restructuring and integration accrual as of December 31,
2002 is primarily related to remaining lease payments of
previously vacated facilities.

6.     Plastic
Technologies

In connection with the acquisition of Medical
Manager and the related integration and consolidation of the
Companys acquired businesses, the Companys Board of
Directors originally approved managements plan to dispose
of Porex Corporation. Porex was wholly owned by Medical Manager
prior to the completion of the Companys acquisition of
Medical Manager on September 12, 2000. Porex develops,
manufactures and distributes porous and solid plastic components
and products used in life sciences, healthcare, industrial and
consumer applications.

The expected net proceeds and the cash flows of
Porex until sold were initially allocated to assets held for
sale in the allocation of the Medical Manager purchase price and
were included as a single line item in current assets as
provided by the consensus reached by EITF No. 87-11,
Allocation of Purchase Price to Assets to be Sold
(EITF 87-11). In accordance with EITF 87-11, the
results of operations of Porex were originally excluded from the
Companys consolidated statements of operations prior to
September 12, 2001.

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WebMD Corporation


Notes to Consolidated Financial
Statements  (Continued)

As the divestiture of Porex was not completed
within the one year time period allotted by EITF 87-11, the
Company was required to record the results of operations of
Porex in the statement of operations beginning
September 13, 2001 as a discontinued operation in
accordance with EITF 90-6, Accounting for Certain Events
not Addressed in Issue No. 87-11 Relating to an Acquired
Operating Unit to be Sold. The fair value of Porex was
estimated by management to be $185,000 at September 2001. As a
result, the Company recorded an adjustment to its carrying value
of $26,495. The adjustment to the carrying value is included in
the impairment of long-lived and other assets in the
accompanying consolidated statement of operations in 2001. See
Note 4.

While the Company has received various proposals
to acquire Porex, the Company believes that the offers it has
received did not reflect an appropriate value for Porex, and
accordingly during February 2003, the Company terminated its
formal divestiture plan for Porex. As a result of the
termination of its divestiture efforts, the Company has
reclassified Porex as a continuing operation within the
accompanying consolidated financial statements and footnotes
since its acquisition date of September 12, 2000. The
reclassified operations of Porex have been included in a
separate operating segment, Plastic Technologies, in accordance
with SFAS No. 131.

The following table presents statement of
operations data of Porex since the date of its acquisition on
September 12, 2000 and selected balance sheet data as of
December 31, 2002 and 2001, which is now included in the
accompanying consolidated financial statements:

|                    |                                              |                          |         |        |  |      |         |        |  |   |        |        | 
|------------------- | -------------------------------------------- | ------------------------ | ------- | ------ |  | ---- | ------- | ------ |  | - | ------ | ------ | 
|                    |                                              |                         
|                    |                                              | Years Ended December 31,
|                    |                                              |                         
|                    |                                              | 2002                     |         | 2001   |  | 2000
|                    |                                              |                          |         |        |  |     
|Revenue             |                                              | $                        | 119,992 |        |  | $    | 121,025 |        |  | $ | 35,092 |       
|Costs and expenses: |                                              |                          |         |        |  |      |         |        |  |   |        |       
|                    | Cost of operations                           |                          |         | 61,807 |  |      |         | 62,105 |  |   |        | 18,086 | 
|                    | Development and engineering                  |                          |         | 4,506  |  |      |         | 4,224  |  |   |        | 1,169  | 
|                    | Sales, marketing, general and administrative |                          |         | 23,673 |  |      |         | 23,887 |  |   |        | 7,570  | 
|                    | Depreciation and amortization                |                          |         | 8,638  |  |      |         | 11,038 |  |   |        | 3,287  | 
|                    | Impairment of long-lived and other assets    |                          |         | 609    |  |      |         |       |  |   |        |       | 
|                    | Restructuring and integration charge         |                          |         | 1,160  |  |      |         |       |  |   |        |       | 
|                    | Loss on investments                          |                          |         |       |  |      |         |       |  |   |        | 763    | 
|                    | Interest income, net                         |                          |         | 115    |  |      |         | 337    |  |   |        | 597    | 
|                    | Income tax provision                         |                          |         | 2,885  |  |      |         | 2,757  |  |   |        | 814    | 
|                    |                                              |                          |         |        |  |      |         |        |  |   |        |       
|                    | Net income                                   |                          | $       | 16,829 |  |      | $       | 17,351 |  |   | $      | 4,000  | 
|                    |                                              |                          |         |        |  |      |         |        |  |   |        |       

|                                                 |  |              |         |      |  |   |         | 
|------------------------------------------------ |  | ------------ | ------- | ---- |  | - | ------- | 
|                                                 |  |             
|                                                 |  | December 31,
|                                                 |  |             
|                                                 |  | 2002         |         | 2001
|                                                 |  |              |         |     
|Cash, cash equivalent and short-term investments |  | $            | 15,786  |      |  | $ | 34,317  | 
|Long-term marketable securities                  |  |              |        |      |  |   | 3,062   | 
|Working capital                                  |  |              | 21,876  |      |  |   | 46,883  | 
|Total assets                                     |  |              | 228,098 |      |  |   | 249,529 | 
|Other long-term liabilities                      |  |              | 129     |      |  |   | 7,643   | 

7.     Convertible
Subordinated Notes and Long-Term Debt

On April 1, 2002, the Company issued
$300,000 aggregate principal amount of 3 1/4% Convertible
Subordinated Notes due 2007 (the Notes) in a private
offering. Interest on the Notes will accrue at the

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WebMD Corporation


Notes to Consolidated Financial
Statements  (Continued)

rate of 3 1/4% per annum and is payable
semi-annually on April 1 and October 1 of each year.
Unless previously redeemed or converted, the Notes will mature
on April 1, 2007. The Notes are convertible into an
aggregate of approximately 32,386,916 shares of the
Companys common stock, subject to adjustment in certain
circumstances. The Notes are redeemable at the Companys
option, at any time after April 5, 2005. The redemption
price, as a percentage of principal amount, is 101.3% beginning
April 5, 2005 and 100.65% beginning April 1, 2006. The
Company incurred issuance costs related to the Notes of $8,000,
which are included in other long-term assets. The issuance costs
are being amortized using the effective interest method over the
term of the Notes. The amortization of the issuance costs is
included in interest expense.

As of December 31, 2002 and 2001, the
Companys long-term and short-term debt totaled $6,665 and
$7,833, respectively. The largest component within these
balances is a $6,531 note payable bearing interest at 6.23% per
annum, due in full on April 1, 2003. Remaining amounts
relate to capital leases and other notes payable which are not
material, individually or in the aggregate, to the
Companys consolidated financial position.

8.     Segment
Information

Segment information has been prepared in
accordance with SFAS No. 131, Disclosure about
Segments of an Enterprise and Related Information. The
accounting policies of the segments are the same as the
accounting policies for the consolidated Company. Inter-segment
revenues represent sales of Transaction Services products into
the Physician Services customer base and are reflected at rates
comparable to those charged to third parties for comparable
services. The performance of the Companys business is
monitored based on income or loss before restructuring, non-cash
and other items. Non-cash and other items include depreciation,
amortization, accretion of preferred stock, impairment charges,
gain or loss on investments, other income, income tax benefit
(provision), non-cash expenses related to content, advertising
and distribution services acquired in exchange for the
Companys equity securities in acquisitions and strategic
alliances, and stock compensation expense primarily related to
stock options issued and assumed in connection with acquisitions.

Summarized financial information for each of the
reportable segments is presented below. Segment information
related to income or loss before restructuring, non-cash and
other items for 2000 has not been provided as the Companys
operations and internal reporting were not organized in a manner
consistent with the current reportable segments and the Company
has determined it is impracticable to identify such information.
During 2000, the Company managed its operations within two
segments: Healthcare Information Services and Technology
Solutions (Healthcare Services) and Plastic
Technologies. In 2000, the Healthcare Services segment included
the operations of what are now the Transaction Services,
Physician Services and Portal Services segments and Corporate
expenses. The organization of the Plastic Technologies segment
is consistent with its previous structure. In 2000, income
(loss) before restructuring,

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WebMD Corporation


Notes to Consolidated Financial
Statements  (Continued)

non-cash and other items was $(296,195) and
$8,267 for the Healthcare Services and Plastic Technologies
segments, respectively. Additionally, net interest income was
$50,623 in 2000.

|                                                                      |          |                          |          |         |   |      |            |            |   |   |            |            |  
|--------------------------------------------------------------------- | -------- | ------------------------ | -------- | ------- | - | ---- | ---------- | ---------- | - | - | ---------- | ---------- | -
|                                                                      |          |                         
|                                                                      |          | Years Ended December 31,
|                                                                      |          |                         
|                                                                      |          | 2002                     |          | 2001    |   | 2000
|                                                                      |          |                          |          |         |   |     
|Revenues                                                              |          |                          |          |         |   |      |            |            |   |   |            |           
|Transaction services                                                  |          | $                        | 466,810  |         |   | $    | 457,448    |            |   | $ | 309,749    |           
|Physician services                                                    |          |                          | 275,306  |         |   |      | 260,209    |            |   |   | 83,633     |           
|Portal services                                                       |          |                          | 84,296   |         |   |      | 74,626     |            |   |   | 140,045    |           
|Plastic technologies                                                  |          |                          | 119,992  |         |   |      | 121,025    |            |   |   | 35,092     |           
|Eliminations and other, net(a)                                        |          |                          | (20,527  | )       |   |      | (12,280    | )          |   |   | 23,083     |           
|                                                                      |          |                          |          |         |   |      |            |            |   |   |            |           
|                                                                      |          | $                        | 925,877  |         |   | $    | 901,028    |            |   | $ | 591,602    |           
|                                                                      |          |                          |          |         |   |      |            |            |   |   |            |           
|Income (loss) before restructuring,
    non-cash and other items      |          |                          |          |         |   |      |            |            |   |   |            |           
|Transaction services                                                  |          | $                        | 85,154   |         |   | $    | 41,987     |            |   | $ |           |           
|Physician services                                                    |          |                          | 26,685   |         |   |      | 20,827     |            |   |   |           |           
|Portal services                                                       |          |                          | 5,574    |         |   |      | (79,437    | )          |   |   |           |           
|Plastic technologies                                                  |          |                          | 30,006   |         |   |      | 30,809     |            |   |   |           |           
|Corporate and other                                                   |          |                          | (51,272  | )       |   |      | (94,813    | )          |   |   |           |           
|Interest income                                                       |          |                          | 19,662   |         |   |      | 30,544     |            |   |   |           |           
|Interest expense                                                      |          |                          | (8,940   | )       |   |      | (1,101     | )          |   |   |           |           
|                                                                      |          |                          |          |         |   |      |            |            |   |   |            |           
|                                                                      |          | $                        | 106,869  |         |   | $    | (51,184    | )          |   | $ | (237,305   | )         
|                                                                      |          |                          |          |         |   |      |            |            |   |   |            |           
|Restructuring, non-cash and other
    items                           |          |                          |          |         |   |      |            |            |   |   |            |           
|Depreciation, amortization and other                                  |          | $                        | (130,074 | )       |   | $    | (2,400,804 | )          |   | $ | (2,190,273 | )         
|Non-cash content and distribution services and
    stock compensation |          |                          | (50,971  | )       |   |      | (123,925   | )          |   |   | (159,932   | )         
|Impairment of long-lived and other assets                             |          |                          | (609     | )       |   |      | (3,826,893 | )          |   |   |           |           
|Restructuring and integration benefit (charge)                        |          |                          | 4,690    |         |   |      | (266,755   | )          |   |   | (452,919   | )         
|Gain (loss) on investments                                            |          |                          | 6,547    |         |   |      |           |            |   |   | (40,365    | )         
|Income tax benefit (provision)                                        |          |                          | 10,002   |         |   |      | (2,757     | )          |   |   | (814       | )         
|Other income, net                                                     |          |                          | 3,844    |         |   |      |           |            |   |   |           |           
|                                                                      |          |                          |          |         |   |      |            |            |   |   |            |           
|                                                                      | Net loss |                          | $        | (49,702 | ) |      | $          | (6,672,318 | ) |   | $          | (3,081,608 | )
|                                                                      |          |                          |          |         |   |      |            |            |   |   |            |           



---



|    |                                                                                                                                                                                                                                                                                                                                                                 
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | Includes revenues related to information
    technology outsourcing, consulting and other operations that the
    Company began to exit as a result of restructuring and
    integration efforts that began in the third quarter of 2000, and
    elimination of inter-segment revenues of $20,527, $14,061 and
    $3,108 in 2002, 2001 and 2000, respectively.

The Company does not disaggregate assets for
internal management reporting and, therefore, such information
is not presented.

Revenues generated from foreign customers of our
Plastic Technologies segment were $39,037, $38,102 and $10,340
in 2002, 2001 and 2000, respectively. Long-lived assets based in
foreign facilities of our Plastic Technologies segment were
$9,474 and $11,745 as of December 31, 2002 and 2001,
respectively.

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WebMD Corporation


Notes to Consolidated Financial
Statements  (Continued)

9.     Prepaid
Content and Distribution Services

In connection with obtaining Web site content and
distribution services, the Company paid cash or issued equity
instruments to certain service providers, in conjunction with
business combinations or strategic alliances. The amount of
payments made or the fair value of equity instruments issued has
been capitalized and is being amortized over the term of the
related agreement. Prepaid content and distribution services are
summarized as follows:

Prepaid content and distribution services are
summarized as follows:

|                  |              |              |        |        |  |   |        |        | 
|----------------- | ------------ | ------------ | ------ | ------ |  | - | ------ | ------ | 
|                  |              |             
|                  |              | December 31,
|                  |              |             
|                  |              | 2002         |        | 2001  
|                  |              |              |        |       
|Current Portion   |              |              |        |        |  |   |        |       
|                  | Content      |              | $      | 334    |  |   | $      | 549    | 
|                  | Services     |              |        | 19,239 |  |   |        | 21,133 | 
|                  | Distribution |              |        | 5,833  |  |   |        | 7,136  | 
|                  |              |              |        |        |  |   |        |       
|                  |              | $            | 25,406 |        |  | $ | 28,818 |       
|                  |              |              |        |        |  |   |        |       
|Long-Term Portion |              |              |        |        |  |   |        |       
|                  | Content      |              | $      | 83     |  |   | $      | 417    | 
|                  | Services     |              |        | 46,504 |  |   |        | 63,384 | 
|                  | Distribution |              |        | 1,945  |  |   |        | 7,778  | 
|                  |              |              |        |        |  |   |        |       
|                  |              | $            | 48,532 |        |  | $ | 71,579 |       
|                  |              |              |        |        |  |   |        |       

10.     Long-Lived
Assets

In 2002 and 2001, the Company recorded impairment
charges of $609 and $3,826,893, respectively, related to the
write-down of the carrying value of long-lived and other assets.
See Note 4.

Property and
Equipment

Property and equipment consists of the following:

|                                         |                             |              |         |        |  |   |         |        | 
|---------------------------------------- | --------------------------- | ------------ | ------- | ------ |  | - | ------- | ------ | 
|                                         |                             |             
|                                         |                             | December 31,
|                                         |                             |             
|                                         |                             | 2002         |         | 2001  
|                                         |                             |              |         |       
|Computer equipment                       |                             | $            | 42,916  |        |  | $ | 34,246  |       
|Land and buildings                       |                             |              | 23,156  |        |  |   | 23,167  |       
|Office equipment, furniture and fixtures |                             |              | 48,300  |        |  |   | 40,790  |       
|Purchased software for internal use      |                             |              | 17,427  |        |  |   | 13,878  |       
|Leasehold improvements                   |                             |              | 10,417  |        |  |   | 9,455   |       
|Construction in process                  |                             |              | 10,279  |        |  |   | 5,164   |       
|                                         |                             |              |         |        |  |   |         |       
|                                         |                             |              | 152,495 |        |  |   | 126,700 |       
|Less: accumulated depreciation           |                             |              | (57,758 | )      |  |   | (32,492 | )     
|                                         |                             |              |         |        |  |   |         |       
|                                         | Property and equipment, net |              | $       | 94,737 |  |   | $       | 94,208 | 
|                                         |                             |              |         |        |  |   |         |       

Depreciation expense was $27,523, $37,872 and
$31,668 in 2002, 2001 and 2000, respectively.

F-27



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##### Table of Contents



WebMD Corporation


Notes to Consolidated Financial
Statements  (Continued)

Goodwill and
Intangible Assets

Effective July 1, 2001 and January 1,
2002, the Company adopted SFAS No. 141, Business
Combinations (SFAS No. 141) and SFAS
No. 142, respectively. SFAS No. 141 requires business
combinations initiated after June 30, 2001 to be accounted
for using the purchase method of accounting. It also specifies
the types of acquired intangible assets that are required to be
recognized and reported separately from goodwill. SFAS
No. 142 requires that goodwill and certain intangibles no
longer be amortized, but instead tested for impairment at least
annually. SFAS No. 142 also requires that intangible assets
with definite useful lives be amortized over their respective
estimated useful lives and reviewed for impairment in accordance
SFAS No. 144. Based on the Companys analysis, there
was no impairment of goodwill upon adoption of SFAS No. 142
on January 1, 2002, or in connection with the annual
impairment test that was performed during the quarter ended
December 31, 2002.

The changes in the carrying amount of goodwill
during 2002 are as follows:

|                                |                                                    |             |         |           |  |          |         |              |   |       |        |        |   |   |        |     |  |   |         |        |  
|------------------------------- | -------------------------------------------------- | ----------- | ------- | --------- |  | -------- | ------- | ------------ | - | ----- | ------ | ------ | - | - | ------ | --- |  | - | ------- | ------ | -
|                                |                                                    | Transaction |         | Physician |  | Portal   |         | Plastic      |   |      
|                                |                                                    | Services    |         | Services  |  | Services |         | Technologies |   | Total
|                                |                                                    |             |         |           |  |          |         |              |   |      
|Balance as of January 1, 2002   |                                                    | $           | 333,412 |           |  | $        | 166,002 |              |   | $     | 7,347  |        |   | $ | 80,493 |     |  | $ | 587,254 |       
|                                | Adjustment for acquired workforce intangibles      |             |         | 8,555     |  |          |         | 8,089        |   |       |        |       |   |   |        |    |  |   |         | 16,644 |  
|                                | Goodwill recorded during the period                |             |         |          |  |          |         | 11,784       |   |       |        | 17,973 |   |   |        |    |  |   |         | 29,757 |  
|                                | Adjustments to finalize purchase price allocations |             |         |          |  |          |         | (3,790       | ) |       |        | (1,615 | ) |   |        | 356 |  |   |         | (5,049 | )
|                                | Effects of exchange rates                          |             |         |          |  |          |         |             |   |       |        |       |   |   |        | 449 |  |   |         | 449    |  
|                                |                                                    |             |         |           |  |          |         |              |   |       |        |        |   |   |        |     |  |   |         |       
|Balance as of December 31, 2002 |                                                    | $           | 341,967 |           |  | $        | 182,085 |              |   | $     | 23,705 |        |   | $ | 81,298 |     |  | $ | 629,055 |       
|                                |                                                    |             |         |           |  |          |         |              |   |       |        |        |   |   |        |     |  |   |         |       

Intangible assets subject to amortization consist
of the following:

|                              |       |                   |         |                   |  |       |          |          |   |              |        |        |  |   |         |         |  |  |          |          |   |   |         |         | 
|----------------------------- | ----- | ----------------- | ------- | ----------------- |  | ----- | -------- | -------- | - | ------------ | ------ | ------ |  | - | ------- | ------- |  |  | -------- | -------- | - | - | ------- | ------- | 
|                              |       |                   |         |                  
|                              |       | December 31, 2002 |         | December 31, 2001
|                              |       |                   |         |                  
|                              |       | Gross             |         |                   |  | Gross |          |         
|                              |       | Carrying          |         | Accumulated       |  |       |          | Carrying |   | Accumulated  |        |       
|                              |       | Amount            |         | Amortization      |  | Net   |          | Amount   |   | Amortization |        | Net   
|                              |       |                   |         |                   |  |       |          |          |   |              |        |       
|Customer lists                |       | $                 | 209,386 |                   |  |       | (179,127 | )        |   | $            | 30,259 |        |  | $ | 204,052 |         |  |  | (103,303 | )        |   | $ | 100,749 |        
|Tradenames                    |       |                   | 29,629  |                   |  |       | (14,318  | )        |   |              | 15,311 |        |  |   | 29,629  |         |  |  | (3,244   | )        |   |   | 26,385  |        
|Technology, patents and other |       |                   | 178,928 |                   |  |       | (144,962 | )        |   |              | 33,966 |        |  |   | 190,699 |         |  |  | (129,309 | )        |   |   | 61,390  |        
|                              |       |                   |         |                   |  |       |          |          |   |              |        |        |  |   |         |         |  |  |          |          |   |   |         |        
|                              | Total |                   | $       | 417,943           |  |       |          | (338,407 | ) |              | $      | 79,536 |  |   | $       | 424,380 |  |  |          | (235,856 | ) |   | $       | 188,524 | 
|                              |       |                   |         |                   |  |       |          |          |   |              |        |        |  |   |         |         |  |  |          |          |   |   |         |        

Amortization expense was $102,551, $2,362,932 and
$2,050,409 in 2002, 2001 and 2000, respectively. Aggregate
amortization expense for intangible assets is estimated to be:

|                         |  |   |        | 
|------------------------ |  | - | ------ | 
|Year ending December 31, |  |   |        | 
|2003                     |  | $ | 33,158 | 
|2004                     |  |   | 6,359  | 
|2005                     |  |   | 5,010  | 
|2006                     |  |   | 2,278  | 
|2007                     |  |   | 1,702  | 
|Thereafter               |  |   | 31,029 | 

F-28



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##### Table of Contents



WebMD Corporation


Notes to Consolidated Financial
Statements  (Continued)

The pro forma results of operations for 2001 and
2000, assuming the provisions of SFAS No. 142 were applied,
are as follows:

|                                             |                            |                            |            |        |           |      |            |        |           |      | 
|-------------------------------------------- | -------------------------- | -------------------------- | ---------- | ------ | --------- | ---- | ---------- | ------ | --------- | ---- | 
|                                             |                            |                           
|                                             |                            | Years Ended December 31,  
|                                             |                            |                           
|                                             |                            | 2001                       |            | 2000  
|                                             |                            |                            |            |       
|Net loss (as reported)                       |                            | $                          | (6,672,318 | )      |           | $    | (3,081,608 | )     
|                                             | Add back amortization for: |                            |            |        |           |      |            |        |          
|                                             |                            | Goodwill                   |            |        | 2,205,676 |      |            |        | 1,873,451 |     
|                                             |                            | Workforce                  |            |        | 14,050    |      |            |        | 9,300     |     
|                                             |                            |                            |            |        |           |      |            |       
|Adjusted net loss                            |                            | $                          | (4,452,592 | )      |           | $    | (1,198,857 | )     
|                                             |                            |                            |            |        |           |      |            |       
|Basic and diluted net loss per common share: |                            |                            |            |        |           |      |            |       
|                                             | Net loss (as reported)     |                            | $          | (19.14 | )         |      | $          | (12.59 | )        
|                                             |                            | Add back amortization for: |            |        |           |      |            |        |           |     
|                                             |                            |                            | Goodwill   |        |           | 6.33 |            |        |           | 7.65 | 
|                                             |                            |                            | Workforce  |        |           | .04  |            |        |           | .04  | 
|                                             |                            |                            |            |        |           |      |            |       
|Adjusted net loss                            |                            | $                          | (12.77     | )      |           | $    | (4.90      | )     
|                                             |                            |                            |            |        |           |      |            |       

11.     Accrued
Expenses

Accrued expenses consist of the following:

|                            |                        |              |         |         |  |   |         |         | 
|--------------------------- | ---------------------- | ------------ | ------- | ------- |  | - | ------- | ------- | 
|                            |                        |             
|                            |                        | December 31,
|                            |                        |             
|                            |                        | 2002         |         | 2001   
|                            |                        |              |         |        
|Accrued outside services    |                        | $            | 24,415  |         |  | $ | 38,206  |        
|Accrued restructuring costs |                        |              | 33,857  |         |  |   | 44,353  |        
|Accrued compensation        |                        |              | 41,895  |         |  |   | 46,739  |        
|Other accrued liabilities   |                        |              | 112,433 |         |  |   | 112,408 |        
|                            |                        |              |         |         |  |   |         |        
|                            | Total accrued expenses |              | $       | 212,600 |  |   | $       | 241,706 | 
|                            |                        |              |         |         |  |   |         |        

12.     Commitments
and Contingencies

Legal Matters

Porex Mammary
Implant Litigation

From 1988 through 1990, Porex distributed
silicone mammary implants in the United States pursuant to a
distribution arrangement with a Japanese manufacturer. Porex
believes that, after accounting for implants returned to Porex,
the aggregate number of persons who received implants
distributed by Porex totals approximately 2,500. Since March
1991, Porex has been named as one of many co-defendants in a
number of actions brought by recipients of mammary implants. The
typical case or claim alleges that the individuals mammary
implants caused one or more of a wide range of ailments. These
implant cases and claims generally raise difficult and complex
factual and legal issues and are subject to many uncertainties
and complexities, including, but not limited to, the facts and
circumstances of each particular case or claim, the jurisdiction
in which each suit is brought, and differences in applicable
law. Porex does not have sufficient information to evaluate each
case and claim.

Certain of the actions against Porex have been
dismissed, where it was determined that the implant in question
was not distributed by Porex. In addition, as of March 10,
2003, approximately 300 actions have been settled by the
manufacturer, or by Porexs insurance carriers, without
material cost to Porex. As of

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##### Table of Contents



WebMD Corporation


Notes to Consolidated Financial
Statements  (Continued)

March 10, 2003, no implant-related claims
were pending against Porex. During calendar year 2002, there
were two implant-related claims made against Porex by
individuals, as compared with two claims during 2001, two claims
made during 2000, 39 claims during 1999 and nine claims during
1998. The majority of claims made during 1999 were claims that
were filed by individuals following a court ruling in 1999 that
cases filed in earlier years would not proceed as class actions,
as a result of which such individuals would not be members of a
class in such cases.

In 1994, Porex was notified that its insurance
carrier would not renew its then-existing insurance coverage
after December 31, 1994 with respect to actions and claims
arising out of its distribution of implants. However, Porex
exercised its right, under such policy, to purchase extended
reporting period coverage with respect to such actions and
claims. Such coverage provides insurance subject to existing
policy limits, but for an unlimited time period with respect to
actions and claims made after December 31, 1994 based on
events that occurred during the policy period. In addition,
Porex has purchased extended reporting period coverage with
respect to other excess insurance. This coverage also extends
indefinitely, replacing coverage that would, by its terms, have
otherwise expired by December 31, 1997. Porex will continue
to evaluate the need to purchase further extended reporting
period coverage from excess insurers to the extent such coverage
is reasonably available.

The Company believes that Porexs present
coverage, together with Porexs insurance policies in
effect on or before December 31, 1994, should provide
adequate coverage against liabilities that could result from
actions or claims arising out of Porexs distribution of
silicone mammary implants. However, Porex cannot be certain that
particular cases and claims will not result in liability that is
greater than expected based on Porexs prior experience. If
so, Porexs liability could exceed the amount of its
insurance coverage. Furthermore, certain actions and claims seek
punitive and compensatory damages arising out of alleged
intentional torts. If these claims are successful, such damages
may or may not be covered, in whole or in part, by Porexs
insurance policies.

Envoy
Securities Litigation

Envoy and some of its officers were named as
defendants in three identical lawsuits filed in the United
States District Court for the Middle District of Tennessee,
Nashville Division. The plaintiff in each of these lawsuits
purported to represent a class of persons who purchased the
securities of Envoy during the class period from
February 12, 1997 through August 18, 1998. In these
three original complaints, the plaintiffs sued the defendants
for violations of the federal securities laws. The District
Court ordered the three cases consolidated under the caption In
re Envoy Corporation Securities Litigation, and on
December 28, 1998, the plaintiffs, pursuant to the district
courts consolidation orders, filed a consolidated class
action complaint. The consolidated complaint reasserted the
federal securities law claims and also asserted additional
claims under Tennessee common law for fraud and negligent
misrepresentation.

Plaintiffs allege that the defendants made
material misrepresentations and omissions in Envoys public
filings and public statements concerning Envoys financial
statements and Envoys accounting for some charges taken in
connection with acquisitions. Plaintiffs allege that, as a
result of defendants alleged actions, Envoys
reported earnings during the class period were overstated and
the price for Envoys common stock was artificially
inflated. Plaintiffs seek recovery of an unspecified sum in
damages on behalf of persons who allegedly purchased
Envoys stock at allegedly inflated prices.

On March 1, 1999, the defendants filed a
motion to dismiss all of plaintiffs claims. Plaintiffs
then voluntarily dismissed their state law claims. On
September 17, 1999, the court dismissed the consolidated
complaint without prejudice. On November 23, 1999, the
plaintiffs filed an amended consolidated complaint. In May 2000,
defendants filed a motion to dismiss the amended consolidated
complaint. In February 2001, the court entered an order denying
in part and granting in part defendants motion to dismiss
the amended consolidated complaint. Specifically, the court
denied the motion to dismiss as to

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##### Table of Contents



WebMD Corporation


Notes to Consolidated Financial
Statements  (Continued)

Envoy and one of the individual defendants and
granted the motion to dismiss as to two of the individual
defendants. In April 2002, the court certified a class of
plaintiffs consisting of all persons, other than defendants, who
purchased shares of Envoy common stock between February 27,
1997 and August 18, 1998.

Discovery in the case has been completed and a
trial date has been set for September 9, 2003. On
March 3, 2003, defendants filed a motion for summary
judgment. Plaintiffs are required to respond to the motion by
May 5, 2003 and, following that, defendants will have until
May 26, 2003 to file a reply brief. Defendants have
requested oral argument on the summary judgment motion and
expect that the court will hear oral argument sometime after
briefing is completed. The parties have engaged in preliminary
settlement discussions which have not resulted, thus far, in
agreement on terms for a settlement.

The Agreement and Plan of Merger among Healtheon/
WebMD, Pine Merger Corp., Envoy, Quintiles and QFinance, Inc.
dated as of January 22, 2000 provides that Quintiles will
indemnify the Company with respect to this litigation.

Litigation
Regarding Distribution of Shares in Healtheon Initial Public
Offering

Since July 2001, seven purported class action
lawsuits have been filed against Morgan Stanley & Co.
Incorporated and Goldman Sachs & Co., underwriters of the
initial public offering of the Company (then known as Healtheon)
in the United States District Court for the Southern District of
New York. Three of these suits also named the Company and
certain former officers and directors of the Company as
defendants. These suits were filed in the wake of reports of
governmental investigations of the underwriters practices
in the distribution of shares in certain initial public
offerings. Similar suits have been filed in connection with
approximately 300 other initial public offerings that occurred
in 1999, 2000 and 2001.

The complaints against the Company and its former
officers and directors allege violations of Section 10(b)
of the Securities Exchange Act of 1934 and Rule 10b-5 under
that Act and Section 11 of the Securities Act of 1933
because of failure to disclose certain practices alleged to have
occurred in connection with the distribution of shares in the
Healtheon IPO. Claims under Section 12(a)(2) of the
Securities Act of 1933 have also been brought against the
underwriters. These claims have been consolidated, along with
claims relating to approximately 300 other initial public
offerings, in the Southern District of New York.

The Company believes that the claims alleged in
the lawsuits are primarily directed at the underwriters and, as
they relate to the Company, are without merit. To the extent
that these claims concern practices and disclosures relating to
the plan of distribution in the Healtheon initial public
offering, the Company believes that it will have a claim for
indemnification from the underwriters. The plaintiffs have
dismissed the claims against the four former officers and
directors of the Company without prejudice, pursuant to
Reservation of Rights and Tolling Agreements with those
individuals.

On July 15, 2002, the approximately 300
issuer defendants in the consolidated action, including the
Company, filed a joint motion to dismiss the consolidated
complaints. On February 18, 2003, the District Court
denied, with certain exceptions not relevant to the Company, the
issuer defendants motion to dismiss. This ruling permits
the claims against the Company and most other issuers to proceed
to discovery. Issuers counsel have engaged in discussions
with plaintiffs about the scope of discovery, and the plaintiffs
have not issued any formal discovery requests to the Company at
this time. In addition, the issuer defendants in the
consolidated action (including the Company), along with the
affected insurance companies and the plaintiffs, have engaged in
mediation under the auspices of former United States District
Court Judge Politan in an effort to settle the case among those
parties. We are unable to predict whether the efforts at
mediation will be successful.

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##### Table of Contents



WebMD Corporation


Notes to Consolidated Financial
Statements  (Continued)

Other Legal
Proceedings

In the normal course of business, the Company is
involved in various other claims and legal proceedings. While
the ultimate resolution of these matters, and those discussed
above, has yet to be determined, we do not believe that their
outcome will have a material adverse effect on the
Companys financial position or results of operations.

Strategic Relationships

The Company has agreements with various content
providers and strategic partners whereby the Company is
committed to pay certain amounts in connection with content and
distribution services obtained for use on its Web site and
certain distribution arrangements. The Companys
non-cancelable future commitments under these agreements are as
follows:

|                         |  |   |       | 
|------------------------ |  | - | ----- | 
|Year Ending December 31, |  |  
|2003                     |  | $ | 2,461 | 
|2004                     |  |   | 1,262 | 
|2005                     |  |   | 754   | 
|2006                     |  |   | 500   | 
|2007                     |  |   | 125   | 
|Thereafter               |  |   |      | 
|                         |  |   |       | 
|                         |  | $ | 5,102 | 
|                         |  |   |       | 

Leases

The Company leases its office and other
facilities under operating lease agreements that expire at
various dates through February 2013. Total rent expense for all
operating leases was approximately $19,123, $20,844 and $14,945
in 2002, 2001 and 2000, respectively. Future minimum lease
commitments under non-cancelable lease agreements (including
leases identified as part of the Companys restructuring
and integration efforts) at December 31, 2002 were as
follows:

|                         |                              |                 |        |          |  |               |     |      |   |   |        |         | 
|------------------------ | ---------------------------- | --------------- | ------ | -------- |  | ------------- | --- | ---- | - | - | ------ | ------- | 
|                         |                              | Gross Operating |        | Sublease |  | Net Operating
|                         |                              | Leases          |        | Income   |  | Leases       
|Year Ending December 31, |                              |                 |        |          |  |              
|2003                     |                              | $               | 25,728 |          |  | $             | (81 | )    |   | $ | 25,647 |        
|2004                     |                              |                 | 23,128 |          |  |               | (71 | )    |   |   | 23,057 |        
|2005                     |                              |                 | 18,895 |          |  |               | (25 | )    |   |   | 18,870 |        
|2006                     |                              |                 | 15,658 |          |  |               |    |      |   |   | 15,658 |        
|2007                     |                              |                 | 13,576 |          |  |               |    |      |   |   | 13,576 |        
|Thereafter               |                              |                 | 45,229 |          |  |               |    |      |   |   | 45,229 |        
|                         |                              |                 |        |          |  |               |     |      |   |   |        |        
|                         | Total minimum lease payments |                 | $      | 142,214  |  |               | $   | (177 | ) |   | $      | 142,037 | 
|                         |                              |                 |        |          |  |               |     |      |   |   |        |        

13.     Retirement
Plan

The Company maintains various defined
contribution retirement plans covering substantially all of its
employees. Certain of these plans provide for Company matching
and discretionary contributions. The Company has recorded
expenses related to these plans of $3,801, $6,225 and $500 for
2002, 2001 and 2000, respectively.

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##### Table of Contents



WebMD Corporation


Notes to Consolidated Financial
Statements  (Continued)

14.     Stockholders
Equity

Common Stock

On January 27, 2000, Janus Capital
Corporation, through its managed mutual funds, invested $930,000
in exchange for 15,000,000 shares of common stock at $62.00 per
share in a private transaction.

During December 2000, the Company repurchased
5,163,509 shares of common stock for an aggregate price of
$30,759. These shares are reflected as treasury shares in the
accompanying consolidated balance sheet.

On March 29, 2001, the Company announced a
stock repurchase program (the Program). Under the
Program, the Company was authorized to use up to $50,000 to
purchase shares of its common stock from time to time beginning
on April 2, 2001, subject to market conditions. On
November 2, 2001, the maximum aggregate amount of purchases
under the Program was increased to $100,000 and on
November 7, 2002 it was increased to $150,000. As of
December 31, 2002 and 2001, the Company has repurchased
19,991,160 and 15,928,426 shares, respectively, at a cost of
approximately $86,042 and $65,823 under the Program. These
shares are reflected as treasury shares in the accompanying
consolidated balance sheets. As of December 31, 2002, the
Company had $63,958 available to repurchase shares of its common
stock under the Program.

On October 12, 2001, the Company and
Quintiles Transnational Corporation settled the litigation
between the two companies. Under the terms of the settlement,
the companies agreed to terminate all of their business
agreements and the Company agreed to purchase from Quintiles for
$185,000 in cash all 35,000,000 shares of the Companys
common stock held by Quintiles. These shares are reflected as
treasury shares in the accompanying consolidated balance sheet.
The fair market value of these shares on the date of the
settlement was $126,000 and has been recorded as treasury stock.
The excess of the purchase price of the shares over their fair
market value was $59,000 and has been recorded as a component of
restructuring and integration charges.

During 2002, the Company repurchased 14,100,000
shares of its common stock from Cerner Corporation at a purchase
price of $6.01 per share, or an aggregate purchase price of
$84,741. The repurchase of the shares from Cerner Corporation
was separately approved by the Executive Committee of the
Companys Board of Directors and, accordingly, was not part
of the Stock Repurchase Program.

During 2002, the Company adopted the 2002
Restricted Stock Plan for the benefit of its employees. The
shares of restricted stock are generally granted at prices not
less than the fair market value on the date of grant and vest
25% per year over four years. At December 31, 2002, 603,803
shares of restricted stock remain reserved for issuance under
the 2002 Restricted Stock Plan. In connection with the 2002
acquisitions, the Company recorded deferred compensation of
$2,500 related to grants of restricted stock. At
December 31, 2002, the Company had approximately $2,283
remaining to be amortized on a graded vesting method over a
period of four years.

Series A Convertible Preferred
Stock



| |              
| | -------------
| | 2000 Series A

In January 2000, the Board of Directors
authorized 213,000 shares of Series A Convertible Preferred
Stock (2000 Series A Preferred) with a par
value of $0.0001 per share and a face value of $5,000 per
share. The 2000 Series A Preferred was entitled to
quarterly dividends at a per annum rate of 10.5% of the face
amount plus any accrued and unpaid dividends, payable in
additional shares of 2000 Series A Preferred. With respect
to dividend rights, other than the right to receive additional
shares of 2000 Series A Preferred, rights on liquidation,
winding up or dissolution, whether voluntary or involuntary, the
Series A Preferred ranked on a parity with the
Companys common stock and junior to the Series B

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##### Table of Contents



WebMD Corporation


Notes to Consolidated Financial
Statements  (Continued)

Preferred. The 2000 Series A Preferred was
convertible into common stock automatically on the third
anniversary of the date of issuance. The 2000 Series A
Preferred holders were entitled to vote with common stockholders
on an as converted basis.

At December 31, 2000, there were 155,951
shares of 2000 Series A Preferred stock outstanding,
convertible into 21,282,645 shares of the Companys common
stock. In connection with the revised strategic alliance during
2001 with News Corporation, the 155,951 shares of 2000
Series A Preferred were surrendered to the Company and
therefore at December 31, 2002 and 2001 no shares of
Series A Preferred stock were outstanding.

Depreciation, amortization and other expense in
the accompanying statement of operations in 2000 includes
$108,196 representing dividends and accretion of discount
related to the 2000 Series A Preferred Stock.

Series B Convertible Redeemable Preferred
Stock

In September 2000, the Board of Directors
authorized 200 shares of Series B Convertible Redeemable
Preferred Stock (Series B Preferred). In
connection with the acquisition of CareInsite, the Company
issued 100 shares of Series B Preferred in exchange for all
the outstanding shares of CareInsites preferred stock. The
Series B Preferred was convertible in March 2002 into an
aggregate of 263,957 shares of common stock (conversion price of
$37.885) plus a warrant to acquire an equal number of shares at
$37.885 per share. Additionally, the Series B
Preferred was redeemable for an aggregate of $10,000 by the
Company or the holder in March 2002 or by the holder following
the notice of a change of control of the Company. In March 2002,
the Company redeemed the outstanding Series B Preferred for
$10,000 in accordance with its terms.

Warrants

The Company has warrants outstanding to purchase
27,518,656 shares of common stock at prices ranging from $0.67
to $74.22 per share, with a weighted average exercise price
of $19.32 per share. Substantially all of the outstanding
warrants are currently vested and exercisable.

In January 2000, in connection with an Internet
marketing and services agreement entered into with a
distributor, the Company issued a warrant to purchase 4,376,445
shares of the Companys common stock at $1.00 per
share. The warrant vests over a four-year period, subject to
certain performance thresholds. As of December 31, 2000,
the Company estimated that the performance thresholds were not
achieved and no value was assigned to the warrants. As of
December 31, 2001, the Company estimated the distributor
was entitled to a warrant for 2,000,000 shares and recorded
$13,418, determined using the Black-Scholes option pricing
model, as a non-cash distribution services expense included in
sales, marketing, general and administrative expense. In January
2002, the Internet marketing and services agreement was
terminated and the distributor retained the warrant to purchase
2,000,000 shares of the Companys common stock at $1.00 per
share. The warrant is fully vested and expires on
January 24, 2007.

During 2002, warrants to purchase a total of
1,090,121 shares of the Companys common stock at a
weighted average exercise price of $3.04 per share were
exercised and the Company repurchased warrants to purchase
8,419,736 shares of the Companys common stock, with a
weighted average exercise price of $38.00 per share, for a
cash payment of $10.

15.     Stock Option
Plans

The Company has various stock option plans
(collectively, the Plans) for directors, officers
and key employees that provide for non-qualified and incentive
stock options and restricted stock grants. Generally, options
become exercisable ratably over a three to five year period
based on their individual grant dates.

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##### Table of Contents



WebMD Corporation


Notes to Consolidated Financial
Statements  (Continued)

Options are generally granted at prices not less
than the fair market value on the date of grant. Options granted
under the Plans expire within four to fifteen years from the
date of grant. An aggregate of 17,483,434 shares of common stock
remain reserved for issuance under the Plans at
December 31, 2002.

In addition to the Plans, the Company has granted
options to certain directors, consultants and key employees. At
December 31, 2002, there were options to purchase 6,850,000
shares of common stock outstanding to these individuals. The
terms of these grants are similar to the terms of the options
granted under the Plans.

In connection with the mergers with Medical
Manager, CareInsite and OnHealth, the Company assumed all the
outstanding options issued under the respective stock option
plans and arrangements and, after the application of the
exchange ratio, reserved 76,640,029 shares for Medical Manager
and CareInsite and 1,354,482 shares for OnHealth of common stock
for issuance upon exercise of the assumed options. No further
options can be granted under these plans. At the time of these
acquisitions, options for 21,265,330 and 1,067,796 shares,
respectively, were fully vested. The remainder of the shares
vest based upon the terms of the original plans ranging from
three to five years.

In 1999, the Company assumed all outstanding
options issued under the respective stock option plans and
arrangements and, after application of the exchange ratio,
reserved the following shares of common stock per merger:
14,734,986 for WebMD, Inc., 468,584 for MedE America, and
164,036 for Medcast, for issuance upon exercise of the assumed
options. No further options can be granted under these plans. At
the time of these acquisitions, the number of fully vested
options were: 8,637,406 for WebMD, Inc., 60,136 for MedE
America, and 83,626 for Medcast. The remainder of the options
vest based upon the terms of the original plans, generally four
years.

The Company recorded deferred stock compensation
related to stock options as a component of stockholders
equity of approximately $211,837 in 2000. No deferred stock
compensation related to stock options was recorded in 2002 or
2001. These amounts represented the difference between the
exercise price and the deemed fair value of common stock on the
date the stock options were granted. The components of the
$211,837 of deferred stock compensation recorded in 2000 are:
(i) $117,402 related to 54,538,222 unvested options assumed
in the Medical Manager, CareInsite and OnHealth mergers,
(ii) $79,577 related to 7,943,761 options granted to Envoy
employees at $4.23 per share on June 20, 2000 and
(iii) $14,858 related to 1,365,416 options granted to
certain Company executives in May and June of 2000 with exercise
prices ranging from $2.00 to $9.06. At December 31, 2002,
the Company had a total of approximately $15,522 remaining to be
amortized on a graded vesting method over the remaining three
years.

The Company recorded stock compensation expense,
primarily related to deferred stock compensation recorded in
connection with acquisitions, of $25,265, $129,268 and $125,603
in 2002, 2001 and 2000, respectively, of which $51,998 and
$53,144 were included in restructuring and integration charges
in 2001 and 2000, respectively. No stock compensation expenses
were included in restructuring and integration charges for 2002.

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##### Table of Contents



WebMD Corporation


Notes to Consolidated Financial
Statements  (Continued)

A summary of the status of the Companys
stock option plans for the three year period ended
December 31, 2002 is presented below:

|                                         |           |                          |             |                |   |           |       |                |  |           |             |                |   |   |       |       |  |  |             |             |   |   |       |       | 
|---------------------------------------- | --------- | ------------------------ | ----------- | -------------- | - | --------- | ----- | -------------- |  | --------- | ----------- | -------------- | - | - | ----- | ----- |  |  | ----------- | ----------- | - | - | ----- | ----- | 
|                                         |           |                         
|                                         |           | Years Ended December 31,
|                                         |           |                         
|                                         |           |                          |             |                |   |          
|                                         |           | 2002                     |             | 2001           |   | 2000     
|                                         |           |                          |             |                |   |          
|                                         |           |                          |             | Weighted       |   |           |       | Weighted       |  |           |             | Weighted      
|                                         |           |                          |             | Average        |   |           |       | Average        |  |           |             | Average       
|                                         |           | Number of                |             | Exercise Price |   | Number of |       | Exercise Price |  | Number of |             | Exercise Price
|                                         |           | Shares                   |             | per Share      |   | Shares    |       | per Share      |  | Shares    |             | per Share     
|                                         |           |                          |             |                |   |           |       |                |  |           |             |               
|Outstanding at the beginning of the year |           |                          | 121,184,501 |                |   | $         | 12.99 |                |  |           | 128,045,133 |                |   | $ | 15.79 |       |  |  | 27,644,846  |             |   | $ | 9.98  |      
|                                         | Granted   |                          |             | 4,946,459      |   |           |       | 6.58           |  |           |             | 23,057,311     |   |   |       | 4.39  |  |  |             | 41,419,515  |   |   |       | 15.85 | 
|                                         | Assumed   |                          |             |               |   |           |       |               |  |           |             |               |   |   |       |      |  |  |             | 77,994,511  |   |   |       | 17.18 | 
|                                         | Exercised |                          |             | (5,316,668     | ) |           |       | 3.26           |  |           |             | (2,701,776     | ) |   |       | 3.17  |  |  |             | (7,769,440  | ) |   |       | 3.49  | 
|                                         | Cancelled |                          |             | (12,582,242    | ) |           |       | 16.49          |  |           |             | (27,216,167    | ) |   |       | 19.34 |  |  |             | (11,244,299 | ) |   |       | 19.85 | 
|                                         |           |                          |             |                |   |           |       |                |  |           |             |                |   |   |       |       |  |  |             |             |   |   |       |      
|Outstanding at the end of the year       |           |                          | 108,232,050 |                |   |           | 12.73 |                |  |           | 121,184,501 |                |   |   | 12.99 |       |  |  | 128,045,133 |             |   |   | 15.79 |      
|                                         |           |                          |             |                |   |           |       |                |  |           |             |                |   |   |       |       |  |  |             |             |   |   |       |      
|Exercisable at the end of the year       |           |                          | 70,764,983  |                |   | $         | 13.86 |                |  |           | 65,352,769  |                |   | $ | 14.15 |       |  |  | 43,800,961  |             |   | $ | 13.54 |      
|                                         |           |                          |             |                |   |           |       |                |  |           |             |                |   |   |       |       |  |  |             |             |   |   |       |      

The following table summarizes information with
respect to options outstanding and options exercisable at
December 31, 2002:

|                |  |             |             |             |  |             |       |        |  |          |      |  |  |  |            |  |  |   |       | 
|--------------- |  | ----------- | ----------- | ----------- |  | ----------- | ----- | ------ |  | -------- | ---- |  |  |  | ---------- |  |  | - | ----- | 
|                |  |             |             |            
|                |  | Outstanding |             | Exercisable
|                |  |             |             |            
|                |  |             |             | Weighted    |  |            
|                |  |             |             | Average     |  |            
|                |  |             |             | Weighted    |  | Remaining   |       |        |  | Weighted
|                |  |             |             | Average     |  | Contractual |       |        |  | Average 
|                |  |             |             | Exercise    |  | Life        |       |        |  | Exercise
|Exercise Prices |  | Shares      |             | Price       |  | (In Years)  |       | Shares |  | Price   
|                |  |             |             |             |  |             |       |        |  |         
|$0.05-$3.43     |  |             | 16,149,050  |             |  | $           | 3.27  |        |  |          | 8.42 |  |  |  | 5,062,839  |  |  | $ | 2.93  | 
|$3.53-$5.92     |  |             | 13,929,833  |             |  |             | 4.70  |        |  |          | 5.37 |  |  |  | 10,384,004 |  |  |   | 4.53  | 
|$5.94-$9.56     |  |             | 12,857,723  |             |  |             | 7.26  |        |  |          | 6.13 |  |  |  | 8,120,593  |  |  |   | 7.15  | 
|$9.69-$11.55    |  |             | 13,973,660  |             |  |             | 11.48 |        |  |          | 7.36 |  |  |  | 7,724,971  |  |  |   | 11.47 | 
|$11.56-$13.50   |  |             | 11,677,585  |             |  |             | 12.83 |        |  |          | 7.19 |  |  |  | 8,505,074  |  |  |   | 12.89 | 
|$13.63-$16.06   |  |             | 14,070,100  |             |  |             | 14.89 |        |  |          | 6.89 |  |  |  | 11,730,866 |  |  |   | 15.00 | 
|$16.13-$21.69   |  |             | 11,332,531  |             |  |             | 18.68 |        |  |          | 6.10 |  |  |  | 8,562,093  |  |  |   | 18.50 | 
|$22.12-$105.00  |  |             | 14,241,568  |             |  |             | 30.53 |        |  |          | 5.97 |  |  |  | 10,674,543 |  |  |   | 30.72 | 
|                |  |             |             |             |  |             |       |        |  |          |      |  |  |  |            |  |  |   |       | 
|                |  |             | 108,232,050 |             |  | $           | 12.73 |        |  |          | 6.72 |  |  |  | 70,764,983 |  |  | $ | 13.86 | 
|                |  |             |             |             |  |             |       |        |  |          |      |  |  |  |            |  |  |   |       | 

The Company has elected to follow APB No. 25
and related interpretations in accounting for employee stock
options because the alternative fair value accounting method
provided for under SFAS No. 123 requires use of option
valuation models that were not developed for use in valuing
employee stock options. The Black-Scholes option valuation model
was developed for use in estimating the fair value of traded
options that have no vesting restrictions and are fully
transferable. In addition, option valuation models require the
input of highly subjective assumptions, including the expected
stock price volatility. Because the Companys employee
stock options have characteristics significantly different from
those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value

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WebMD Corporation


Notes to Consolidated Financial
Statements  (Continued)

estimates, in managements opinion, the
existing models do not necessarily provide a reliable single
measure of the fair value of the Companys employee stock
options.

The pro forma information presented in
Note 1 has been determined as if employee stock options
granted subsequent to December 31, 1994 were accounted for
under the fair value method of SFAS No. 123. The fair value
for these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following
weighted-average assumptions:

|                                                                                           |  |      |          |      |  |      |         |   |  |   |         |  
|------------------------------------------------------------------------------------------ |  | ---- | -------- | ---- |  | ---- | ------- | - |  | - | ------- | -
|                                                                                           |  | 2002 |          | 2001 |  | 2000
|                                                                                           |  |      |          |      |  |     
|Expected dividend yield                                                                    |  |      | 0        | %    |  |      | 0       | % |  |   | 0       | %
|Expected volatility                                                                        |  |      | 0.9      |      |  |      | 0.9     |   |  |   | 1.0     |  
|Risk free interest rate                                                                    |  |      | 1.85     | %    |  |      | 3.04    | % |  |   | 5.29    | %
|Expected option lives (years)                                                              |  |      | 0.75-3.0 |      |  |      | 0.5-3.5 |   |  |   | 0.5-3.5 |  
|Weighted fair value of options granted at prices
    equal to market price during the year |  | $    | 4.06     |      |  | $    | 2.70    |   |  | $ | 11.79   |  
|Weighted fair value of options granted at prices
    below market price during the year    |  | $    |         |      |  | $    |        |   |  | $ | 11.19   |  

Employee Stock Purchase Plan

The Companys 1998 Employee Stock Purchase
Plan, as amended from time to time (the 1998 Purchase
Plan), became effective upon the completion of the initial
public offering on February 10, 1999. The 1998 Purchase
Plan allows eligible employees the opportunity to purchase
shares of the Companys common stock through payroll
deductions, up to 15% of a participants annual
compensation with a maximum of 5,000 shares available per
participant during each purchase period. Prior to an amendment
to the 1998 Purchase Plan on November 1, 2002, the purchase
price of the stock was 85% of the lesser of the fair market
value on the first and last day of each purchase period.
Effective with the November 1, 2002 amendment, the purchase
price of the stock is 85% of the fair market value on the last
day of each purchase period. A total of 2,841,022 shares of
common stock remain reserved for issuance under the 1998
Purchase Plan. The 1998 Purchase Plan, as amended in connection
with the 2000 mergers, provides for annual increases equal to
the lesser of 1,500,000 shares, 0.5% of the outstanding common
shares, or a lesser amount determined by the Board of Directors.
A total of 640,172, 876,960 and 1,006,645 shares were issued
under this plan during 2002, 2001 and 2000, respectively.

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WebMD Corporation


Notes to Consolidated Financial
Statements  (Continued)

16.     Income
Taxes

Deferred income taxes reflect the net tax effects
of temporary differences between the carrying amounts of assets
and liabilities for financial reporting purposes and the amounts
used for income tax purposes. Significant components of the
Companys deferred tax assets (liabilities) were as
follows:

|                                        |                                      |              |          |         |   |   |          |         |  
|--------------------------------------- | ------------------------------------ | ------------ | -------- | ------- | - | - | -------- | ------- | -
|                                        |                                      |             
|                                        |                                      | December 31,
|                                        |                                      |             
|                                        |                                      | 2002         |          | 2001   
|                                        |                                      |              |          |        
|Deferred tax assets:                    |                                      |              |          |         |   |   |          |        
|                                        | Net operating loss carryforwards     |              | $        | 692,693 |   |   | $        | 716,135 |  
|                                        | Restructuring costs                  |              |          | 13,610  |   |   |          | 32,181  |  
|                                        | Research and development tax credits |              |          | 13,199  |   |   |          | 11,947  |  
|                                        | Other accrued expenses               |              |          | 39,375  |   |   |          | 13,251  |  
|                                        | Fair value of investments            |              |          |        |   |   |          | 8,005   |  
|                                        | Allowance for doubtful accounts      |              |          | 8,541   |   |   |          | 10,713  |  
|                                        | Depreciation                         |              |          | 6,026   |   |   |          | 14,098  |  
|                                        | Intangible assets                    |              |          | 179,816 |   |   |          | 175,536 |  
|                                        | Other                                |              |          | 1,736   |   |   |          | 1,069   |  
|                                        |                                      |              |          |         |   |   |          |        
|Total deferred tax assets               |                                      |              | 954,996  |         |   |   | 982,935  |        
|Valuation allowance                     |                                      |              | (946,261 | )       |   |   | (944,522 | )      
|                                        |                                      |              |          |         |   |   |          |        
|Net deferred tax assets                 |                                      |              | 8,735    |         |   |   | 38,413   |        
|                                        |                                      |              |          |         |   |   |          |        
|Deferred tax liabilities:               |                                      |              |          |         |   |   |          |        
|                                        | Tax basis                            |              |          | (1,334  | ) |   |          | (78     | )
|                                        | Other                                |              |          | (7,401  | ) |   |          | (38,335 | )
|                                        |                                      |              |          |         |   |   |          |        
|Total deferred tax liabilities          |                                      |              | (8,735   | )       |   |   | (38,413  | )      
|                                        |                                      |              |          |         |   |   |          |        
|Net deferred tax assets and liabilities |                                      | $            |         |         |   | $ |         |        
|                                        |                                      |              |          |         |   |   |          |        

The reconciliation between the federal statutory
rate and the effective income tax rate is as follows:

|                                            |  |      |       |      |  |      |       |    |  |  |       |   
|------------------------------------------- |  | ---- | ----- | ---- |  | ---- | ----- | -- |  |  | ----- | --
|                                            |  | 2002 |       | 2001 |  | 2000
|                                            |  |      |       |      |  |     
|United States federal statutory rate        |  |      | (34.0 | )%   |  |      | (34.0 | )% |  |  | (34.0 | )%
|State income taxes (net of federal benefit) |  |      | (3.0  | )    |  |      | (0.8  | )  |  |  | (0.8  | ) 
|Impairment and restructuring expenses       |  |      | (3.3  | )    |  |      | 16.0  |    |  |  | 3.0   |   
|Goodwill and intangible amortization        |  |      | 5.8   |      |  |      | 11.0  |    |  |  | 23.8  |   
|Valuation allowance                         |  |      | 19.5  |      |  |      | 7.8   |    |  |  | 8.1   |   
|Other                                       |  |      | (1.8  | )    |  |      | 0.0   |    |  |  | (0.1  | ) 
|                                            |  |      |       |      |  |      |       |    |  |  |       |   
|Effective income tax rate                   |  |      | (16.8 | )%   |  |      | 0.0   | %  |  |  | 0.0   | % 
|                                            |  |      |       |      |  |      |       |    |  |  |       |   

A valuation allowance equal to 100% of the
deferred tax assets and liabilities has been established because
of the uncertainty of realization of the deferred tax assets due
to the lack of earnings history. The valuation allowance for
deferred tax assets increased by $1,739 and $658,372 in 2002 and
2001, respectively.

As of December 31, 2002, the Company had net
operating loss carryforwards for federal income tax purposes of
approximately $1,822,878, that expire in 2004 through 2022, and
federal tax credits of approximately $13,199, which expire in
2006 through 2022.

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WebMD Corporation


Notes to Consolidated Financial
Statements  (Continued)

A portion of net operating loss carryforwards and
tax credit carryforwards may be subject to an annual limitation
regarding their utilization against taxable income in future
periods due to the change of ownership provisions of
the Internal Revenue Code and similar state provisions. A
portion of these carryforwards may expire before becoming
available to reduce future income tax liabilities.

Income tax (benefit) provision for 2002, included
a $12,887 benefit reflecting the carryback of net operating
losses to the prior periods of certain acquired subsidiaries, in
which those subsidiaries generated taxable income. The carryback
was allowed as a result of the Job Creation and Workers
Assistance Act of 2002 that was enacted on March 9,
2002. In addition, the Plastic Technologies segment is
profitable in certain states and foreign countries in which the
Company did not have net operating losses to offset that income.
Accordingly, the Company provided for $2,885 and $2,757 of
state, local and foreign income taxes during 2002 and 2001,
respectively.

The income tax (benefit) provision for 2002, 2001
and 2000 includes $1,756, $1,496 and $420, respectively, related
to non-U.S. income taxes. The non-U.S. income included in loss
before income tax (benefit) provision was $4,310, $3,756 and
$842 for 2002, 2001 and 2000, respectively.

17.     Related Party
Transactions

Revenue from related parties consists of revenue
attributable to News Corporation (until February 15, 2001,
the date News Corporation surrendered its Series A
Convertible Preferred Stock), Microsoft (until October 22,
2001, the date Charles G.V. Stevens, Vice President of
Microsofts Enterprise Partner Group, resigned from the
Board of Directors) and UnitedHealth Group (until
January 23, 2000, the date William W. McGuire, M.D., the
Chairman and Chief Executive Officer of UnitedHealth Group,
resigned from the Board of Directors).

18.     Fair Value Of
Financial Instruments

The following disclosure of the estimated fair
value of financial instruments is made in accordance with the
requirements of SFAS No. 107, Disclosures about Fair
Value of Financial Instruments. The estimated fair values
have been determined using available market information.
However, considerable judgment is required in interpreting
market data to develop estimates of fair value. Accordingly, the
estimates presented herein are not necessarily indicative of the
amounts that the Company could realize in a current market
exchange. The use of different market assumptions and/or
estimation methodologies may have a material effect on the
estimated fair value amounts.

|           |                                   |                   |   |                   |  |            |   |            |  |  |   |         |  |  |   |         | 
|---------- | --------------------------------- | ----------------- | - | ----------------- |  | ---------- | - | ---------- |  |  | - | ------- |  |  | - | ------- | 
|           |                                   |                   |   |                  
|           |                                   | December 31, 2002 |   | December 31, 2001
|           |                                   |                   |   |                  
|           |                                   | Cost Basis        |   | Fair Value        |  | Cost Basis |   | Fair Value
|           |                                   |                   |   |                   |  |            |   |           
|Assets:    |                                   |                   |   |                   |  |            |   |            |  |  |   |         |  |  |   |        
|           | Cash and cash equivalents         |                   | $ | 179,541           |  |            | $ | 179,541    |  |  | $ | 286,273 |  |  | $ | 286,273 | 
|           | Short-term investments            |                   |   | 10,865            |  |            |   | 10,897     |  |  |   | 99,533  |  |  |   | 100,249 | 
|           | Marketable securities  long term |                   |   | 448,286           |  |            |   | 464,638    |  |  |   | 7,392   |  |  |   | 18,891  | 
|Liability: |                                   |                   |   |                   |  |            |   |            |  |  |   |         |  |  |   |        
|           | Convertible subordinated notes    |                   | $ | 300,000           |  |            | $ | 348,000    |  |  |   |        |  |  |   |        | 

As of December 31, 2002, the Companys
short-term investments consisted of certificates of deposit,
municipal bonds and asset backed securities, marketable debt
securities consisted of Federal Agency Notes and U.S. Treasury
Notes and marketable equity securities consisted of an equity
investment in a publicly traded company. As of December 31,
2001, the Companys short-term investments consisted
principally of U.S. Treasury Notes and certificates of deposit,
marketable debt securities consisted of municipal bonds and
marketable equity securities represented equity investments in
publicly traded companies.

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WebMD Corporation


Notes to Consolidated Financial
Statements  (Continued)

In accordance with the requirements of SFAS
No. 115, Accounting for Certain Investments in Debt
and Equity Securities, below is a summary of the fair
value and gains relating to the Companys investments in
debt and equity securities:

|           |                     |                                                            |       |                   |         |            |  |           |       |            |  |            |         |         |  |   |        |        |  |   |        |        |  |   |        |         | 
|---------- | ------------------- | ---------------------------------------------------------- | ----- | ----------------- | ------- | ---------- |  | --------- | ----- | ---------- |  | ---------- | ------- | ------- |  | - | ------ | ------ |  | - | ------ | ------ |  | - | ------ | ------- | 
|           |                     |                                                            |       |                  
|           |                     | December 31, 2002                                          |       | December 31, 2001
|           |                     |                                                            |       |                  
|           |                     | Cost or                                                    |       | Gross             |         |            |  | Cost or   |       | Gross      |  |           
|           |                     | Amortized                                                  |       | Unrealized        |         |            |  | Amortized |       | Unrealized |  |           
|           |                     | Cost                                                       |       | Gains             |         | Fair Value |  | Cost      |       | Gains      |  | Fair Value
|           |                     |                                                            |       |                   |         |            |  |           |       |            |  |           
|Short-Term |                     |                                                            |       |                   |         |            |  |           |       |            |  |            |         |         |  |   |        |        |  |   |        |        |  |  
|           | Held to maturity:   |                                                            |       |                   |         |            |  |           |       |            |  |            |         |         |  |   |        |        |  |   |        |        |  |   |       
|           |                     | Certificate of deposits and marketable debt
    securities |       | $                 | 2,919   |            |  | $         | 9     |            |  | $          | 2,928   |         |  | $ | 1,055  |        |  | $ |       |        |  | $ | 1,055  |        
|           | Available for sale: |                                                            |       |                   |         |            |  |           |       |            |  |            |         |         |  |   |        |        |  |   |        |        |  |   |       
|           |                     | Certificate of deposits and marketable debt
    securities |       |                   | 7,946   |            |  |           | 23    |            |  |            | 7,969   |         |  |   | 98,478 |        |  |   | 716    |        |  |   | 99,194 |        
|           |                     |                                                            |       |                   |         |            |  |           |       |            |  |            |         |         |  |   |        |        |  |   |        |        |  |  
|           |                     |                                                            | Total |                   | $       | 10,865     |  |           | $     | 32         |  |            | $       | 10,897  |  |   | $      | 99,533 |  |   | $      | 716    |  |   | $      | 100,249 | 
|           |                     |                                                            |       |                   |         |            |  |           |       |            |  |            |         |         |  |   |        |        |  |   |        |        |  |  
|Long-Term  |                     |                                                            |       |                   |         |            |  |           |       |            |  |            |         |         |  |   |        |        |  |   |        |        |  |  
|           | Held to maturity:   |                                                            |       |                   |         |            |  |           |       |            |  |            |         |         |  |   |        |        |  |   |        |        |  |   |       
|           |                     | Marketable debt securities                                 |       | $                 | 243,475 |            |  | $         | 7,922 |            |  | $          | 251,397 |         |  | $ | 3,062  |        |  | $ | 121    |        |  | $ | 3,183  |        
|           | Available for sale: |                                                            |       |                   |         |            |  |           |       |            |  |            |         |         |  |   |        |        |  |   |        |        |  |   |       
|           |                     | Marketable debt securities                                 |       |                   | 201,641 |            |  |           | 4,173 |            |  |            | 205,814 |         |  |   |       |        |  |   |       |        |  |   |       |        
|           |                     | Equity securities                                          |       |                   | 3,170   |            |  |           | 4,257 |            |  |            | 7,427   |         |  |   | 4,330  |        |  |   | 11,377 |        |  |   | 15,707 |        
|           |                     |                                                            |       |                   |         |            |  |           |       |            |  |            |         |         |  |   |        |        |  |   |        |        |  |  
|           |                     |                                                            | Total |                   | $       | 448,286    |  |           | $     | 16,352     |  |            | $       | 464,638 |  |   | $      | 7,392  |  |   | $      | 11,498 |  |   | $      | 18,890  | 
|           |                     |                                                            |       |                   |         |            |  |           |       |            |  |            |         |         |  |   |        |        |  |   |        |        |  |  

The amortized cost and estimated fair value by
maturity of securities are shown in the following table.
Securities are classified according to their contractual
maturities without consideration of principal amortization,
potential prepayments or call options. Accordingly, actual
maturities may differ from contractual maturities.

|                    |                                       |                |       |            |         |         |   |         |         |         | 
|------------------- | ------------------------------------- | -------------- | ----- | ---------- | ------- | ------- | - | ------- | ------- | ------- | 
|                    |                                       | Cost or        |       |           
|                    |                                       | Amortized Cost |       | Fair Value
|                    |                                       |                |       |           
|Held to maturity:   |                                       |                |       |            |         |         |   |        
|                    | Due in one year or less               |                | $     | 2,919      |         |         | $ | 2,928   |        
|                    | Due after one year through five years |                |       | 243,475    |         |         |   | 251,397 |        
|                    |                                       |                |       |            |         |         |   |        
|                    |                                       | Total          |       | $          | 246,394 |         |   | $       | 254,325 |        
|                    |                                       |                |       |            |         |         |   |        
|Available for sale: |                                       |                |       |            |         |         |   |        
|                    | Due in one year or less               |                | $     | 7,946      |         |         | $ | 7,969   |        
|                    | Due after one year through five years |                |       | 201,641    |         |         |   | 205,814 |        
|                    |                                       |                |       |            |         |         |   |        
|                    |                                       |                | Total |            | $       | 209,587 |   |         | $       | 213,783 | 
|                    |                                       |                |       |            |         |         |   |        

During 2002, one of the Companys
investments in Federal Agency Notes was called for early
redemption by the issuer for net proceeds of $56,000. As a
result of the redemption, the Company realized a gain of $681
reflecting the difference between the proceeds received and the
related carrying amount of the investment. The proceeds from
this redemption have been included in proceeds from the
redemption of held-to-maturity securities in the
accompanying statements of cash flows and the gain has been
included in gain on investments in the accompanying
statements of operations for 2002.

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WebMD Corporation


Notes to Consolidated Financial
Statements  (Continued)

Additionally, during 2002, the Company sold one
of its investments in marketable equity securities for proceeds
of $7,026, which resulted in a gain of $5,866, of which $3,648
was included in accumulated other comprehensive income as of
December 31, 2001. The proceeds from this sale have been
included in proceeds from maturities and sales of
available for sale securities in the accompanying
statements of cash flows and the gain has been reflected as
gain on investments in the accompanying statements
of operations for 2002.

19.     Supplemental
Disclosures of Cash Flow Information

Supplemental information related to the
Consolidated Statements of Cash Flows is summarized below:

|                                                                                                                                      |  |                          |       |      |  |      |          |   |  |   |           | 
|------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------ | ----- | ---- |  | ---- | -------- | - |  | - | --------- | 
|                                                                                                                                      |  |                         
|                                                                                                                                      |  | Years Ended December 31,
|                                                                                                                                      |  |                         
|                                                                                                                                      |  | 2002                     |       | 2001 |  | 2000
|                                                                                                                                      |  |                          |       |      |  |     
|Supplemental Disclosure of Cash Flow Information:                                                                                     |  |                          |       |      |  |      |          |   |  |   |           | 
|Interest paid                                                                                                                         |  | $                        | 5,369 |      |  | $    | 1,072    |   |  | $ | 907       | 
|                                                                                                                                      |  |                          |       |      |  |      |          |   |  |   |           | 
|Taxes paid                                                                                                                            |  | $                        | 1,090 |      |  | $    | 1,822    |   |  | $ | 817       | 
|                                                                                                                                      |  |                          |       |      |  |      |          |   |  |   |           | 
|Supplemental Schedule of Non-Cash Investing and
    Financing Activities:                                                             |  |                          |       |      |  |      |          |   |  |   |           | 
|Issuance of equity securities in connection with
    business combinations, strategic alliances and services, and
    asset purchases |  | $                        | 39    |      |  | $    | 24,739   |   |  | $ | 6,068,122 | 
|                                                                                                                                      |  |                          |       |      |  |      |          |   |  |   |           | 
|Reacquisition of convertible preferred stock and
    issuance of warrants in connection with revision of strategic
    alliances      |  | $                        |      |      |  | $    | (151,171 | ) |  | $ |          | 
|                                                                                                                                      |  |                          |       |      |  |      |          |   |  |   |           | 
|Equipment acquired under capital lease obligations                                                                                    |  | $                        |      |      |  | $    | 168      |   |  | $ | 239       | 
|                                                                                                                                      |  |                          |       |      |  |      |          |   |  |   |           | 
|Deferred stock compensation and options granted
    in connection with acquisitions                                                   |  | $                        | 2,500 |      |  | $    |         |   |  | $ | 211,837   | 
|                                                                                                                                      |  |                          |       |      |  |      |          |   |  |   |           | 

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WebMD Corporation


Notes to Consolidated Financial
Statements  (Continued)

20.     Quarterly
Financial Data (Unaudited)

The following table summarizes the quarterly
financial data for 2002 and 2001. Net income (loss) per
share calculations for each of the quarters are based on the
weighted average number of shares for each period; therefore,
the sum of the quarters may not necessarily be equal to the full
year per share amount.

|                             |  |          |         |                   |  |                  |            |                  |  |   |        |   |  |   |        |  
|---------------------------- |  | -------- | ------- | ----------------- |  | ---------------- | ---------- | ---------------- |  | - | ------ | - |  | - | ------ | -
|                             |  |          |         |                   |  | Net income       |            | Net income      
|                             |  |          |         |                   |  | (loss) per share |            | (loss) per share
|                             |  | Revenues |         | Net income (loss) |  | (Basic)          |            | (Diluted)       
|                             |  |          |         |                   |  |                  |            |                 
|2002                         |  |          |         |                   |  |                  |            |                  |  |   |        |   |  |   |        |  
|March 31, 2002               |  | $        | 225,873 |                   |  | $                | (29,602    | )                |  | $ | (.09   | ) |  | $ | (.09   | )
|June 30, 2002                |  |          | 227,644 |                   |  |                  | (22,209    | )                |  |   | (.07   | ) |  |   | (.07   | )
|September 30, 2002           |  |          | 230,955 |                   |  |                  | 4,538      |                  |  |   | .02    |   |  |   | .01    |  
|December 31, 2002            |  |          | 241,405 |                   |  |                  | (2,429     | )                |  |   | (.01   | ) |  |   | (.01   | )
|Year Ended December 31, 2002 |  |          | 925,877 |                   |  |                  | (49,702    | )                |  |   | (.16   | ) |  |   | (.16   | )
|                            
|2001                         |  |          |         |                   |  |                  |            |                  |  |   |        |   |  |   |        |  
|March 31, 2001               |  | $        | 233,144 |                   |  | $                | (1,035,759 | )                |  | $ | (2.90  | ) |  | $ | (2.90  | )
|June 30, 2001                |  |          | 228,766 |                   |  |                  | (816,783   | )                |  |   | (2.28  | ) |  |   | (2.28  | )
|September 30, 2001           |  |          | 215,577 |                   |  |                  | (4,620,246 | )                |  |   | (12.85 | ) |  |   | (12.85 | )
|December 31, 2001            |  |          | 223,541 |                   |  |                  | (199,530   | )                |  |   | (.62   | ) |  |   | (.62   | )
|Year Ended December 31, 2001 |  |          | 901,028 |                   |  |                  | (6,672,318 | )                |  |   | (19.14 | ) |  |   | (19.14 | )

As a result of certain reclassifications, the
above amounts vary from amounts previously reported in the
Companys quarterly filings.

Effective January 1, 2002, the Company
adopted EITF 01-14 and has reclassified the reimbursement
of out-of-pocket expenses as a component of both revenues and
cost of operations. This reclassification resulted in an
increase in previously reported revenue of $18,450, $18,730,
$18,093 and $18,135 for the quarterly periods ended
March 31, June 30, September 30, and
December 31, 2001, respectively. All remaining differences
between the amounts reflected above and amounts previously
reported relate to the reclassification of Porexs results
of operations to reflect Porex as a continuing operation since
the date of its acquisition on September 12, 2000. See
Note 6.

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##### Table of Contents








Schedule
II.     Valuation and Qualifying
Accounts


|                  |                                                 |                                               |   |            |  |          |   |            |  |             |   |         |   |  |   |         |   |  |   |         | 
|----------------- | ----------------------------------------------- | --------------------------------------------- | - | ---------- |  | -------- | - | ---------- |  | ----------- | - | ------- | - |  | - | ------- | - |  | - | ------- | 
|                  |                                                 |                                              
|                  |                                                 | Years Ended December 31, 2002, 2001, and 2000
|                  |                                                 |                                              
|                  |                                                 | Balance at                                    |   | Charged to |  |         
|                  |                                                 | Beginning                                     |   | Costs and  |  |          |   | Balance at
|                  |                                                 | of Year                                       |   | Expenses   |  | Acquired |   | Write-offs |  | End of Year
|                  |                                                 |                                               |   |            |  |          |   |            |  |            
|                  |                                                 |                                              
|                  |                                                 | (In thousands)                               
|December 31, 2002 |                                                 |                                               |   |            |  |          |   |            |  |             |   |         |   |  |   |         |   |  |   |        
|                  | Allowance for Doubtful Accounts                 |                                               | $ | 27,391     |  |          | $ | 11,971     |  |             | $ | 34      |   |  | $ | (16,571 | ) |  | $ | 22,825  | 
|                  | Valuation Allowance for Deferred Tax
    Assets |                                               |   | 944,522    |  |          |   | 20,288     |  |             |   | (18,549 | ) |  |   |        |   |  |   | 946,261 | 
|December 31, 2001 |                                                 |                                               |   |            |  |          |   |            |  |             |   |         |   |  |   |         |   |  |   |        
|                  | Allowance for Doubtful Accounts                 |                                               |   | 27,089     |  |          |   | 27,231     |  |             |   | 484     |   |  |   | (27,413 | ) |  |   | 27,391  | 
|                  | Valuation Allowance for Deferred Tax
    Assets |                                               |   | 286,150    |  |          |   | 522,861    |  |             |   | 135,511 |   |  |   |        |   |  |   | 944,522 | 
|December 31, 2000 |                                                 |                                               |   |            |  |          |   |            |  |             |   |         |   |  |   |         |   |  |   |        
|                  | Allowance for Doubtful Accounts                 |                                               |   | 3,557      |  |          |   | 12,057     |  |             |   | 14,859  |   |  |   | (3,384  | ) |  |   | 27,089  | 
|                  | Valuation Allowance for Deferred Tax
    Assets |                                               |   | 117,492    |  |          |   | 248,469    |  |             |   | (79,811 | ) |  |   |        |   |  |   | 286,150 | 

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##### Table of Contents






INDEX TO EXHIBITS

|        |      |  |  |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|------- | ---- |  |  | ----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |      |  |  |            
|No.     |      |  |  | Description
|        |      |  |  |            
|        | 2.1  |  |  |            |  | Agreement and Plan of Merger dated as of
    January 22, 2000 among Registrant, Envoy Corporation,
    Quintiles Transnational Corp. and QFinance, Inc. (incorporated
    by reference to Exhibit 2.1 to Registrants Report on
    Form 8-K filed January 27, 2000)                                                                                                                                                                                        
|        | 2.2  |  |  |            |  | Agreement and Plan of Merger dated as of
    February 13, 2000 between Registrant and Medical Manager
    Corporation (incorporated by reference to Exhibit 2.1 to
    Registrants Report on Form 8-K/A filed
    February 24, 2000), as amended by Amendment No. 1
    dated as of June 18, 2000 (incorporated by reference to
    Exhibit 2.1 to Registrants Report on Form 8-K
    filed July 24, 2000)                                                
|        | 2.3  |  |  |            |  | Agreement and Plan of Merger dated as of
    February 13, 2000 among Registrant, Avicenna Systems
    Corporation and CareInsite, Inc. (incorporated by reference to
    Exhibit 2.2 to Registrants Report on Form 8-K/A
    filed February 24, 2000), as amended by Amendment
    No. 1 dated as of June 18, 2000 (incorporated by
    reference to Exhibit 2.2 to Registrants Report on
    Form 8-K filed July 24, 2000)                               
|        | 2.4  |  |  |            |  | Agreement and Plan of Merger dated as of
    February 15, 2000 among Registrant, Tech Acquisition
    Corporation and OnHealth Network Company (incorporated by
    reference to Exhibit 2.1 to Registrants Report on
    Form 8-K/A filed February 22, 2000)                                                                                                                                                                                              
|        | 3.1  |  |  |            |  | Tenth Amended and Restated Certificate of
    Incorporation of Registrant, as currently in effect
    (incorporated by reference to Exhibit 3.1 to
    Registrants Report on Form 8-K filed
    September 13, 2000), as amended by Certificate of Change of
    Registered Agent and Location of Registered Office (incorporated
    by reference to Exhibit 3.1 to Registrants Quarterly
    Report on Form 10-Q for the quarter ended June 30,
    2001)
|        | 3.2  |  |  |            |  | Amended and Restated Bylaws of Registrant, as
    currently in effect (incorporated by reference to
    Exhibit 3.2 to Registrants Quarterly Report on
    Form 10-Q for the quarter ended June 30, 2001)                                                                                                                                                                                                                                                  
|        | 4.1  |  |  |            |  | Specimen Common Stock certificate (incorporated
    by reference to Exhibit 4.1 to Registrants Annual
    Report on Form 10-K for the year ended December 31,
    2000)                                                                                                                                                                                                                                                                                    
|        | 4.2  |  |  |            |  | Indenture between WebMD Corporation and The Bank
    of New York, dated as of April 1, 2002 (incorporated by
    reference to Exhibit 4.1 to the Registrants Quarterly
    Report on Form 10-Q for the quarter ended March 31,
    2002)                                                                                                                                                                                                                   
|        | 4.3  |  |  |            |  | Registration Rights Agreement dated as of
    April 1, 2002 between WebMD Corporation and UBS Warburg LLC
    (incorporated by reference to Exhibit 4.2 to the
    Registrants Quarterly Report on Form 10-Q for the
    quarter ended March 31, 2002)                                                                                                                                                                                                     
|        | 4.4  |  |  |            |  | Form of 3 1/4% Convertible Subordinated Note
    Due 2007 (included in Exhibit 4.2)                                                                                                                                                                                                                                                                                                                                                                         
|        | 10.1 |  |  |            |  | Form of Indemnification Agreement to be entered
    into by Registrant with each of its directors and officers
    (incorporated by reference to Exhibit 10.1 to
    Registrants Quarterly Report on Form 10-Q for the
    quarter ended June 30, 2002)                                                                                                                                                                                                    
|        | 10.2 |  |  |            |  | Domestic Assignment Agreement dated as of
    February 15, 2001 among Registrant, Healtheon/ WebMD Cable
    Corporation, Healtheon/ WebMD Internet Corporation, The News
    Corporation Limited, Fox Entertainment Group, Inc. AHN/FIT
    Cable, LLC and AHN/FIT Internet, LLC (incorporated by reference
    to Exhibit 10.3 to Registrants Quarterly Report on
    Form 10-Q for the quarter ended March 31, 2001)                                    
|        | 10.3 |  |  |            |  | International Assignment Agreement dated as of
    February 15, 2001 among Registrant, HW International
    Holdings, Inc., The News Corporation Limited, Eastrise Profits
    Limited and IJV Holdings Inc. (incorporated by reference to
    Exhibit 10.4 to Registrants Quarterly Report on
    Form 10-Q for the quarter ended March 31, 2001)                                                                                                         

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##### Table of Contents



|        |        |  |  |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|------- | ------ |  |  | ----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |        |  |  |            
|No.     |        |  |  | Description
|        |        |  |  |            
|        | 10.4   |  |  |            |  | Healtheon/ WebMD Corporation Registration Rights
    Agreement dated January 26, 2000 among Registrant, Eastrise
    Profits Limited, AHN/FIT Cable, LLC, AHN/FIT Internet, LLC, News
    America Incorporated and Fox Broadcasting Company (incorporated
    by reference to Exhibit 10.4 to Registrants Quarterly
    Report on Form 10-Q for the quarter ended March 31,
    2000), as amended by Amendment dated February 15, 2001
    (incorporated by reference to Exhibit 10.1 to
    Registrants Quarterly Report on Form 10-Q for the
    quarter ended March 31, 2001)
|        | 10.5   |  |  |            |  | Healtheon/ WebMD Media Services Agreement dated
    January 26, 2000 among Registrant, Eastrise Profits Limited
    and Fox Entertainment Group, Inc. (incorporated by reference to
    Exhibit 10.5 to Registrants Quarterly Report on
    Form 10-Q for the quarter ended March 31, 2000), as
    amended by Amendment dated February 15, 2001 (incorporated
    by reference to Exhibit 10.2 to Registrants Quarterly
    Report on Form 10-Q for the quarter ended March 31,
    2001)                                                                                      
|        | 10.6   |  |  |            |  | Content License Agreement dated January 26,
    2000 between The News Corporation Limited and Registrant
    (incorporated by reference to Exhibit 10.6 to
    Registrants Quarterly Report on Form 10-Q for the
    quarter ended March 31, 2000)                                                                                                                                                                                                                                                                                                                               
|        | 10.7   |  |  |            |  | Letter Agreement dated December 29, 2000
    between Registrant and The News Corporation Limited
    (incorporated by reference to Exhibit 10.17 to
    Registrants Annual Report on Form 10-K for the year
    ended December 31, 2000)                                                                                                                                                                                                                                                                                                                                         
|        | 10.8   |  |  |            |  | Settlement Agreement dated October 12, 2001
    between Registrant and Quintiles Transnational Corp.
    (incorporated by reference to Exhibit 10.01 to Quintiles
    Transnational Corp.s Quarterly Report on Form 10-Q
    for the quarterly period ended September 30, 2001, filed
    with the Securities and Exchange Commission on November 1,
    2001)                                                                                                                                                                                                                   
|        | 10.9   |  |  |            |  | Data Rights Agreement dated as of May 26,
    2000, as amended, between Registrant and Quintiles Transnational
    Corp. (incorporated by reference to Exhibit 10.18 to
    Registrants Annual Report on Form 10-K for the year
    ended December 31, 2000)                                                                                                                                                                                                                                                                                                                     
|        | 10.10  |  |  |            |  | Internet Product Development and Marketing
    Agreement dated as of May 26, 2000 between Registrant and
    Quintiles Transnational Corp. (incorporated by reference to
    Exhibit 10.19 to Registrants Annual Report on
    Form 10-K for the year ended December 31, 2000)                                                                                                                                                                                                                                                                                                   
|        | 10.11  |  |  |            |  | Warrant to Purchase Shares of Common Stock of
    WebMD, Inc. dated May 12, 1999 issued to Microsoft
    Corporation (incorporated by reference to Exhibit 10.9 to
    Registrants Annual Report on Form 10-K for the year
    ended December 31, 2000)                                                                                                                                                                                                                                                                                                                          
|        | 10.12* |  |  |            |  | Agreement dated as of October 8, 2001
    between Registrant and Martin J. Wygod (incorporated by
    reference to Exhibit 10.55 to Registrants
    Form 10-K to Annual Report on Form 10-K for the year
    ended December 31, 2001)                                                                                                                                                                                                                                                                                                                                            
|        | 10.13* |  |  |            |  | Amended and Restated Stock Option Agreement dated
    August 21, 2000 between the Registrant (as successor to
    Medical Manager Corporation) and Martin J. Wygod (incorporated
    by reference to Exhibit 10.21 to Registrants
    Amendment on Form 10-K/A to Annual Report on Form 10-K
    for the year ended December 31, 2000)                                                                                                                                                                                                                                           
|        | 10.14* |  |  |            |  | Employment Agreement dated as of October 23,
    2002 between the Registrant and Roger C. Holstein                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|        | 10.15* |  |  |            |  | Employment Agreement dated as of May 16,
    1999 between the Registrant (as successor to Synetic, Inc.) and
    Michael A. Singer (incorporated by reference to
    Exhibit 10.26 to Medical Manager Corporations Annual
    Report on Form 10-K for the fiscal year ended June 30,
    1999)                                                                                                                                                                                                                                                                                   
|        | 10.16* |  |  |            |  | Letter Agreement dated as of September 5,
    2000 between Registrant (as successor to Medical Manager
    Corporation) and Michael A. Singer (incorporated by reference to
    Exhibit 10.50 to Registrants Amendment on
    Form 10-K/A to Annual Report on Form 10-K for the year
    ended December 31, 2001)                                                                                                                                                                                                                                                                
|        | 10.17* |  |  |            |  | Employment Agreement dated as of July 1,
    2000 between Medical Manager Corporation and Charles A. Mele, as
    amended (incorporated by reference to Exhibit 10.51 to
    Registrants Amendment on Form 10-K/A to Annual Report
    on Form 10-K for the year ended December 31, 2001)                                                                                                                                                                                                                                                                                        

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##### Table of Contents



|        |        |  |  |             |  |                                                                                                                                                                                                                                                                                                                                                                           
|------- | ------ |  |  | ----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |        |  |  |            
|No.     |        |  |  | Description
|        |        |  |  |            
|        | 10.18* |  |  |            |  | Employment Agreement dated as of July 1,
    2000 between Registrant (as successor to Medical Manager
    Corporation) and Anthony Vuolo, as amended (incorporated by
    reference to Exhibit 10.52 to Registrants Amendment
    on Form 10-K/A to Annual Report on Form 10-K for the
    year ended December 31, 2001)                                                 
|        | 10.19* |  |  |            |  | Form of Amended and Restated Stock Option
    Agreement dated August 21, 2000, between Registrant (as
    successor to Medical Manager Corporation) and each of Charles A.
    Mele and Anthony Vuolo (incorporated by reference to
    Exhibit 10.54 to Registrants Amendment on
    Form 10-K/A to Annual Report on Form 10-K for the year
    ended December 31, 2001)
|        | 10.20* |  |  |            |  | WebMD Corporation 2001 Employee Non-Qualified
    Stock Option Plan, as amended (incorporated by reference to
    Exhibit 10.46 to Registrants Amendment on
    Form 10-K/A to Annual Report on Form 10-K for the year
    ended December 31, 2001)                                                                                                                      
|        | 10.21* |  |  |            |  | WebMD Corporation 2002 Restricted Stock Plan and
    Form of Award Agreement                                                                                                                                                                                                                                                                                              
|        | 10.22* |  |  |            |  | Healtheon Corporation 1996 Stock Plan and Form of
    Stock Option Agreement (incorporated by reference to
    Exhibit 10.2 to Amendment No. 2 to Registrants
    Registration Statement on Form S-1 (No. 333-70553)
    filed February 10, 1999)                                                                                                                        
|        | 10.23* |  |  |            |  | WebMD Corporation Amended and Restated 1998
    Employee Stock Purchase Plan (incorporated by reference to
    Exhibit 99.27 to Registrants Registration Statement
    on Form S-8 (No. 333-47250) filed October 4, 2000)                                                                                                                                                
|        | 10.24* |  |  |            |  | WebMD Corporation 2000 Long-Term Incentive Plan
    (incorporated by reference to Exhibit 10.1 to Amendment
    No. 1 to Registrants Registration Statement on
    Form S-4 (No. 333-39592) filed August 1, 2000)                                                                                                                                                        
|        | 10.25* |  |  |            |  | WebMD, Inc. Amended and Restated 1997 Stock
    Incentive Plan, as amended (incorporated by reference to
    Exhibit 10.2 to Registrants Registration Statement on
    Form S-8 (No. 33-90795) filed November 12, 1999)                                                                                                                                                  
|        | 10.26* |  |  |            |  | Envoy Stock Plan (incorporated by reference to
    Exhibit 99.1 to Registrants Registration Statement on
    Form S-8 (No. 333-42616) filed July 31, 2000)                                                                                                                                                                                                               
|        | 10.27* |  |  |            |  | Amended and Restated 1989 Class A
    Non-Qualified Stock Option Plan of Synetic, Inc. (incorporated
    by reference to Exhibit 10.1 to Synetic, Inc.s
    Registration Statement on Form S-1 (No. 333-28654)
    filed May 18, 1989)                                                                                                                                   
|        | 10.28* |  |  |            |  | Amended and Restated 1989 Class B
    Non-Qualified Stock Option Plan of Synetic, Inc. (incorporated
    by reference to Exhibit 10.2 to Synetic, Inc.s
    Registration Statement on Form S-1 (No. 333-28654)
    filed May 18, 1989)                                                                                                                                   
|        | 10.29* |  |  |            |  | 1991 Director Stock Option Plan of Synetic, Inc.
    (incorporated by reference to Exhibit 4.2 to Synetic,
    Inc.s Registration Statement on Form S-8
    (No. 333-46640) filed March 24, 1992)                                                                                                                                                                        
|        | 10.30* |  |  |            |  | Amended and Restated 1991 Special Non-Qualified
    Stock Option Plan of Synetic, Inc. (incorporated by reference to
    Exhibit 4.3 to Synetic, Inc.s Registration Statement
    on Form S-8 (No. 333-36041) filed September 19,
    1997)                                                                                                                              
|        | 10.31* |  |  |            |  | Form of Stock Option Agreement made as of
    December 7, 1994 between Synetic, Inc. and certain
    individuals (incorporated by reference to Exhibit 4.5 to
    Synetic, Inc.s Registration Statement on Form S-8
    (No. 333-21555) filed February 11, 1997)                                                                                                         
|        | 10.32* |  |  |            |  | Medical Manager Corporations 1996 Amended
    and Restated Long-Term Incentive Plan (incorporated by reference
    to Exhibit 10.1 to Medical Manager Corporations
    (Commission File No. 0-29090) Quarterly Report on
    Form 10-Q for the quarter ended September 30, 1998)                                                                                        
|        | 10.33* |  |  |            |  | Medical Manager Corporations 1996 Amended
    and Restated Non-Employee Directors Stock Plan
    (incorporated by reference to Exhibit 10.2 to Medical
    Manager Corporations (Commission File No. 0-29090)
    Annual Report on Form 10-K for the fiscal year ended
    December 31, 1997)                                                                          
|        | 10.34* |  |  |            |  | 1996 Class C Stock Option Plan of Synetic,
    Inc. (incorporated by reference to Exhibit 4.1 to Synetic,
    Inc.s Registration Statement on Form S-8
    (No. 333-36041) filed September 19, 1997)                                                                                                                                                                     
|        | 10.35* |  |  |            |  | 1997 Class D Stock Option Plan of Synetic,
    Inc. (incorporated by reference to Exhibit 4.2 to Synetic,
    Inc.s Registration Statement on Form S-8
    (No. 333-36041) filed September 19, 1997)                                                                                                                                                                     

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##### Table of Contents



|        |        |  |  |             |  |                                                                                                                                                                                                                                                                                                 
|------- | ------ |  |  | ----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |        |  |  |            
|No.     |        |  |  | Description
|        |        |  |  |            
|        | 10.36* |  |  |            |  | 1998 Class E Stock Option Plan of Synetic,
    Inc. (incorporated by reference to Exhibit 4.1 to Synetic,
    Inc.s Registration Statement on Form S-8
    (No. 333-72517) filed March 15, 1999)                                                                                               
|        | 10.37* |  |  |            |  | The 1999 Medical Manager Corporation Stock Option
    Plan for Employees of Medical Manager Systems, Inc.
    (incorporated by reference to Exhibit 10.28 to Medical
    Manager Corporations Annual Report on Form 10-K for
    the year ended June 30, 1999)                                 
|        | 10.38* |  |  |            |  | Form of Stock Option Agreement between the
    Corporation and each of John H. Kang and Michael A. Singer
    (incorporated by reference to Exhibit 99.5 to Amendment
    No. 1 to Medical Manager Corporations Registration
    Statement on Form S-4 (No. 333-81123) filed
    June 24, 1999)
|        | 10.39* |  |  |            |  | Stock Option Agreement between the Registrant and
    Wayne Gattinella dated August 20, 2001 (incorporated by
    reference to Exhibit 4.8 to Registrants Registration
    Statement on Form S-8 (No. 333-47250) filed
    May 16, 2002)                                                       
|        | 10.40* |  |  |            |  | 1998 Porex Technologies Corp. Stock Option Plan
    of Synetic, Inc. (incorporated by reference to Exhibit 4.2
    to Synetic, Inc.s Registration Statement on Form S-8
    (No. 333-72517) filed March 15, 1999)                                                                              
|        | 10.41* |  |  |            |  | CareInsite, Inc. 1999 Officer Stock Option Plan
    (incorporated by reference to Exhibit 10.18 to Amendment
    No. 6 to CareInsite, Inc.s Registration Statement on
    Form S-1 (No. 333-75071) filed June 11, 1999)                                                                        
|        | 10.42* |  |  |            |  | CareInsite, Inc. 1999 Employee Stock Option Plan
    (incorporated by reference to Exhibit 10.17 to Amendment
    No. 6 to CareInsite, Inc.s Registration Statement on
    Form S-1 (No. 333-75071) filed June 11, 1999)                                                                       
|        | 10.43* |  |  |            |  | CareInsite, Inc. 1999 Director Stock Option Plan
    (incorporated by reference to Annex H to the Proxy
    Statement/ Prospectus included in Registrants Registration
    Statement on Form S-4 (No. 333-39592) filed
    June 19, 2000)                                                      
|        | 10.44* |  |  |            |  | Amendment to the Company Stock Option Plans of
    Medical Manager Corporation and CareInsite, Inc. (incorporated
    by reference to Exhibit 99.28 to Registrants
    Registration Statement on Form S-8 (No. 333-47250)
    filed October 4, 2000)                                           
|        | 12.1   |  |  |            |  | Computation of Ratio of Earnings to Fixed Charges                                                                                                                                                                                                                                               
|        | 21     |  |  |            |  | Subsidiaries of Registrant                                                                                                                                                                                                                                                                      
|        | 23.1   |  |  |            |  | Consent of Ernst & Young LLP, Independent
    Auditors                                                                                                                                                                                                                                          
|        | 24.1   |  |  |            |  | Power of Attorney (see page 75)                                                                                                                                                                                                                                                                 
|        | 99.1   |  |  |            |  | Statement of Chief Executive Officer of
    Registrant Pursuant to 18 U.S.C. § 1350                                                                                                                                                                                                             
|        | 99.2   |  |  |            |  | Statement of Chief Financial Officer of
    Registrant Pursuant to 18 U.S.C. § 1350                                                                                                                                                                                                             



---



|  |                                                                                                                                                                                                                                                                                                                        
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | Agreement relates to executive compensation.
    Synetic, Inc., a party to certain of these agreements, changed
    its name to Medical Manager Corporation in 1999 upon acquisition
    of the corporation now known as Medical Manager Health Systems,
    Inc., which was then known as Medical Manager Corporation.

E-4