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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM ____________________________ TO
____________________________
COMMISSION FILE NUMBER 0-9900
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HBO & COMPANY
(Exact name of registrant as specified in its charter)
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DELAWARE 37-0986839
(State or other jurisdiction (I.R.S. Employer
of
incorporation or organization) Identification No.)
301 PERIMETER CENTER NORTH
ATLANTA, GEORGIA 30346
(Address of principal (Zip Code)
executive office)
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Registrant's telephone number, including area code: (404) 393-6000
--------------------------
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.05 PAR VALUE
(Title of 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 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes_X_ No ____
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 the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K, or any
amendment to this Form 10-K. ____
Aggregate market value of the voting stock held by nonaffiliates of the
registrant, computed using the closing price as reported by The Nasdaq Stock
Market's National Market for the Company's common stock on February 28, 1995:
$1,230,211,752.
Indicate the number of shares outstanding of the registrant's common stock
as of the latest practicable date:
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OUTSTANDING AT
CLASS FEBRUARY 28, 1995
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Common Stock, $.05 par value 31,953,552
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Stockholders for the year ended December
31, 1994, are incorporated by reference into Parts I, II and IV of this Form
10-K.
Portions of the definitive Proxy Statement for the Annual Meeting of
Stockholders to be held on May 9, 1995, are incorporated by reference into Part
III of this Form 10-K.
All prior period amounts have been restated to reflect the acquisition of
Serving Software, Inc.
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PART I
ITEM 1: BUSINESS
GENERAL
HBO & Company (the Company or HBOC), a Delaware corporation incorporated in
1974, is a healthcare information solutions company that provides a
comprehensive range of computer-based information systems and services to
healthcare enterprises - hospitals, integrated delivery networks and managed
care organizations. The Company designs, sells and services information systems
for a variety of applications within healthcare organizations. It also sells,
installs and services local, metropolitan and wide area networks (LANs, MANs and
WANs) and provides a range of value-added services through network
communications technology. In addition, HBOC provides outsourcing services under
contract management agreements whereby it staffs, manages and operates data
centers, information systems organizations and even business offices of
healthcare institutions of all sizes and structures.
The Company's primary market for its products and services consists of
approximately 3,000 acute-care hospitals (and affiliated organizations) in the
above-100 bed range in the United States. Through hospital affiliates, HBOC is
marketing new products to the total healthcare enterprise including ambulatory
care, physician offices and managed care providers. Through its subsidiary HBO &
Company Canada Ltd., HBOC provides products and services in Canada, where there
are approximately 500 hospitals having 100 or more beds. Through its subsidiary
HBO & Company (UK) Limited, the Company services the United Kingdom, where there
are approximately 300 hospitals having 100 or more beds. Experts estimate that
in 1994 the industry spent more than $4 billion in the United States and more
than $.5 billion in Canada and the United Kingdom on information systems,
services and computer hardware. HBOC products are sold in other parts of the
world through agreements with third parties.
HBOC's products and services are offered through a companywide sales
organization and business units that have responsibility for research and
development and customer services. These business units include Pathways 2000,
STAR, Series 3000/4000, HealthQuest/Series 5000, Outsourcing Services Group,
Connect Technology Group, Amherst Product Group, Serving Software Group and, as
of February 1995, Advanced Laboratory Group.
In June 1994, HBOC acquired IBAX Healthcare Systems (IBAX), a partnership of
subsidiaries of Baxter Healthcare Corporation (Baxter) and International
Business Machines Corporation (IBM). With this acquisition, HBOC added the
Series 3000, 4000 and 5000 lines of "core" hospital transaction systems. Series
3000 and 4000 run on IBM AS/400 hardware, and the Series 5000 line runs on IBM
mainframe equipment.
The Serving Software Group was formed with the September 1994 acquisition of
Serving Software, Inc., a Minneapolis-based provider of resource scheduling and
management software. Serving Software's newest product, which is
client/server-based, has become a member of HBOC's Pathways 2000 family of
enterprisewide information systems solutions.
In December 1994, HBOC acquired Care 2000, Inc., a small Atlanta-based firm
specializing in case management methodologies.
Subsequent to year-end 1994 and prior to the filing of this form 10-K, HBOC
acquired Advanced Laboratory Systems, Inc., a Eugene, Oregon-based developer of
laboratory software for the healthcare and commercial marketplace.
HBOC's RISC/UNIX-based STAR family of products and the Series 3000 and 4000
products serve organizations ranging in size from 100-bed institutions to those
with multiple facilities that generally prefer to keep in-house data processing
staff to a minimum. Customers of IBM mainframe-based
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HealthQuest and Series 5000 software and services are primarily large, complex
healthcare organizations with in-house data processing departments staffed with
their own systems professionals. In addition, throughout 1994 HBOC continued
development and rollout of its Pathways 2000 family of products, which serves
the needs of today's burgeoning healthcare alliances.
To support the connectivity needs of hospitals and their affiliates, the
Connect Technology Group (CTG) provides total network installation and support.
In addition, CTG offers comprehensive value-added network information services
that extend local and metropolitan area networks outside of the hospital to
include payers, vendors, financial institutions and Internet. All together,
HBOC's networking solutions provide customers with a complete network solution
for electronic access throughout a provider enterprise.
HBOC's Amherst Product Group (APG) provides its industry-leading decision
support products to many healthcare settings, including multifacility, corporate
and university environments. APG also offers an enterprise information system to
assist healthcare executives in critical strategic decision-making. Both APG
systems are being transitioned to an open systems, client/server-based
architecture.
The Outsourcing Services Group provides resources for formulating and
delivering complete solutions for information technology and business office
management. In June 1994, HBOC signed an agreement with Unisys Corporation that
allowed HBOC to acquire the Unisys PRN (Professional Resource Network) product
line and related Charlotte, North Carolina operations. The Charlotte office,
which is managed by the Outsourcing Services Group, provides ongoing customer
service and support for some 60 PRN customers in the United States and Canada.
HBO & Company also provides a host of software and networking products and
services to the global healthcare marketplace outside the United States. In
1994, HBOC increased its presence in the United Kingdom when it contracted with
the North East Thames Regional Health Authority to transfer the assets and
90-person staff of a full-service computer center to HBOC. The initial contract
brought in 37 outsourcing agreements.
As of December 31, 1994, the Company and its subsidiaries had 2,383
employees.
TECHNOLOGY STRATEGY
HBO & Company's product technology strategy reflects the needs of
community-based health networks that are emerging as a result of the healthcare
reform movement. In particular, these networks will require information systems
that are highly flexible and quickly adaptable and that can serve the
information access needs of a broad range of users.
The Company's strategy also builds on the direction proposed in the 1992
report from the Institute of Medicine (IOM) for developing the computer-based
patient record. This strategy, which consists of the following six major
components, guides HBOC's product development direction.
Foundation Products -- Many of HBO & Company's products are portable to a
variety of hardware platforms to protect a healthcare organization's hardware
investments and enable it to benefit from price/performance advances. For
example, HBOC offers a full range of its products on RISC (Reduced Instruction
Set Computing) hardware using the UNIX operating system, which has very
attractive price/performance characteristics.
Workstations -- Workstation technology, via PCs, provides enhanced
productivity and appeal for system users by giving them access to graphics,
image processing, voice processing, multiple technologies and sophisticated user
interfaces.
Specialized Processors -- Specialized processors, utilizing client/server
technology, provide organizations with improved processing and storage for large
volumes of data and specific applications, including imaging and document
processing.
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Networks -- LANs, MANs and WANs provide faster and more effective pathways
to distribute the wider variety of data, images and recorded voice needed by
image processing and client/server applications.
Technology Standards -- HBO & Company products can be interconnected with
other vendors' products through the use of industry-accepted standards for
hardware connectivity and communications protocols, including Health Level Seven
(HL7). These standards speed the healthcare organization's assimilation of new
technologies and advanced third-party products, while insulating the Company's
products from obsolescence.
Software Engineering -- HBOC's product developers use state-of-the-art
application development tools, such as program generators, artificial
intelligence and expert systems, which decrease development time and lower the
cost of new products.
PRODUCT PORTFOLIO
HBO & Company's offering of products and services is based on a strategic
mix of applications and technologies that support today's dramatic restructuring
of the healthcare delivery system, backed by implementation, support and
outsourcing services. This "portfolio" of products is organized into three
areas: infrastructure, enterprise management and improved clinical practice, as
reflected in the following table.
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Product Portfolio
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INFRASTRUCTURE
-Pathways Interface Manager
-Pathways Health Network Server
-Pathways Health Network Management
-Network technologies and services
ENTERPRISE MANAGEMENT
-Pathways Healthcare Scheduling
-Pathways Managed Care
-Pathways Contract Management
-QUANTUM enterprise information system
IMPROVED CLINICAL PRACTICE
-STAR hospital information systems
-Series hospital information systems
-HealthQuest hospital information systems
-TRENDSTAR decision support
-Pathways Care Manager
-Pathways Clinical Workstation
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In addition to the above applications, HBO & Company offers software
manufactured by a host of industry-leading business partners. Among these is
Software Technologies Corporation (STC) of Arcadia, California, which had been
an IBAX Healthcare Systems partner. Under the terms of a new partnership
agreement entered into in the third quarter of 1994, HBOC is licensing STC's
Datagate interface engine for use in its Pathways Interface Manager product.
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Just after the close of the third quarter, HBOC announced the formation of a
strategic alliance with Scientific Data Management, Inc. (SDM), a Detroit-area
physician practice management company. This alliance, which gives HBOC the
exclusive right to market the SDM product to its customer and prospect base, is
a first step toward building a comprehensive ambulatory care offering.
Installation and implementation services are provided for purchasers of all
HBOC software products to assist with the smooth introduction of or transition
to those products. HBOC also provides software maintenance and enhancement
services, as well as custom programming and system modifications to meet special
client requirements. Equipment maintenance services are provided through HBOC's
various hardware partners.
As of December 31, 1994, the Company had 590 active users of patient care
systems, 600 active users of clinical/departmental systems, 837 active users of
financial systems, 639 active users of decision support systems and 55 active
users of enterprise information systems. In addition, as of December 31, 1994,
HBOC had 129 LAN, MAN and WAN customers.
INFRASTRUCTURE
HBOC's wide array of networking and database applications provides the key
elements for integrating and uniting providers across the continuum of care. In
bringing the enterprise together, these solutions establish the basis for a
lifelong patient record.
PATHWAYS INTERFACE MANAGER
Pathways Interface Manager, which is offered with Pathways Health Network
Server or as a separate product, reduces the burden of maintaining the large
number of interfaces needed to consolidate disparate organizational systems.
Pathways Interface Manager provides a mechanism that converts data from one
application to a format that is readable by many other applications. It also
manages and consolidates traffic on the network and maintains a repository of
information about network transactions and performance.
PATHWAYS HEALTH NETWORK SERVER
HBO & Company's Pathways Health Network Server (HNS) is a relational
database that functions as a central repository for patient transactions by
integrating diverse clinical, financial and administrative data elements into
meaningful and accessible information on patient episodes. Other Company
products, such as Pathways Clinical Workstation, Pathways Health Network
Management and Pathways Managed Care, build on top of HNS to provide business
functionality that spans the healthcare enterprise.
PATHWAYS HEALTH NETWORK MANAGEMENT
The Pathways Health Network Management system supports the current trend
toward health delivery networks. These networks encompass all providers of
healthcare and wellness services, as well as an enrolled population that may or
may not actually be patients. The product is a common, enterprisewide (and
potentially communitywide) patient/customer/enrollee management system that
allows organizations to collect and disseminate information about individuals to
and from diverse providers over time.
NETWORK TECHNOLOGIES AND SERVICES
The Connect Technology Group offers full design, installation, consulting,
and hardware and software support capabilities for local, metropolitan and wide
area networks, as well as value-added network services. These services are
provided to a wide range of HBOC customers, from large multifacility healthcare
groups to small community hospitals. These organizations may have any number of
other Company products -- on both minicomputer and mainframe platforms -- or
none at all.
LANs, MANs and WANs provide connectivity from terminals and PCs to multiple
host processors and shared resources. LANs and MANs are data communications
networks spanning a limited geographical area, while WANs may span several
cities, states or even countries. Communication
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networking through the use of LANs, MANs and WANs assists hospitals in
maximizing existing investments in products and services while integrating new
and emerging technologies that guarantee a path for multimedia and multifacility
expansion.
HBOC's Value-Added Network (VAN) helps customers reduce networking costs,
improve customer support, and enhance productivity, end-user services and
physician access. Specific services offered through the VAN include electronic
data interchange, Internet, electronic funds transfer, payer access and
electronic customer support.
ENTERPRISE MANAGEMENT
HBOC's scheduling system, managed care solutions and QUANTUM enterprise
information system provide the critical business functionality necessary to
manage today's emerging health networks.
PATHWAYS HEALTHCARE SCHEDULING
HBOC's newest client/server-based Pathways 2000 product provides caregivers
with a tool that assists them in delivering high-quality patient care while
managing costs by optimizing resource utilization and increasing productivity.
Pathways Healthcare Scheduling is a patient-focused scheduling and resource
management system that enables caregivers to transform an assortment of
procedures into a coordinated treatment plan and then assign the appropriate
resources for just the amount of time needed to carry out that plan.
PATHWAYS MANAGED CARE
Pathways Managed Care helps organizations manage the variety of contractual
arrangements that exist among providers, payers and patients. It also assists in
performing related business activities such as tracking membership and
processing encounters, in performing such clinical managed care activities as
utilization management, and in managing benefit plans and the business
activities that support benefits services such as premium billing and claims
adjudication. These applications are designed to meet the information needs of a
full range of managed care players -- providers, insurers, government agencies,
employers, administrators, Health Maintenance Organizations and the like --and
can be combined or changed to create "new" functionality that quickly delivers
solutions to changing business needs.
PATHWAYS CONTRACT MANAGEMENT
For some organizations, the first step toward managing care is managing the
many and varied contracts they hold with payers. Pathways Contract Management
offers a focused range of applications that monitor and manage multiple varied
contracts for providers with significant managed care volumes. The product is
interfaced to HBOC's patient accounting systems and the TRENDSTAR decision
support system to provide a functionally rich set of contract management tools.
QUANTUM
HBOC's Amherst Product Group also offers the QUANTUM enterprise information
system for both the minicomputer and mainframe markets. QUANTUM presents data
collected from transaction and decision support systems in graphical formats and
at a level of detail required to assist executives in their critical
decision-making. The system offers a broad, encompassing view of the healthcare
enterprise, one that spans organizational and system boundaries.
IMPROVED CLINICAL PRACTICE
HBO & Company's hospital-based "core" transaction and decision support
systems, along with its new client/server, clinician-focused tools, help
streamline care to elevate the health status of patients over the continuum of
care.
STAR, SERIES AND HEALTHQUEST
HBOC offers its core hospital information systems on a variety of hardware
platforms. The STAR family of products operates with open systems architecture
on RISC-based hardware from Data
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General Corporation, Hewlett-Packard Company, Digital Equipment Corporation and
IBM Corporation. Series 3000 products operate on IBM AS/400 and RISC System/6000
hardware, and Series 4000 runs on the IBM AS/400. The HealthQuest and Series
5000 products are IBM mainframe-based.
Patient Care -- Patient care information systems are offered through HBOC's
STAR, HealthQuest and Series patient care applications. Using these systems,
vital patient information is entered, maintained, tracked and disseminated
throughout the healthcare institution. The systems include applications for
patient processing, patient and resource scheduling, order management and
medical records.
Clinical/Departmental -- HBOC markets departmental information systems for
laboratory, radiology and pharmacy departments. These individual application
systems may be sold separately or as a part of the comprehensive STAR or Series
product families.
Laboratory -- Laboratory applications are offered through HBOC's STAR
Laboratory system, which interconnects all areas of the hospital laboratory.
When interfaced with a patient care information system (such as STAR Patient
Care), patient data inquiry is available and redundant data entry is
eliminated. Subdepartments such as chemistry, hematology and microbiology
are offered as lab-specific modules.
Radiology -- HBOC's STAR and Series 4000 and 5000 radiology management
systems allow for the scheduling of patients, procedures and radiology
resources. Radiological results are reported back into the system and
communicated to the appropriate area. Film history, film tracking and film
indexing are also provided.
Pharmacy -- Pharmacy applications are available through STAR and all the
Series product lines. These applications provide for the administrative and
clinical needs of the hospital pharmacy by capturing information for the
filling, refilling, distribution and administration of medications.
Financial -- HBOC offers a comprehensive set of patient accounting and
general accounting applications through all its core product lines. These
integrated, flexible applications retain extensive account detail online for the
entire life of an account, accumulating data on inpatient, outpatient and
physician activity regardless of account status. In addition, the HealthQuest
Receivables Workstation is available to HealthQuest Patient Accounting customers
to enhance their collections productivity via online workfiles and to improve
the look and feel of the system by capitalizing on PC technology. HBOC is also
developing a receivables workstation in conjunction with a future release of
STAR Financials. The workstation will provide enhanced navigation, expanded
access and improved productivity.
TRENDSTAR
HBOC is the market leader in decision support information systems for
healthcare organizations. While offered on a minicomputer platform, the
TRENDSTAR decision support products provided by the Amherst Product Group are
sold into both the minicomputer and mainframe markets -- as part of the
Company's network of products or as a stand-alone system.
Traditionally, most decision support system users have been chief financial,
operations and information officers. However, there is a growing emphasis on
improving clinical processes and achieving the optimal application of medical
resources. Increasingly, managed care, medicine, nursing, quality improvement
and department managers are finding TRENDSTAR's wide range of clinical
management tools critical to optimizing the quality, appropriateness and
cost-effectiveness of patient care.
TRENDSTAR helps an organization implement programs for clinical practice
evaluation, clinical pathways development, outcomes analysis and benchmarking.
By bringing clinical and financial information together, the system provides the
means for understanding the financial impact of clinical decisions. The
TRENDSTAR family also includes the Marketing Systems Library (MSL), which helps
hospitals in market analysis and strategic planning.
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The TRENDSTAR Contract Payment Advisor product provides a tool for dealing
with a number of managed care issues through contract modeling and claims
payment monitoring capabilities.
PATHWAYS CARE MANAGER
As HBOC's single product solution for caregivers, Pathways Care Manager is
the result of a partnership with CliniCom Inc., a leading provider of clinical
information systems. Through that alliance, HBOC has integrated its patient care
products with core application software from CliniCom to provide a
multidisciplinary system for clinicians that provides comprehensive care
planning, flowsheet charting and case management functions at either the nursing
station or the point of care.
PATHWAYS CLINICAL WORKSTATION
HBOC's Pathways Clinical Workstation provides the clinical solution
necessary for managing today's emerging population-based health delivery
networks. Using HBOC's central data repository (Pathways Health Network Server),
Pathways Clinical Workstation provides the integrated clinical information
necessary for the computer-based patient record. Pathways Clinical Workstation
assimilates clinical data into meaningful information for multiple user
communities, including clinicians, healthcare managers, case managers, and
physicians and other caregivers. HBOC is developing the workstation in phases,
building toward the complete capabilities of a multimedia workstation.
INTERNATIONAL OFFERINGS
Most of the Pathways 2000, STAR and TRENDSTAR products in HBOC's product
portfolio are offered internationally, and Series 4000 products are also sold in
Canada. In addition, products added to the HBOC product line with the
acquisition of Data-Med Computer Services in December 1993 are available in the
United Kingdom. In most cases, the applications offered internationally have
been customized or developed to meet the particular needs of the country in
which they are implemented.
OUTSOURCING SERVICES GROUP
HBOC has been in the outsourcing business in the United States for more than
20 years and now offers outsourcing services in the United Kingdom as well. With
the change and uncertainty engendered by healthcare reform and the resulting
economic pressures, information systems outsourcing is becoming increasingly
popular in the United States. Outsourcing services go beyond managing hospital
data processing operations (traditionally known as facilities management) to
encompass strategic management services in information systems planning,
receivables management, business office administration and major system
conversions.
SOURCES OF REVENUE
Information regarding sources of revenue is included in the table "Revenue
from Continuing Operations by Business Unit" on page 17 of the Company's Annual
Report to Stockholders for the year ended December 31, 1994 (the Annual Report),
and under the caption "Revenue Recognition" in Note 1 of "Notes to Consolidated
Financial Statements" on page 23 of the Annual Report, a copy of which is
included as an exhibit to this Form 10-K and is incorporated herein by
reference.
BACKLOG
Information regarding backlog as of December 31, 1994, is included in the
"Financial Review" section under the caption "Results of Operations" on pages 14
and 15 of the Annual Report, a copy of which is included as an exhibit to this
Form 10-K and is incorporated herein by reference.
RESEARCH AND DEVELOPMENT
The Company's product development effort applies advanced computer
technology and installation methodologies to specific information processing
needs of hospitals. The Company believes a substantial and sustained commitment
to such research and development is important to the long-term success of the
business.
Investment in software development, including both research and development
expense as well as capitalized software, has increased as the Company has
addressed new software applications and
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enhanced existing products for installed systems. The Company expensed
$28,928,000 (9% of revenue) for research and development activities during 1994,
as compared to $23,428,000 (9% of revenue) and $20,096,000 (9% of revenue)
during 1993 and 1992. The Company capitalized 25%, 24% and 23% of its research
and development expenditures in 1994, 1993 and 1992.
Information regarding research and development is included in the table
"Research and Development Summary" on page 15 of the Annual Report, in the
"Financial Review" section under the caption "Results of Operations" on pages 14
and 15 of the Annual Report and under the caption "Capitalized Software" in Note
1 of "Notes to Consolidated Financial Statements" on pages 23 and 24 of the
Annual Report, a copy of which is included as an exhibit to this Form 10-K and
is incorporated herein by reference.
The technical concepts and codes embodied in the Company's computer programs
and program documentation are not protected by patents or copyrights but
constitute trade secrets that are proprietary to the Company. The Company and
its subsidiaries are the owners of various trademarks and service marks,
including the federally registered trademarks or service marks "MEDPRO," "IFAS,"
"CLINPRO," "MEDIPAC," "CML," "COSTREP," "TRENDSTAR," "TRENDSERVE," "TRENDPAC I,"
"BUDGET+," "CLINIPAC," "CLINSTAR," "HOSTS," "HSL," "PARAGON," "HEALTHQUEST,"
"QUANTUM," "ERS" and the triangular design that forms the Company logo, but such
registration provides limited protection as to the trademark or service mark.
COMPETITION
HBO & Company experiences substantial competition from many firms, including
other computer services firms, consulting firms, shared service vendors, certain
hospitals and hospital groups, and hardware vendors. Competition varies in size
from small to large companies, in geographical coverage, and in scope and
breadth of products and services offered.
Although some of the Company's competitors are larger than the Company, the
Company believes that few competitors offer a comparable range of healthcare
information systems and services that compare favorably with respect to all of
the competitive criteria.
ITEM 2: PROPERTIES
The Company's principal administrative and research offices are located at
301 and 303 Perimeter Center North, Atlanta, Georgia. The offices consist of
approximately 226,000 square feet of space under a lease which expires in 1999.
The rental expense for these offices totaled approximately $3,939,000 for 1994.
The Company also owns three buildings and leases space in 30 buildings
throughout the United States, Canada and the United Kingdom primarily for sales
and customer service offices. Information regarding the Company's leases is
included in Note 2 of "Notes to Consolidated Financial Statements" on page 24 of
the Annual Report, a copy of which is included as an exhibit to this Form 10-K
and is incorporated herein by reference.
Information regarding the Company's principal offices is included on the
back cover of the Annual Report, a copy of which is included as an exhibit to
this Form 10-K and is incorporated herein by reference.
ITEM 3: LEGAL PROCEEDINGS
Information regarding Legal Proceedings is included in Note 9 of "Notes to
Consolidated Financial Statements" on page 27 of the Annual Report, a copy of
which is included as an exhibit to this Form 10-K and is incorporated herein by
reference.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the quarter ended December 31, 1994, there were no matters submitted
to a vote of security holders.
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PART II
ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is traded on The Nasdaq Stock Market's National
Market under the symbol HBOC. Information regarding the high and low closing
prices, the number of holders of the Company's common stock and dividends is
presented under the caption "Common Stock Data" on page 27 of the Annual Report,
a copy of which is included as an exhibit to this Form 10-K, and is incorporated
herein by reference.
ITEM 6: SELECTED FINANCIAL DATA
The information included under the caption "Five-Year Selected Financial
Information" on page 13 of the Annual Report, a copy of which is included as an
exhibit to this Form 10-K, is incorporated herein by reference.
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information included in the "Financial Review" and "Revenue from
Continuing Operations by Business Unit" sections on pages 14 through 17 of the
Annual Report, a copy of which is included as an exhibit to this Form 10-K, is
incorporated herein by reference.
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information included on pages 18 through 27 of the Annual Report, a copy
of which is included as an exhibit to this Form 10-K, under the captions
"Condensed Consolidated Quarterly Statements of Income," "Consolidated
Statements of Income," "Consolidated Balance Sheets," "Consolidated Statements
of Stockholders' Equity," "Consolidated Statements of Cash Flows" and "Notes to
Consolidated Financial Statements" is incorporated herein by reference.
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
The Company has neither changed its independent public accountants nor had
any disagreements on accounting and financial disclosures with such accountants.
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PART III
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information regarding the executive
officers of the Company as of March 1, 1995. Additional information regarding
the Board of Directors is included in the Company's definitive Proxy Statement
for the Annual Meeting of Stockholders to be held on May 9, 1995, under the
caption "Election of Directors," which is incorporated herein by reference.
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NAME AGE POSITION WITH THE COMPANY
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Charles W. McCall 50 Director, President and Chief Executive Officer
Michael W. McCarty 46 Executive Vice President - Sales
James A. Gilbert 46 Vice President - General Counsel and Secretary
Jay P. Gilbertson 34 Vice President - Finance, Chief Financial Officer, Treasurer,
Chief Accounting Officer and Assistant Secretary
Michael L. Kappel 40 Vice President - Pathways 2000
Russell G. Overton 47 Senior Vice President - Business Development
Glenn N. Rosenkoetter 46 Senior Vice President - Amherst Product Group, Serving Software
Group, HBO & Company (UK)
David A. Schenk 44 Senior Vice President - Connect Technology Group, Outsourcing
Services Group
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Charles W. McCall has served as a Director, President and Chief Executive
Officer of the Company since 1991. Prior to joining the Company, he served as
President and Chief Executive Officer of CompuServe, Inc., a wholly owned
subsidiary of H&R Block, from 1985 to 1991. Mr. McCall is also a Director of
SYMIX Systems, Inc., EIS International, Inc., West Point Stevens Inc. and
XcelleNet, Inc.
Michael W. McCarty has served as Executive Vice President - Sales since
1992. Prior to joining the Company, Mr. McCarty served as Executive Vice
President of Sales and Marketing for Liebert Corporation from 1985 through 1992.
James A. Gilbert has served as Vice President and General Counsel since
joining the Company in 1988. He has served as Secretary since 1992.
Jay P. Gilbertson has served as Vice President - Finance, Chief Financial
Officer, Treasurer, Chief Accounting Officer and Assistant Secretary since 1993.
In 1992, Mr. Gilbertson served as Vice President - Controller and Chief
Accounting Officer. From 1988 through 1991, he served in a financial management
capacity at Medical Systems Support, Inc., HBOC's hardware maintenance
subsidiary sold in 1991.
Michael L. Kappel has served as Vice President - Pathways 2000 since 1994.
During 1993 and 1994, he served as Vice President - Research and Development.
From 1991 through 1993, Mr. Kappel served as Vice President - Product Planning
and Development. From 1989 through 1991, he served as Executive Director -
Research and Technology for the Company.
Russell G. Overton has served as Senior Vice President - Business
Development since 1992. From 1989 through 1991, he served as Vice President -
Business Development for HealthQuest Ltd. (a wholly owned subsidiary of HBO &
Company).
Glenn N. Rosenkoetter has served as Senior Vice President since 1992. Mr.
Rosenkoetter is responsible for the Amherst Product Group, Serving Software
Group and HBO & Company (UK) operations. During 1991 and 1992, Mr. Rosenkoetter
served as Senior Vice President - Marketing and Business Development for HBO &
Company of Georgia (a wholly owned subsidiary of HBO & Company). Prior to 1991,
he served as Vice President - National Sales for HBO & Company of Georgia.
10
<PAGE>
David A. Schenk has served as Senior Vice President - Connect Technology
Group and Outsourcing Services Group since 1994. From 1990 to 1994, he served as
Vice President of the Connect Technology Group.
ITEM 11: EXECUTIVE COMPENSATION
The Company's definitive Proxy Statement for the Annual Meeting of
Stockholders to be held on May 9, 1995, contains under the captions
"Compensation of Directors," "Executive Compensation," and "Approval of the HBO
& Company Chief Executive Officer Incentive Plan," information relating to
executive compensation for the year ended December 31, 1994, all of which are
incorporated herein by reference.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The Company's definitive Proxy Statement for the Annual Meeting of
Stockholders to be held on May 9, 1995, contains under the caption "Security
Ownership of Certain Beneficial Owners and Management" information relating to
security ownership of beneficial owners and management, which is incorporated
herein by reference.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information contained in the Company's definitive Proxy Statement for
the Annual Meeting of Stockholders to be held on May 9, 1995, under the caption
"Certain Relationships and Related Transactions" is incorporated herein by
reference.
11
<PAGE>
PART IV
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
The following documents are filed as part of this report:
(a) 1. Financial Statements
The Annual Report contains the following information on pages 18 through 27:
"Condensed Consolidated Quarterly Statements of Income," "Consolidated
Statements of Income," "Consolidated Balance Sheets," "Consolidated Statements
of Stockholders' Equity," "Consolidated Statements of Cash Flows" and "Notes to
Consolidated Financial Statements." The report of Arthur Andersen LLP on these
financial statements is on page 28 of the Annual Report. These financial
statements and the report of Arthur Andersen LLP are incorporated herein by
reference.
(a) 2. Financial Statement Schedules
Schedules not listed have been omitted because they are not applicable or
the required information is included in the consolidated financial statements or
notes thereto.
(a) 3. Exhibits
The following exhibits filed with the Securities and Exchange Commission are
incorporated by reference as shown below. Items marked with an asterisk, "*,"
relate to management contracts or compensatory plans or arrangements.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- ------------------------------------------------------------------------------------------
<C> <S>
ON MAY 13, 1981, AS PART OF ITS REGISTRATION STATEMENT ON FORM S-1 (REGISTRATION NUMBER
2-72275):
4(a) -- Specimen forms of certificates for Common Stock of Registrant.
10(e) -- Standard Form of EPLA Agreement.
ON JANUARY 22, 1985, AS PART OF ITS FORM S-14 (REGISTRATION NUMBER 2-95208):
3(a) -- Certificate of Incorporation of Registrant.
ON MARCH 21, 1989, AS PART OF ITS FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1988:
10(a) -- Standard Form of Software License Agreement.
10(b) -- Standard Form of Hardware Purchase Agreement.
ON OCTOBER 24, 1990, AS PART OF ITS FORM S-8 (REGISTRATION NUMBER 33-37410):
*4 -- HBO & Company 1990 Executive Incentive Plan.
ON JANUARY 10, 1991, AS PART OF ITS FORM S-8 (REGISTRATION NUMBER 33-31911):
*4 -- HBO & Company 1983 Employee Discount Stock Purchase Plan, as amended.
ON FEBRUARY 15, 1991, AS PART OF ITS FORM S-8 (REGISTRATION NUMBER 2-75987):
*4 -- HBO & Company 1981 Incentive Stock Option Plan, as amended.
ON FEBRUARY 22, 1991, AS PART OF ITS FORM 8-K:
*4 -- HBO & Company Rights Agreement.
ON MARCH 26, 1991, AS PART OF ITS FORM S-8 (REGISTRATION NUMBER 2-92030):
*4 -- HBO & Company Nonqualified Stock Option Plan, as amended.
ON MARCH 27, 1991, AS PART OF ITS FORM S-8 (REGISTRATION NUMBER 33-12051):
*4 -- HBO & Company 1986 Employee Nonqualified Stock Option Plan, as amended.
ON MARCH 27, 1991, AS PART OF ITS FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1990:
3(a) -- Amendments to the Certificate of Incorporation of Registrant.
10(c) -- Standard Form of HealthQuest Ltd. Software License and Maintenance Agreement.
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- ------------------------------------------------------------------------------------------
ON MARCH 27, 1992, AS PART OF ITS FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1991:
<C> <S>
10(a) -- Standard Form of Credit Agreement with recourse between the Company and Sanwa Business
Credit Corporation.
10(b) -- Standard Form of Credit Agreement without recourse between the Company and Sanwa
Business Credit Corporation.
10(c) -- Asset Purchase Agreement between HBO & Company of Georgia and Data General Corporation,
dated as of October 4, 1991.
ON MARCH 26, 1993, AS PART OF ITS FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1992:
*4 -- HBO & Company Key Employee Supplemental Retirement Plan.
10(d) -- Standard Form of Credit Agreement without recourse between the Company and The First
National Bank of Boston.
*10(e) -- Summary of Severance Agreement with Michael W. McCarty.
ON AUGUST 12, 1993, AS PART OF ITS FORM S-8 (REGISTRATION NUMBER 33-67300):
*4 -- HBO & Company 1993 Stock Option Plan for Nonemployee Directors.
ON AUGUST 13, 1993, AS PART OF ITS FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1993:
10(a) -- Acquisition Agreement, dated June 28, 1993, of Biven Software, Inc.
ON MARCH 23, 1994, AS PART OF ITS FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1993:
*4(a) -- Amendment to the HBO & Company 1990 Executive Incentive Plan.
*4(b) -- Amendment to the HBO & Company 1983 Employee Discount Stock Purchase Plan.
*4(c) -- HBO & Company Profit Sharing and Savings Plan (1993 Restatement).
*4(d) -- First Amendment to the HBO & Company Profit Sharing and Savings Plan (1993
Restatement).
10(a) -- Grid Note between the Company and Continental Bank N.A., dated June 25, 1993.
10(b) -- Acquisition of Data-Med Computer Services Limited - Sale and Purchase Agreement, dated
December 16, 1993.
10(e) -- Co-ownership agreement between HTG Corp. and the Company of Falcon 20 airplane, dated
July 15, 1993.
10(f) -- Promissory note from HTG Corp. and the Company to General Electric Capital Corporation.
10(g) -- Letter agreement between HTG Corp. and the Company regarding the Loan from General
Electric Capital Corporation, dated December 16, 1993.
ON MAY 6, 1994, AS PART OF ITS FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1994:
10(a) -- Termination of the Amended and Restated Revolving Credit Agreement with Continental
Bank N. A., effective April 20, 1994.
10(b) -- Letter agreement from Bank of Boston regarding the Revolving and Term Loan Facility,
dated April 19, 1994.
ON JUNE 14, 1994, AS PART OF ITS FORM 8-K DATED JUNE 13, 1994, AS AMENDED BY FORM 8-KA DATED
JUNE 30, 1994, AND FILED WITH THE COMMISSION ON JULY 1, 1994:
2 -- Asset Purchase Agreement among IBAX Healthcare Systems, Baxter Healthcare Corporation,
International Business Machines Corporation, Baxter Systems, Inc., HCPG Corporation,
HBO & Company and HBO & Company of Georgia, dated May 31, 1994.
ON JULY 20, 1994, AS PART OF ITS FORM S-4 REGISTRATION STATEMENT DATED JULY 19, 1994, AS AMENDED
BY AMENDMENT NO. 1 TO FORM S-4 DATED AUGUST 10, 1994, AND FILED WITH THE COMMISSION ON AUGUST 11,
1994, AND FURTHER AMENDED BY AMENDMENT NO. 2 TO FORM S-4 DATED AUGUST 10, 1994, AND FILED WITH THE
COMMISSION AUGUST 11, 1994:
2 -- Agreement of Merger dated June 30, 1994, by and among HBO & Company, HBO & Company of
Georgia and Serving Software, Inc.
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- ------------------------------------------------------------------------------------------
3 -- Amended Bylaws of Registrant.
<C> <S>
10(a) -- Receivables Purchase Agreement, dated as of June 24, 1994, among HBO & Company of
Georgia, as seller, and The First National Bank of Boston and NationsBank of Georgia,
N.A., as purchasers, and The First National Bank of Boston, as agent.
10(b) -- Credit Agreement, dated June 13, 1994, between the Company and Wachovia Bank of
Georgia, N.A.
10(c) -- Note payable to Baxter Healthcare Corporation, dated May 31, 1994.
10(d) -- Note payable to International Business Machines Corporation, dated May 31, 1994.
10(e) -- Amended and Restated Revolving Credit and Term Loan Agreement, dated as of May 27,
1994, among HBO & Company and HBO & Company of Georgia and The First National Bank of
Boston and NationsBank of Georgia, N.A. and The First National Bank of Boston, as
agent.
10(f) -- First Amendment to the May 27, 1994, Amended and Restated Revolving Credit and Term
Loan Agreement and First Amendment to Revolving Credit Notes, dated as of June 30,
1994.
*10(g) -- Letter Agreement between John E. Haugo, Ph.D. and HBO & Company, dated June 29, 1994,
re: employment.
ON AUGUST 11, 1994, AS PART OF ITS FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1994:
10 -- Second Amendment to the May 27, 1994, Amended and Restated Revolving Credit and Term
Loan Agreement by and among HBO & Company, HBO & Company of Georgia, The First National
Bank of Boston, NationsBank of Georgia, N.A. and other lending institutions, dated as
of June 30, 1994.
ON NOVEMBER 10, 1994, AS PART OF ITS FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1994:
10(a) -- First Amendment to the Receivables Purchase Agreement by and among HBO & Company of
Georgia, the First National Bank of Boston, NationsBank of Georgia, N.A. and other
financial institutions, dated September 30, 1994.
10(b) -- Third Amendment to the May 27, 1994, Amended and Restated Revolving Credit and Term
Loan Agreement by and among HBO & Company, HBO & Company of Georgia, The First National
Bank of Boston, NationsBank of Georgia, N.A. and other lending institutions, dated
August 31, 1994.
THE FOLLOWING EXHIBITS ARE INCLUDED IN THIS FORM 10-K:
*4 -- Chief Executive Officer Incentive Plan.
11 -- Computation of Earnings Per Share of Common Stock for the Years Ended December 31,
1994, 1993 and 1992.
13 -- Annual Report to Stockholders for the year ended December 31, 1994.
21 -- Subsidiaries of Registrant.
23 -- Consent of Arthur Andersen LLP.
(b) Reports on Form 8-K during the quarter ended December 31, 1994, or subsequent to that date
but prior to the filing date of this Form 10-K:
FORM 8-K DATED NOVEMBER 11, 1994:
-- Reporting under Item 5 that the Company declared a regular quarterly cash dividend of
$.04 per share payable on January 20, 1995, to stockholders of record on December 30,
1994.
FORM 8-K DATED FEBRUARY 24, 1995:
-- Reporting under Item 5 that the Company announced the acquisition of Advanced
Laboratory Systems, Inc., a privately held developer of laboratory software for the
healthcare and commercial marketplace.
</TABLE>
14
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
HBO & COMPANY
By: /s/ CHARLES W. MCCALL
--------------------------------------
Charles W. McCall
PRESIDENT AND
CHIEF EXECUTIVE OFFICER
Date: March 16, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------------------ ------------------------------------- ------------------
<C> <S> <C>
/s/ CHARLES W. MCCALL
------------------------------------------- Director, President and March 16, 1995
(Charles W. McCall) Chief Executive Officer
Vice President-Finance, Chief
/s/ JAY P. GILBERTSON Financial Officer, Treasurer, Chief
------------------------------------------- Accounting Officer and Assistant March 16, 1995
(Jay P. Gilbertson) Secretary
/s/ HOLCOMBE T. GREEN, JR.
------------------------------------------- Chairman of the Board March 16, 1995
(Holcombe T. Green, Jr.) of Directors
/s/ JOHN P. CRECINE
------------------------------------------- Director March 16, 1995
(John P. Crecine)
/s/ ALFRED C. ECKERT III
------------------------------------------- Director March 16, 1995
(Alfred C. Eckert III)
/s/ ALTON F. IRBY III
------------------------------------------- Director March 16, 1995
(Alton F. Irby III)
/s/ GERALD E. MAYO
------------------------------------------- Director March 16, 1995
(Gerald E. Mayo)
/s/ JAMES V. NAPIER
------------------------------------------- Director March 16, 1995
(James V. Napier)
/s/ CHARLES E. THOELE
------------------------------------------- Director March 16, 1995
(Charles E. Thoele)
/s/ DONALD C. WEGMILLER
------------------------------------------- Director March 16, 1995
(Donald C. Wegmiller)
</TABLE>
15
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- ------- ------------------------------------------------------------------------------------------ -----------
<C> <S> <C>
*4 -- Chief Executive Officer Incentive Plan.................................................
11 -- Computation of Earnings Per Share of Common Stock for the Years Ended December 31,
1994, 1993 and 1992....................................................................
13 -- Annual Report to Stockholders for the year ended December 31, 1994.....................
21 -- Subsidiaries of Registrant.............................................................
23 -- Consent of Arthur Andersen LLP.........................................................
</TABLE>
<PAGE>
EXHIBIT 4
HBO & COMPANY
CHIEF EXECUTIVE OFFICER INCENTIVE PLAN
1. PURPOSE. The purpose of the Chief Executive Officer Incentive Plan
("Plan") of HBO & Company (the "Company") is to promote the long-term success of
the Company by providing its chief executive officer with incentives and rewards
for superior performance. The Plan is intended to provide performance-based
compensation as defined in Section 162(m) of the Internal Revenue Code of 1986,
as amended (the "Code").
2. EFFECTIVE DATE. Subject to its approval by the stockholders, this Plan
shall become effective January 1, 1995, and shall remain effective through
calendar year 1999, subject to any further stockholder approvals (or
reapprovals) mandated for performance-based compensation under Section 162(m) of
the Code, or any successor provision, and subject to the right of the Board of
Directors ("Board") of the Company to terminate the Plan, on a prospective basis
only, at any time.
3. ELIGIBILITY. Participation in the Plan is limited to the Chief
Executive Officer of the Company, who shall hereinafter be referred to as
"Participant".
4. BONUS AMOUNT.
4.1 At the beginning of each calendar year (and no later than March 30), the
Committee (as defined in Section 10) shall meet in order to establish a table
specifying the bonus amount payable under discrete points of achievement in the
Company's earnings per share for such year (hereinafter this table shall be
referred to as the "Earnings Per Share Bonus Table"). Earnings per share shall
mean the fully diluted earnings per share for the calendar year determined in
accordance with generally accepted accounting principles as reported in the
Company's annual report.
4.2 As soon as practicable after the end of each calendar year, the
Committee shall meet to review, approve and certify the earnings per share
results for the year and to determine and certify the bonus amount payable to
the Participant under the Earnings Per Share Bonus Table.
4.3 Notwithstanding any other provision of the Plan to the contrary, in no
event shall the bonus amount payable to a Participant for a year exceed
$1,500,000.
5. PAYMENT OF BONUS. Except in the event that Section 6 or Section 7
applies, a Participant's bonus shall be paid in cash within 30 days after
written certification by the Committee of the bonus amount payable to the
Participant.
6. TERMINATION OF EMPLOYMENT.
6.1 In the event a Participant's employment is terminated due to death,
retirement or permanent disability, the Participant shall receive a reduced
bonus amount to reflect participation prior to such event. This reduced bonus
amount shall be determined by multiplying the bonus amount determined under the
Earnings Per Share Bonus Table for such year by a fraction: the numerator of
which is the number of days that the Participant was employed by the Company for
such year and the denominator of which is 365. The bonus amount thus determined
shall be payable in the same manner as provided for in Section 5.
6.2 In the event a Participant's employment is terminated for reasons other
than death, retirement or permanent disability, all rights to any bonus amount
shall be forfeited.
7. CHANGE IN CONTROL.
7.1 In the event of a Change in Control (as defined in the Nonqualified
Stock Option Agreement between the Company and the Participant dated January 27,
1991), the Participant shall be entitled to the amount determined under Section
7.2 below, provided that the Participant is employed by the Company on the date
of the Change in Control. Such payment shall be made no later than 30 days after
the effective date of the Change in Control and shall be payment in full of all
obligations of the Company under the Plan for such year.
<PAGE>
7.2 The amount of the payment to be made as a consequence of a Change in
Control shall be the maximum bonus amount payable under the Earnings Per Share
Bonus Table for such year multiplied by a fraction: the numerator of which is
the number of days in the calendar year prior to the Change in Control and the
denominator of which is 365.
8. BENEFICIARIES AND TRANSFERABILITY. A Participant shall have the right
to designate in writing a beneficiary or beneficiaries to receive such
Participant's rights under the Plan upon the Participant's death or to change a
prior beneficiary designation without the consent of the prior beneficiary or
beneficiaries. The rights of a Participant under this Plan shall be
nontransferable and nonassessable.
9. TAX WITHHOLDING. The Company shall have the right to deduct or withhold
amounts sufficient to satisfy federal, state and local taxes required by law to
be withheld with respect to any bonus.
10. ADMINISTRATION OF THE PLAN. The Plan shall be administered by a
committee approved by the Board (the "Committee"). The Stock Option and
Compensation Committee of the Board shall be the Committee for so long as its
membership shall consist solely of two or more outside directors, as defined
under Section 162(m) of the Code and the underlying regulations, each of whom
shall be appointed by the Board. If the membership of the Stock Option and
Compensation Committee at any time does not meet such requirements, the Board
shall promptly form a separate committee to administer the Plan that does comply
with the requirements of Section 162(m) of the Code. The Committee shall
administer, interpret and amend the Plan provisions in compliance with the
intent of the Plan and any applicable laws, regulations and other governmental
authority. To the extent any amendment to the Plan would require stockholder
approval in order for compensation paid pursuant to the Plan to continue to
qualify as "performance-based" compensation under Section 162(m) of the Code,
such amendment shall not be effective until stockholder approval is received.
<PAGE>
EXHIBIT 11
HBO & COMPANY AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE OF COMMON STOCK
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(000 OMITTED EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
Weighted Average Number of Common Shares Outstanding........................... 31,473 30,906 30,716
Add -- Shares of common stock assumed
issued upon exercise of stock options using the "treasury stock" method as
it applies to the computation of primary earnings per share................. 1,500 1,504 1,130
--------- --------- ---------
Number of Common and Common Equivalent Shares Outstanding...................... 32,973 32,410 31,846
Add -- Additional shares of common stock assumed
issued upon exercise of stock options using the "treasury stock" method as
it applies to the computation of fully diluted earnings per share........... 133 308 450
--------- --------- ---------
Number of Common and Common Equivalent Shares Outstanding Assuming Full
Dilution...................................................................... 33,106 32,718 32,296
--------- --------- ---------
--------- --------- ---------
Net Earnings for Primary and Fully Diluted Earnings Per Share.................. $ 28,159 $ 18,819 $ 13,758
--------- --------- ---------
--------- --------- ---------
Earnings Per Share:
Primary...................................................................... $.85 $.58 $.43
--- --- ---
--- --- ---
Fully Diluted................................................................ $.85 $.58 $.43
--- --- ---
--- --- ---
</TABLE>
<PAGE>
TABLE OF CONTENTS
Company Profile 1
- ---------------------------------------------------------
Product Portfolio 2
- ---------------------------------------------------------
Financial Highlights and
1994 Organizational Highlights 3
- ---------------------------------------------------------
The Many Faces of Commitment
(Letter to Stockholders) 4
- ---------------------------------------------------------
Commitment to Technology 6
- ---------------------------------------------------------
Commitment to Service 8
- ---------------------------------------------------------
Commitment to the Future 10
- ---------------------------------------------------------
Financial Report 12
- ---------------------------------------------------------
Stockholder Information 28
- ---------------------------------------------------------
Board of Directors and
Corporate Officers IBC
- ---------------------------------------------------------
HBO & Company Offices Back
- ---------------------------------------------------------
<PAGE>
COMPANY PROFILE
HBO & COMPANY (HBOC) IS A HEALTHCARE INFORMATION SOLUTIONS COMPANY THAT
PROVIDES INFORMATION SYSTEMS AND TECHNOLOGY FOR THE HEALTH ENTERPRISE --
HOSPITALS, INTEGRATED DELIVERY NETWORKS AND MANAGED CARE ORGANIZATIONS. THE
COMPANY OFFERS PRODUCTS AND SERVICES TO MEET VIRTUALLY EVERY NEED THE ENTERPRISE
HAS FOR INFORMATION, WHETHER PATIENT CARE, CLINICAL, FINANCIAL OR STRATEGIC
MANAGEMENT.
HBOC serves healthcare organizations of almost every size, from 100-bed
community hospitals to multifacility health systems. The Company's primary
markets are the United States, Canada and United Kingdom. Through licensing and
marketing agreements with other firms, some HBOC products are also available in
other parts of the world, including Australia, New Zealand and the Middle East.
The Company's offerings are based on a strategic mix of applications,
technologies and services that support today's dramatic restructuring of the
healthcare delivery system. This product/service mix meets the needs of
healthcare organizations in three key areas: building an information
infrastructure, improving clinical practice and managing the enterprise.
HBOC's comprehensive local, metropolitan and wide area network services and its
client/server-based Pathways 2000-TM- family of applications provide the key
elements for integrating and uniting providers across the continuum of care and
establish the infrastructure necessary for a lifelong patient record. Its
hospital-based STAR, Series and HealthQuest[REGISTERED TRADEMARK] transaction
systems and TRENDSTAR[REGISTERED TRADEMARK] decision support system --
along with the clinician-focused Pathways 2000 products -- help improve the
delivery of health services to the entire community. The Pathways 2000 resource
scheduling and managed care solutions and QUANTUM[REGISTERED TRADEMARK]
enterprise information system support the critical business functions necessary
to manage today's emerging health networks. In addition, agreements and
alliances with business partners allow HBOC to offer a broad variety of
complementary applications and technology, such as a physician practice
management system.
Wrapped around these offerings is a full set of services that includes planning,
implementation and support, plus education and training. HBOC also offers a
range of outsourcing services that includes strategic information systems
planning, data center operations, receivables management, business office
administration and major system conversions.
1
<PAGE>
PRODUCT PORTFOLIO
INFRASTRUCTURE
- ------------------------------
INTEGRATING AND UNITING PROVIDERS ACROSS THE CONTINUUM OF CARE
Pathways Interface Manager
Pathways Health Network Server
Pathways Health Network Management
Network technologies and services
IMPROVED CLINICAL PRACTICE
- ------------------------------
STREAMLINING CARE TO ELEVATE PATIENT AND HEALTH STATUS
STAR hospital information systems
Series hospital information systems
HealthQuest hospital information systems
TRENDSTAR decision support
Pathways Care Manager
Pathways Clinical Workstation
ENTERPRISE MANAGEMENT
- ------------------------------
CRITICAL BUSINESS FUNCTIONALITY FOR EMERGING HEALTH NETWORKS
Pathways Healthcare Scheduling
Pathways Managed Care
Pathways Contract Management
QUANTUM enterprise information system
2
<PAGE>
Financial Highlights
FROM CONTINUING OPERATIONS
(000 Omitted Except for Per Share Data and Employees)
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Revenue $ 327,201 $ 250,791 $ 214,954 $ 177,775 $ 179,704
Operating Income(Loss) $ 48,020 $ 32,166 $ 21,573 $ (2,496) $ 12,138
Net Income (Loss) $ 28,159 $ 18,819 $ 13,758 $ (2,447) $ 8,194
Fully Diluted Earnings (Loss) Per Share $ .85 $ .58 $ .43 $ (.08) $ .27
Total Assets $ 233,877 $ 131,157 $ 113,842 $ 108,285 $ 127,758
Long-Term Debt and Other Liabilities $ 1,397 -- -- $ 20,010 $ 37,457
Stockholders' Equity $ 91,475 $ 57,575 $ 47,727 $ 24,692 $ 28,339
Employees at Year-End 2,383 2,043 1,865 1,691 1,817
Revenue Per Average Number of Employees $ 148 $ 128 $ 121 $ 101 $ 105
----------
----------
</TABLE>
All prior period amounts have been restated to reflect the acquisition of
Serving Software, Inc.
1994 Organizational Highlights
- - Acquired IBAX Healthcare Systems, a supplier of hospital transaction
systems that run on the IBM AS/400 and mainframe platforms.
- - Acquired Serving Software, Inc., a leading developer of scheduling and
resource management systems.
- - Acquired Care 2000, Inc., a developer of enterprisewide case management
methodologies.
- - Transferred assets and 90-person staff of North East Thames Regional Health
Authority to HBOC's United Kingdom operations.
- - Assumed ownership of Unisys Corporation's PRN (Professional Resource
Network) product line and related Charlotte, N.C., data center operations.
- - Entered alliance with Scientific Data Management to market its physician
practice management system.
STOCK HIGH AND LOW CLOSING PRICES
<TABLE>
<CAPTION>
Low High
<S> <C> <C>
1994 $20.75 $36.13
1993 $ 8.44 $23.00
1992 $ 4.88 $12.88
</TABLE>
REVENUE (000 Omitted)
<TABLE>
<S> <C>
1994 $327,201
1993 $250,791
1992 $214,954
</TABLE>
All prior period amounts have been restated to reflect the acquisition of
Serving Software, Inc.
FULLY DILUTED EARNINGS PER SHARE
<TABLE>
<S> <C>
1994 $.85
1993 $.58
1992 $.43
</TABLE>
All prior period amounts have been restated to reflect the acquisition of
Serving Software, Inc.
3
<PAGE>
TO OUR STOCKHOLDERS
THE MANY FACES OF COMMITMENT
ONE WORD SUMS UP 1994 FOR HBO & COMPANY -- GROWTH. NOT JUST GROWTH IN AN AREA
OR TWO, BUT AN ALL-ENCOMPASSING GROWTH THAT NETTED US SIGNIFICANT INCREASES IN
CUSTOMERS, EMPLOYEES, PRODUCTS, MARKET SHARE, REVENUE AND EARNINGS PER SHARE.
When a company experiences the kind of growth that HBOC had in 1994, a question
that often arises is: What is the company's commitment to supporting all the
customers and products now in its solution set? And even more important, how
will the company do it?
Obviously, commitment has many faces. It has to do with the will to do
something and the ability to carry out that will. It also has to do with
involvement -- with customers, employees and stockholders -- and it has to do
with trust.
Our customer base now includes not only organizations with a variety of computer
hardware -- Data General, Digital, Hewlett-Packard and IBM -- but customers in
Canada, the United Kingdom, Australia, New Zealand and other parts of the world
that have unique information system requirements.
"OUR COMMITMENT IS TO PROTECT THE CONSIDERABLE INVESTMENT ALL OUR CUSTOMERS HAVE
MADE"
That means that enhancements to our STAR, Series and HealthQuest "core" product
lines will continue to receive high priority -- including moving them to a
Windows-based
CHARLES W. MCCALL
PRESIDENT &
CHIEF EXECUTIVE OFFICER
4
<PAGE>
environment. We will strive to make these products "best of breed" either
through development or acquisition. This was the impetus for our acquisition of
Advanced Laboratory Systems, Inc., in February 1995 that not only strengthens
our laboratory systems offerings but also allows us to address a broader
spectrum of laboratory requirements.
Both the core products and our new Pathways 2000 product line are built in an
open systems environment that allows for complete "vendor neutrality" with
respect to core products. HBOC"s guiding principle in any development effort is
to seek or develop applications that -- through their design and technologies --
enhance the use of the computer throughout the health system.
Beyond our customers, our commitment to HBOC's employees is to offer a
stimulating environment for continually stretching the boundaries of their
knowledge and skills and a structure for effective continuous quality
improvement. And our commitment to our stockholders is to build a solid
foundation for investment that provides a steady, reasonable return over many
years.
HBO & Company is prepared to carry out its commitment by keeping pace with both
the healthcare industry that it serves and the computer industry through which
it provides information tools and technology. We will continue to provide the
best solutions we can and to strive to use our resources -- financial and
human -- in the most effective manner possible. In today's world, this means
constantly re-evaluating, readjusting and fine-tuning.
The following pages set out some of the other faces of commitment -- the
specific aspects of HBOC's commitment to providing the products and services
necessary to daily serve our customers well while remaining a dynamic company
into the future.
"WE WILL PROVIDE THE BEST SOLUTIONS WE CAN AND USE OUR RESOURCES IN THE MOST
EFFECTIVE MANNER POSSIBLE."
Charles W. McCall
President & CEO
February 23, 1995
5
<PAGE>
COMMITMENT
TO TECHNOLOGY
FROM HIGH-TECH BEDS AND MONITORS TO PRECISION IMAGING AND LASER SURGERY,
MEDICAL TECHNOLOGY HAS REVOLUTIONIZED HEALTHCARE. NOW INFORMATION TECHNOLOGY IS
TAKING ITS PLACE AS A CRITICAL ELEMENT IN A NEW REVOLUTION THAT IS EXTENDING THE
DELIVERY OF CARE BEYOND THE TRADITIONAL REALM OF THE ACUTE-CARE HOSPITAL.
Whether healthcare reform will ever come from Washington is questionable. But
healthcare organizations themselves are changing -- although not all in the same
way. Some organizations are concentrating efforts on developing alliances among
hospitals or with physicians; others are working on building "alternative care"
networks that include everything from wellness services to long-term home care.
But they're all still headed toward an environment in which the health of the
population will be managed over a lifetime based on defined standards of care
delivered by a variety of providers.
The success of such highly integrated networks of care is dependent on one key
thing -- effectively managing information. This requires applying the latest
technologies to current departmental transaction systems to enhance user
interaction. It requires distributing data, image and voice throughout the
enterprise over local,
THE SUCCESS OF SUCH HIGHLY INTEGRATED NETWORKS OF CARE IS DEPENDENT ON
EFFECTIVELY MANAGING INFORMATION.
metropolitan and wide area networks. And it requires client/server-based
systems and industrial-strength data-bases that process and store large volumes
of data necessary for the development of the computer-based patient record.
Many of HBOC's core products take advantage of Reduced Instruction Set Computing
(RISC) technology on the UNIX operating system, which has increased computing
power
6
<PAGE>
while decreasing processing costs. While integration of HBOC products within
each product line can provide substantial benefits, they individually remain
able to support transactions to and from "foreign" systems that comply with the
HL7 industry standard.
HBOC's networking technologies provide the transmission medium for the
tremendous volumes of data needed throughout the enterprise. Local area
networks, using fiber-optic cabling, support the interconnection of departments
within a facility. Metropolitan and wide area networks use telephone lines,
microwave, infrared, laser or radio to connect remote users and provide data,
voice and conferencing capabilities.
The Pathways 2000 products are a new generation of client/server-based systems
through which users access multimedia capabilities on sophisticated
workstation PCs. This use of graphically oriented presentation tools allows
caregivers to "navigate" through systems with the help of icons, visual
metaphors and layered windows. By employing state-of-the-art application
development tools, artificial intelligence and expert systems, HBOC product
developers continue to make strides toward dramatically
cutting the time between solution conception and delivery.
HBOC PRODUCT DEVELOPERS CONTINUE TO MAKE STRIDES TOWARD DRAMATICALLY CUTTING THE
TIME BETWEEN SOLUTION CONCEPTION AND DELIVERY.
7
<PAGE>
COMMITMENT
TO SERVICE
IF TECHNOLOGY IS THE DRIVING FORCE IN HEALTHCARE, SERVICE IS THE FOUNDATION.
AND IN TODAY'S WORLD, SERVICE IS OFTEN THE CRITICAL DIFFERENTIATOR.
When it comes to service, flexibility is key. Many healthcare organizations
want to assume as much of the responsibility for installing, implementing
and managing their own systems as possible. Still others, with fewer in-house
resources, require greater support.
With the impending release of its Pathways 2000 products, HBOC developed a new
suite of services that help make customers as independent as possible while
providing just the right level of support. Each service package offers a mix
of enabling tracks -- whereby HBOC provides guidance for organizations to
implement their own systems -- plus service offerings that provide specific
support. These offerings include offsite system management and a range
of outsourcing services, from short-term transition management to full-scale
data center operations. HBOC has also developed an Information Services
Organization that plans, provides and manages all of a hospital's information
technology resources to support integrated health networks.
Other HBOC product lines have initiated fast-track implementation approaches or
have improved existing service and support processes. For example, customer
services for the STAR product line has repackaged its service methodology to
take into account the level of sophistication as well as the ability and
willingness of each customer to assume responsibility for various implementation
tasks. In addition, HBOC's Connect Technology Group is building a high-speed
digital network that provides new ways to deliver service faster and more
cost-effectively.
HBOC SERVICES HELP MAKE CUSTOMERS AS INDEPENDENT AS POSSIBLE WHILE PROVIDING
JUST THE RIGHT LEVEL OF SUPPORT.
8
<PAGE>
Education is a big part of any HBOC service package. A combination of formal
classroom instruction and computer-based training provides a comprehensive
program for helping healthcare organizations get up and running on their
systems as quickly as possible and then keeping them current on system
enhancements and new modules. And as an added measure of reassurance, when
a call comes in, HBOC's support staff uses sophisticated online tracking systems
to provide the fastest problem resolution possible.
But sometimes it's not what is provided but how it's provided. Just as no
amount of technology can dry the tears of an injured child, no amount of
technology can overcome the apprehension of a hospital staff getting ready
to switch to a new computer program. Although technology can help mitigate both
circumstances, it's the human touch that re-establishes a sense of well-being.
That's where HBOC truly differentiates itself -- in the commitment of its people
to deliver increasingly better products and services and to ensure that if
something's wrong, they'll work to make it right.
HBOC TRULY DIFFERENTIATES ITSELF IN THE COMMITMENT OF ITS PEOPLE TO DELIVER
INCREASINGLY BETTER PRODUCTS AND SERVICES.
9
<PAGE>
COMMITMENT
TO THE FUTURE
THE FUTURE OF HEALTHCARE ISN'T ABOUT GETTING SICK - IT'S ABOUT STAYING HEALTHY,
AT THE LOWEST POSSIBLE COST.
- - It isn't being stricken with disease and spending a lifetime fighting off
symptoms. It's identifying risk factors and then setting up a proactive
treatment plan managed by a primary care provider.
- - It isn't waiting for someone to show up at the hospital and then requesting
a battery of information. It's "enrolling" people at birth and adding to
information about them as they visit physicians' offices and clinics -- or
receive care at home -- throughout their lives.
- - It isn't jotting notes on a paper chart and sticking it in a file folder.
It's turning clinical observations and assessments into data, and storing
the information in a repository that is instantly accessible wherever
needed.
- - It isn't treating a person based on the physician's customary procedures.
It's guiding treatment according to rigorously tested benchmarks that work
to ensure the highest quality of care for the lowest cost.
- - It isn't seeing a patient with an unusual set of symptoms and wondering
where to turn for help. It's accessing worldwide medical knowledge bases
online to assist clinical decision-making.
- - It isn't submitting bills for a patient's hospital stay and receiving full
reimbursement. It's agreeing upfront to maintain health for a negotiated
rate based on an assessment of risk for a pool of "covered lives."
THE NEW AND DIFFERENT WAYS THAT PROVIDERS MAY SERVE THE HEALTH NEEDS OF A GLOBAL
POPULATION IN THE FUTURE GO ON AND ON.
10
<PAGE>
The new and different ways that providers may serve the health needs of a global
population in the future go on and on. As in other aspects of our lives, the
possibilities are bounded only by our imagination and the resources we have
available to transform possibility into reality.
It is obvious, however, that information technology will play an essential role.
Every advance in health delivery will be accompanied by a need to distribute
greater volumes of information and to better manage that information.
In essence, the future of healthcare is where technology and service converge on
a higher plane to take the industry into a new dimension. Whether through the
development of its own systems or in partnership with other information systems
software and technology providers, HBO & Company is well-positioned for the
future. Commitment is what makes it so.
THE FUTURE OF HEALTHCARE IS WHERE TECHNOLOGY AND SERVICE CONVERGE ON A HIGHER
PLANE TO TAKE THE INDUSTRY INTO A NEW DIMENSION.
11
<PAGE>
FINANCIAL REPORT
Five-Year Selected Financial Information 13
- ---------------------------------------------------------------------------
Financial Review 14
- ---------------------------------------------------------------------------
Revenue from Continuing
Operations by Business Unit 17
- ---------------------------------------------------------------------------
Condensed Consolidated
Quarterly Statements of Income 18
- ---------------------------------------------------------------------------
Consolidated Statements of Income 19
- ---------------------------------------------------------------------------
Consolidated Balance Sheets 20
- ---------------------------------------------------------------------------
Consolidated Statements of
Stockholders' Equity 21
- ---------------------------------------------------------------------------
Consolidated Statements
of Cash Flows 22
- ---------------------------------------------------------------------------
Notes to Consolidated
Financial Statements 23
- ---------------------------------------------------------------------------
Common Stock Data 27
- ---------------------------------------------------------------------------
Report of Independent Public Accountants 28
- ---------------------------------------------------------------------------
12
<PAGE>
FIVE-YEAR SELECTED FINANCIAL INFORMATION
FROM CONTINUING OPERATIONS
<TABLE>
<CAPTION>
For the Years Ended December 31
- -------------------------------------------------------------------------------
(000 Omitted Except for %s, Per Share Data, Ratios, Stockholders and Employees)
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
OPERATIONS
Revenue $ 327,201 $ 250,791 $ 214,954 $ 177,775 $ 179,704
Operating Income (Loss) $ 48,020 $ 32,166 $ 21,573 $ (2,496) $ 12,138
Income (Loss) Before Income Taxes $ 46,989 $ 31,497 $ 21,020 $ (3,759) $ 12,005
Net Income (Loss) $ 28,159 $ 18,819 $ 13,758 $ (2,447) $ 8,194
----------- --------------------------------------------------------
AS A PERCENT OF REVENUE
Operating Income (Loss) 15% 13% 10% (1%) 7%
Income (Loss) Before Income Taxes 14% 13% 10% (2%) 7%
Net Income (Loss) 9% 8% 6% (1%) 5%
----------- --------------------------------------------------------
PERCENT CHANGE FROM PRIOR YEAR
Revenue 30% 17% 21% (1%) 0%
Operating Income (Loss) 49% 49% 964% (121%) (47%)
Income (Loss) Before Income Taxes 49% 50% 659% (131%) (48%)
Net Income (Loss) 50% 37% 662% (130%) (47%)
----------- --------------------------------------------------------
SHARE INFORMATION
Weighted Average Shares Outstanding (Fully Diluted) 33,106 32,718 32,296 28,654 29,720
Stockholders of Record 1,563 1,550 1,711 1,781 1,851
Fully Diluted Earnings (Loss) Per Share $ .85 $ .58 $ .43 $ (.08) $ .27
Cash Dividends Per Share $ .16 $ .15 $ .15 $ .15 $ .15
Book Value at Year-End Per Share $ 2.88 $ 1.86 $ 2.91 $ 1.63 $ 1.94
Closing Stock Price Per Share - High $ 36.13 $ 23.00 $ 12.88 $ 5.81 $ 7.50
- Low $ 20.75 $ 8.44 $ 4.88 $ 2.50 $ 2.00
----------- --------------------------------------------------------
CAPITALIZED SOFTWARE
Research and Development Expenditures $ 38,608 $ 30,890 $ 26,230 $ 25,055 $ 22,452
Capitalized Software Expenditures $ 9,680 $ 7,462 $ 6,134 $ 5,484 $ 3,286
Research and Development Capitalization Rate 25% 24% 23% 22% 15%
Amortization of Capitalized Software $ 5,487 $ 3,654 $ 2,924 $ 2,749 $ 2,536
----------- --------------------------------------------------------
FINANCIAL RATIOS
Gross Margin 47% 47% 45% 44% 45%
Return on Average Stockholders' Equity 38% 39% 39% (11%) 30%
Effective Income Tax Rate 40% 40% 35% 35% 32%
Current Ratio .9:1 1.3:1 1.3:1 1.3:1 1.4:1
Long-Term Debt to Stockholders' Equity -- -- -- .8:1 1.3:1
Price-to-Earnings Ratio - High 43 40 30 -- 28
- Low 24 15 11 -- 7
----------- --------------------------------------------------------
FINANCIAL POSITION AT YEAR-END
Cash and Cash Equivalents $ 5,825 $ 25,777 $ 8,922 $ 2,781 $ 2,141
Working Capital $ (8,719) $ 18,037 $ 18,304 $ 18,038 $ 19,254
Total Assets $ 233,877 $ 131,157 $ 113,842 $ 108,285 $ 127,758
Long-Term Debt and Other Liabilities $ 1,397 $ -- $ -- $ 20,010 $ 37,457
Stockholders' Equity $ 91,475 $ 57,575 $ 47,727 $ 24,692 $ 28,339
----------- --------------------------------------------------------
OTHER FINANCIAL INFORMATION
Employees at Year-End 2,383 2,043 1,865 1,691 1,817
Revenue Per Average Number of Employees $ 148 $ 128 $ 121 $ 101 $ 105
----------- --------------------------------------------------------
-----------
</TABLE>
All prior period amounts have been restated to reflect the acquisition of
Serving Software, Inc.
13
<PAGE>
FINANCIAL REVIEW
GENERAL
HBO & Company enjoyed another record year in 1994. Earnings per share reached a
record $.85, a 47% increase over 1993 earnings per share of $.58. The Company's
revenue of $327.2 million represented the third consecutive year of record
revenue and was 30% higher than 1993. As a result of acquisitions and internal
growth, HBOC now has almost 2,100 customers in the United States and abroad
compared to roughly 1,000 at the end of 1993. This makes the Company the leader
in healthcare information systems in terms of market share.
HBOC made three strategic acquisitions in 1994. During the second quarter, the
Company purchased IBAX Healthcare Systems (IBAX), a partnership of IBM and
Baxter Healthcare. This transaction added roughly 475 new customers to the HBOC
family and, with the Series 4000 product line, gave the Company a large presence
in the IBM AS/400 market. During the third quarter, the Company completed the
acquisition of Serving Software, Inc., a Minneapolis-based developer of
healthcare enterprise resource management software. Since this transaction was
accounted for as a pooling of interests, all prior period financial information
has been restated and management's discussion of results is based on restated
figures. In December, the Company acquired Care 2000, Inc., an Atlanta-based
firm specializing in case management methodologies. These acquisitions, together
with several new marketing arrangements, made 1994 a year of growth and change.
The Company's revenue growth resulted from success in selling HBOC
enterprisewide healthcare information system products capable of handling the
complex needs of the evolving healthcare market. HBOC's customers continued to
find value in the advanced functionality inherent in the Company's core
applications, such as the STAR products. At the same time, they acted on the
need to make better use of vast quantities of information by purchasing
TRENDSTAR decision support products at a strong rate.
Perhaps most importantly, the Company was able to successfully introduce its
new set of Pathways 2000 enterprise solutions to the marketplace. It is these
products that allow the HBOC vision to become a reality: strong
transaction-based systems that populate an enterprisewide clinical and
financial data repository that can be accessed from a variety of advanced
client/server-based applications. In addition, the Company's revenue growth
was accelerated by the contribution of the Series product line added as a
result of the IBAX acquisition.
<TABLE>
<CAPTION>
REVENUE PER EMPLOYEE (000 Omitted)
- ----------------------------------
<S> <C>
1994 $148
1993 $128
1992 $121
</TABLE>
Operating expense grew at a slower rate than revenue as a result of the
Company's continued focus on cost controls and productivity enhancements. HBOC
was successful in driving costs out of newly acquired businesses by capitalizing
on the synergies created when the organizations combined. The Company also set a
record for revenue per average number of employees of $148,000, up from $128,000
in 1993 and $121,000 in 1992.
HBOC generated $39.4 million of cash flow from operations in 1994 that, combined
with the strong cash balance of $25.8 million at December 31, 1993, enabled the
Company to invest in strategic acquisitions totalling $42.3 million (net of cash
acquired), capitalize software development efforts of $9.7 million, make capital
expenditures totalling $5.7 million and purchase a facility in Texas for $2.7
million. Because of strong cash flow in the fourth quarter, the Company was able
to repay almost all bank debt associated with the acquisitions before year-end.
RESULTS OF OPERATIONS
The following table presents as a percent of revenue certain categories included
in the Company's consolidated statements of income for 1992-1994:
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Revenue 100% 100% 100%
Operating Expense:
Cost of Operations 53% 53% 55%
Marketing 13% 14% 12%
Research and Development 9% 9% 9%
General and Administrative 10% 11% 14%
---- --------------
Operating Income 15% 13% 10%
---- --------------
Net Income 9% 8% 6%
---- --------------
----
</TABLE>
Revenue for 1994 increased 30% over 1993 due to both internal growth and
acquisitions. Strong software license fee revenue, growth in recurring
maintenance and support contracts, heavy implementation activity and growth from
new outsourcing business all contributed to overall growth. Revenue from
software license fees increased 58% due to the success of the Company's new
Pathways 2000 family of enterprise solutions and solid
14
<PAGE>
FINANCIAL REVIEW
revenue from STAR applications. The new Series product line also contributed
strongly to software revenue growth. The TRENDSTAR line of decision support
products enjoyed a tremendous year as hospitals continued to invest in products
designed to help them better understand the cost of providing care. Revenue
from software maintenance and support contracts increased 69% in 1994 over 1993
due to growth in HBOC's customer base by more than 1,000 customers and as a
result of the installation of additional products in the Company's existing
customer base. Revenue from implementation services grew 18% as the Company's
implementation teams, particularly in the Series and STAR groups, worked on the
backlog of sold business. Revenue from outsourcing services grew 30%, primarily
due to growth in the Company's successful outsourcing businesses in the United
Kingdom.
For 1993, revenue increased 17% over 1992 as a result of strong STAR system
sales and installations, the addition of outsourcing customers, continued growth
in networking technology sales and increased demand for decision support
software products. HealthQuest revenue decreased slightly as customers waited
for new releases of several products.
HBOC entered 1995 with a strong backlog. At December 31, 1994, future
contracted outsourcing service fees totalled $75.2 million. Contracted software
and hardware fees not yet delivered and installed totalled $28.4 million.
Future payments from systems sold under monthly service fee agreements total
$11.6 million for future years. HBOC also derives a large portion of its
revenue from renewable software maintenance and support contracts and from
implementation services.
Cost of operations as a percent of revenue remained stable at 53% for both 1994
and 1993. Personnel-related expense has grown as HBOC has added implementation
and support staff to service its growing customer base, although cost of
operations salaries as a percent of revenue have actually decreased. Software
royalty expense increased as a result of the success of Pathways Care Manager,
the Company's nursing solution; Pathways Health Network Server, the Company's
enterprisewide database repository; and the addition of the Series product line.
Amortization expense increased as a result of higher amortization of
capitalized software as new products were released and amortization of the
customer lists acquired from IBAX Healthcare Systems. Hardware and software
maintenance expense increased primarily for support of customers' third-party
business partner products.
Cost of operations expense dropped to 53% of revenue in 1993 from 55% of revenue
in 1992 due to the move of approximately 50 employees into marketing roles and
improved productivity of implementation personnel. Hardware, personnel and
consulting costs were higher in 1993 compared to 1992 due to a higher volume of
installations and new outsourcing contracts.
Marketing expense as a percent of revenue decreased to 13% in 1994 from 14% in
1993. Marketing expense increased in total primarily in the area of
personnel-related expense that included salaries, commissions and travel. The
addition of the Series sales force drove these expenses higher. The increase in
marketing expense as a percent of revenue to 14% in 1993 from 12% in 1992 was a
result of the move of approximately 50 employees into marketing roles and
increased commissions due to higher sales volume.
Research and development (R&D) expense as a percent of revenue remained constant
at 9% in 1994, 1993 and 1992. R&D expense increased in total in 1994 primarily
as a result of higher personnel-related expenses that were partially offset by a
higher R&D capitalization rate. HBOC capitalized 25% of its R&D costs in 1994,
up slightly from 24% in 1993 and 23% in 1992. The increase in the
capitalization rate reflects the effort spent bringing the Company's new suite
of Pathways 2000 products to market.
RESEARCH AND DEVELOPMENT SUMMARY
<TABLE>
<CAPTION>
(000 Omitted Except for %s) 1994 1993 1992
<S> <C> <C> <C>
Total R&D Expenditures $ 38,608 $ 30,890 $ 26,230
Less Capitalized R&D (9,680) (7,462) (6,134)
-------- ------------------
Reported R&D Expense $ 28,928 $ 23,428 $ 20,096
Capitalization Rate 25% 24% 23%
-------- ------------------
--------
</TABLE>
General and administrative expense as a percent of revenue decreased slightly in
1994 compared to 1993. Total general and administrative expense increased,
although at less than the rate of revenue growth. Assets added through the
Company's acquisitions resulted in higher depreciation and amortization expense.
Facilities-related expenses have increased in total due to the IBAX acquisition,
but the Company is continuing to take steps to maximize productive use of space
and equipment. Employee benefit expense has increased due to the growth in the
number of employees. General and administrative expense for 1993 declined in
total and as a percent of revenue compared to 1992, primarily as a result of
lower salary expense, rent and bonuses due to compensation plan restructuring
and expense controls.
15
<PAGE>
FINANCIAL REVIEW
<TABLE>
<CAPTION>
OPERATING INCOME AS A % OF REVENUE
<S> <C>
1994 15%
1993 13%
1992 10%
</TABLE>
Total operating expense as a percent of revenue continued to show a downward
trend, which has improved operating income as a percent of revenue to 15% in
1994 from 13% in 1993 and 10% in 1992.
The effective tax rate remained stable at 40% in both 1994 and 1993, up from 35%
in 1992 due to deferred tax adjustments in 1992 and tax law changes in 1993.
Weighted average shares outstanding has gradually increased between 1992 and
1994 due to shares issued under employee stock option and purchase programs and
the dilutive effect of stock options outstanding.
HBOC is affected by inflation through increased salaries, benefits and other
operating and administrative expenses. To the extent permitted by the
marketplace, the Company attempts to pass on increased costs by periodically
increasing prices of products and services. Both service and software
maintenance and support agreements contain clauses allowing the Company to
increase fees annually to reflect changes in costs. Other products and services
are generally contracted for short periods and are therefore not exposed to
inflationary pressure.
LIQUIDITY AND CAPITAL RESOURCES
HBOC finished 1994 with strong cash flows from operations, a low delinquency
rate on receivables and no long-term debt.
For the year ended December 31, 1994, HBOC generated $39.4 million of cash from
operating activities and $1.1 million from financing activities, and used $60.4
million in investing activities (including $42.3 million for acquisitions, net
of cash acquired, $9.7 million for capitalized software development and $5.7
million for capital expenditures), resulting in a cash decrease of $20 million.
During the third and fourth quarters of 1994, the Company was able to repay
almost all bank debt associated with the IBAX acquisition because of strong cash
flow from operations.
Trade receivables greater than 90 days old were 4% of total trade receivables at
December 31, 1994. With acquisition-related integration substantially complete,
management believes there is sufficient focus on receivables to continue to
generate significant positive cash flows from operations.
Current liabilities increased by $27 million more than current assets, pushing
the current ratio down to .9:1 from 1.3:1 at the end of 1993. Most of the
growth in current assets relates to receivables that have grown due to the IBAX
and Serving Software acquisitions and higher sales volume. Approximately 47% of
the growth in current liabilities was due to growth in deferred revenue,
primarily related to Series software maintenance and support contracts, and
approximately 32% was due to growth in accounts payable and accrued expenses.
The Company has access to several financing sources, including $20 million
available at December 31 under a three-year revolving credit facility, $5
million under a committed, unsecured line of credit and $5 million under an
uncommitted, unsecured line of credit.
HBOC is well-positioned to continue generating positive cash flows from
operations and has access to financing sources that will give the Company the
flexibility necessary to increase efficiency, enhance quality and make strategic
investments to promote growth.
16
<PAGE>
REVENUE FROM CONTINUING OPERATIONS BY BUSINESS UNIT
1994
(000 Omitted Except for %s)
<TABLE>
<CAPTION>
Outsourcing Amherst Connect
Services Product International Technology
North America* Group Group Group Group Total Percent
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
RECURRING REVENUE
Software Maintenance $ 59,395 $ -- $ 9,522 $ 2,655 $ -- $ 71,572 22%
Monthly Service Fees 9,640 -- 168 -- 313 10,121 3%
Outsourcing Services -- 29,507 -- 6,860 -- 36,367 11%
--------------------------------------------------------------------- --------- ------
Recurring Revenue 69,035 29,507 9,690 9,515 313 118,060 36%
--------------------------------------------------------------------- --------- ------
ONE-TIME SALES REVENUE
Implementation Fees 57,716 513 3,929 1,903 8,699 72,760 22%
Hardware Sales 31,824 -- 5,634 2,677 10,630 50,765 16%
Software License Fees 70,394 -- 13,034 2,188 -- 85,616 26%
--------------------------------------------------------------------- --------- ------
One-Time Sales Revenue 159,934 513 22,597 6,768 19,329 209,141 64%
--------------------------------------------------------------------- --------- ------
TOTAL REVENUE $ 228,969 $ 30,020 $ 32,287 $ 16,283 $ 19,642 $ 327,201 100%
--------------------------------------------------------------------- --------- ------
---------
</TABLE>
1993
(000 Omitted Except for %s)
<TABLE>
<CAPTION>
Outsourcing Amherst Connect
Services Product International Technology
North America* Group Group Group Group Total Percent
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
RECURRING REVENUE
Software Maintenance $ 33,191 $ -- $ 8,390 $ 689 $ -- $ 42,270 17%
Monthly Service Fees 14,996 -- 161 -- 343 15,500 6%
Outsourcing Services -- 28,024 -- -- -- 28,024 11%
--------------------------------------------------------------------- --------- ------
Recurring Revenue 48,187 28,024 8,551 689 343 85,794 34%
--------------------------------------------------------------------- --------- ------
ONE-TIME SALES REVENUE
Implementation Fees 50,995 -- 3,096 1,226 6,212 61,529 25%
Hardware Sales 34,708 -- 3,743 863 9,901 49,215 19%
Software License Fees 44,069 -- 8,078 2,106 -- 54,253 22%
--------------------------------------------------------------------- --------- ------
One-Time Sales Revenue 129,772 -- 14,917 4,195 16,113 164,997 66%
--------------------------------------------------------------------- --------- ------
TOTAL REVENUE $ 177,959 $ 28,024 $ 23,468 $ 4,884 $ 16,456 $ 250,791 100%
--------------------------------------------------------------------- --------- ------
---------
<FN>
* Includes the STAR, Pathways 2000, HealthQuest, Series (1994 only) and Serving
Software groups in both the U.S. and Canada.
</TABLE>
All prior period amounts have been restated to reflect the acquisition of
Serving Software, Inc.
17
<PAGE>
CONDENSED CONSOLIDATED QUARTERLY STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
1994
- ---------------------------------------
(000 Omitted Except for Per Share Data)
QUARTER
-------------------------------------------------------
1ST 2ND 3RD 4TH TOTAL
<S> <C> <C> <C> <C> <C>
REVENUE $ 67,507 $ 78,343 $ 85,938 $ 95,413 $ 327,201
Operating Expense 58,646 67,670 72,614 80,251 279,181
------------------------------------------------------ ---------
OPERATING INCOME 8,861 10,673 13,324 15,162 48,020
Other (Income) Expense, Net (138) 65 450 654 1,031
------------------------------------------------------ ---------
Income Before Provision for Income Taxes 8,999 10,608 12,874 14,508 46,989
Provision for Income Taxes 3,571 4,273 5,148 5,838 18,830
------------------------------------------------------ ---------
NET INCOME $ 5,428 $ 6,335 $ 7,726 $ 8,670 $ 28,159
------------------------------------------------------ ---------
EARNINGS PER SHARE:
Primary $ .17 $ .19 $ .23 $ .26 $ .85
Fully Diluted $ .17 $ .19 $ .23 $ .26 $ .85
------------------------------------------------------ ---------
WEIGHTED AVERAGE SHARES OUTSTANDING:
Primary 32,779 33,040 33,186 33,314 32,973
Fully Diluted 32,818 33,040 33,263 33,351 33,106
------------------------------------------------------ ---------
CASH DIVIDENDS DECLARED PER SHARE $ .04 $ .04 $ .04 $ .04 $ .16
------------------------------------------------------ ---------
---------
<CAPTION>
1993
- ---------------------------------------
(000 Omitted Except for Per Share Data)
QUARTER
-------------------------------------------------------
1ST 2ND 3RD 4TH TOTAL
<S> <C> <C> <C> <C> <C>
REVENUE $ 55,548 $ 60,316 $ 65,430 $ 69,497 $ 250,791
Operating Expense 50,729 53,932 56,035 57,929 218,625
------------------------------------------------------ ---------
OPERATING INCOME 4,819 6,384 9,395 11,568 32,166
Other Expense, Net 162 166 312 29 669
------------------------------------------------------ ---------
Income Before Provision for Income Taxes 4,657 6,218 9,083 11,539 31,497
Provision for Income Taxes 1,903 2,420 3,720 4,635 12,678
------------------------------------------------------ ---------
NET INCOME $ 2,754 $ 3,798 $ 5,363 $ 6,904 $ 18,819
EARNINGS PER SHARE: ------------------------------------------------------ ---------
Primary $ .08 $ .12 $ .17 $ .21 $ .58
Fully Diluted $ .08 $ .12 $ .17 $ .21 $ .58
------------------------------------------------------ ---------
WEIGHTED AVERAGE SHARES OUTSTANDING:
Primary 33,218 32,069 32,360 32,527 32,410
Fully Diluted 33,222 32,375 32,460 32,613 32,718
------------------------------------------------------ ---------
CASH DIVIDENDS DECLARED PER SHARE $ .0375 $ .0375 $ .0375 $ .0375 $ .15
------------------------------------------------------ ---------
---------
</TABLE>
All prior period amounts have been restated to reflect the acquisition of
Serving Software, Inc.
18
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31 1994 1993 1992
(000 Omitted Except for Per Share Data)
- ---------------------------------------
<S> <C> <C> <C>
REVENUE $ 327,201 $ 250,791 $ 214,954
OPERATING EXPENSE:
Cost of Operations 172,894 132,801 118,106
Marketing 42,769 34,631 26,144
Research and Development 28,928 23,428 20,096
General and Administrative 34,590 27,765 29,035
----------- -------------------------
Total Operating Expense 279,181 218,625 193,381
----------- -------------------------
OPERATING INCOME 48,020 32,166 21,573
Other Expense, Net 1,031 669 553
----------- -------------------------
Income Before Provision for Income Taxes 46,989 31,497 21,020
Provision for Income Taxes 18,830 12,678 7,262
----------- -------------------------
NET INCOME $ 28,159 $ 18,819 $ 13,758
----------- -------------------------
EARNINGS PER SHARE:
Primary $ .85 $ .58 $ .43
Fully Diluted $ .85 $ .58 $ .43
----------- -------------------------
WEIGHTED AVERAGE SHARES OUTSTANDING:
Primary 32,973 32,410 31,846
Fully Diluted 33,106 32,718 32,296
---------- -------------------------
----------
</TABLE>
All prior period amounts have been restated to reflect the acquisition of
Serving Software, Inc.
The accompanying Notes to Consolidated Financial Statements are an integral part
of these consolidated financial statements.
19
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
- -------------
(000 Omitted)
December 31,
1994 1993
<S> <C> <C>
CURRENT ASSETS:
Cash and Cash Equivalents $ 5,825 $ 25,777
Receivables, Net of Allowance For Doubtful
Accounts of $1,749 and $1,573 in 1994 and 1993 101,457 45,699
Current Deferred Income Taxes 5,133 5,200
Inventories 1,280 1,436
Prepaids and Other Current Assets 8,968 3,596
---------- ----------
Total Current Assets 122,663 81,708
---------- ----------
PROPERTY AND EQUIPMENT
Net of Accumulated Depreciation of $61,166 and $56,142
in 1994 and 1993 26,598 19,702
---------- ----------
CAPITALIZED SOFTWARE
Net of Accumulated Amortization of $16,182 and $15,237
in 1994 and 1993 25,035 20,949
---------- ----------
INTANGIBLES
Net of Accumulated Amortization of $3,482 and $624
in 1994 and 1993 57,569 6,491
---------- ----------
OTHER NONCURRENT ASSETS, NET 2,012 2,307
---------- ----------
$ 233,877 $ 131,157
---------- ----------
----------
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
(000 Omitted)
CURRENT LIABILITIES $ 131,382 $ 63,671
---------- ----------
DEFERRED INCOME TAXES 9,623 9,911
---------- ----------
OTHER LONG-TERM LIABILITIES 1,397 --
---------- ----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred Stock, 1,000 Shares Authorized
and No Shares Issued in Both 1994 and 1993 -- --
Common Stock, $.05 Par Value, 60,000 Shares Authorized
and 49,101 and 49,030 Shares Issued in 1994 and 1993 2,455 2,451
Additional Paid-In Capital 49,859 43,089
Retained Earnings 123,570 100,204
---------- ----------
175,884 145,744
Treasury Stock, at Cost (17,328 and 18,098 Shares in
1994 and 1993) (84,409) (88,169)
---------- ----------
Total Stockholders' Equity 91,475 57,575
---------- ----------
$ 233,877 $ 131,157
---------- ----------
----------
</TABLE>
All prior period amounts have been restated to reflect the acquisition of
Serving Software, Inc.
The accompanying Notes to Consolidated Financial Statements are an integral part
of these consolidated financial statements.
20
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Years Ended December 31, 1994, 1993 and 1992
- ----------------------------------------------------
(000 Omitted)
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON STOCK SHARES COMMON PAID-IN RETAINED TREASURY STOCKHOLDERS'
ISSUED TREASURY OUTSTANDING STOCK CAPITAL EARNINGS STOCK EQUITY
----------------------------- ----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1991 24,806 9,700 15,106 $ 1,241 $ 35,467 $ 76,634 $ (88,650) $ 24,692
Common Stock Issued-*
Stock Options Exercised 27 (845) 872 1 1,487 -- 7,622 9,110
Employee Stock
Purchase Plan -- (101) 101 -- (342) -- 920 578
Sale of Common Stock, Net
of Expenses of $693 348 -- 348 17 4,079 -- -- 4,096
Other -- -- -- -- -- (68) -- (68)
Cash Dividends Declared
($.15 Per Share) -- -- -- -- -- (4,439) -- (4,439)
Net Income for the Year -- -- -- -- -- 13,758 -- 13,758
--------------------------- -------------------------------------------------------
BALANCE, DECEMBER 31, 1992 25,181 8,754 16,427 1,259 40,691 85,885 (80,108) 47,727
Common Stock Issued-*
Stock Options Exercised 38 (336) 374 2 3,281 -- 3,234 6,517
Employee Stock
Purchase Plan -- (63) 63 -- 116 -- 586 702
Treasury Stock Purchased -- 700 (700) -- -- -- (11,938) (11,938)
Other -- (6) 6 -- 191 (75) 57 173
Cash Dividends Declared
($.15 Per Share) -- -- -- -- -- (4,425) -- (4,425)
Effect of Two-For-One Stock
Split 23,811 9,049 14,762 1,190 (1,190) -- -- --
Net Income for the Year -- -- -- -- -- 18,819 -- 18,819
--------------------------- -------------------------------------------------------
BALANCE, DECEMBER 31, 1993 49,030 18,098 30,932 2,451 43,089 100,204 (88,169) 57,575
Common Stock Issued-*
Stock Options Exercised 71 (626) 697 4 6,173 -- 3,061 9,238
Employee Stock
Purchase Plan -- (144) 144 -- 597 -- 699 1,296
Other -- -- -- -- -- 147 -- 147
Cash Dividends Declared
($.16 Per Share) -- -- -- -- -- (4,940) -- (4,940)
Net Income for the Year -- -- -- -- -- 28,159 -- 28,159
--------------------------- -------------------------------------------------------
BALANCE, DECEMBER 31, 1994 49,101 17,328 31,773 $ 2,455 $ 49,859 $123,570 $ (84,409) $ 91,475
----------------- ------ -------------------------------------------- --------
------ --------
<FN>
*Includes an income tax benefit reflected in additional paid-in capital of
$5,000, $3,067 and $2,799 in 1994, 1993 and 1992 related to the exercise of
stock options, the disqualifying disposition of stock options and the employee stock purchase
plan.
</TABLE>
All prior period amounts have been restated to reflect the acquisition of
Serving Software, Inc.
The accompanying Notes to Consolidated Financial Statements are an integral part
of these consolidated financial statements.
21
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
(000 Omitted)
1994 1993 1992
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income for the Year $ 28,159 $ 18,819 $ 13,758
--------- -------------------------
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Depreciation and Amortization 17,496 10,197 9,025
Provision (Credit) for Noncurrent Deferred Income Taxes (288) 1,922 126
Changes in Assets and Liabilities, Net of Acquisitions:
Receivables (42,719) 11,976 (3,803)
Current Deferred Income Taxes 1,147 1,252 548
Inventories 156 1,429 3,778
Prepaids and Other Current Assets (2,128) (840) 501
Other Noncurrent Assets, Net (60) 303 (415)
Current Liabilities 37,475 2,827 2,470
Other, Net 147 (197) (76)
--------- -------------------------
Total Adjustments 11,226 28,869 12,154
--------- -------------------------
Net Cash Provided by Operating Activities 39,385 47,688 25,912
--------- -------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale of Property and Equipment 99 1,385 1,551
Proceeds from Sale of Discontinued Operations -- 193 5,014
Purchase of Facility (2,698) -- --
Capitalized Software (9,680) (7,462) (6,134)
Capital Expenditures (5,686) (8,987) (5,115)
Purchases of Businesses, Net of Cash Acquired (42,466) (7,020) (1,372)
--------- -------------------------
Net Cash Used in Investing Activities (60,431) (21,891) (6,056)
--------- -------------------------
NET CASH PROVIDED (USED) BEFORE FINANCING ACTIVITIES (21,046) 25,797 19,856
--------- -------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Issuance of Common Stock 5,534 7,443 10,945
Proceeds from Long-Term Debt 63,000 -- --
Payment of Dividends (4,776) (4,447) (4,368)
Repayment of Long-Term Debt (62,664) -- (20,292)
Purchase of Treasury Stock -- (11,938) --
--------- -------------------------
Net Cash Provided by (Used in) Financing Activities 1,094 (8,942) (13,715)
--------- -------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (19,952) 16,855 6,141
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 25,777 8,922 2,781
--------- -------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 5,825 $ 25,777 $ 8,922
--------- -------------------------
---------
CASH PAID DURING THE YEAR FOR:
Interest $ 2,727 $ 899 $ 1,239
Income Taxes $ 8,369 $ 4,838 $ 5,935
</TABLE>
All prior period amounts have been restated to reflect the acquisition of
Serving Software, Inc.
The accompanying Notes to Consolidated Financial Statements are an integral part
of these consolidated financial statements.
22
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of HBO & Company and
its wholly owned subsidiaries, collectively referred to as "the Company" or
"HBOC." All significant intercompany transactions and balances have been
eliminated in consolidation.
REVENUE RECOGNITION
HBO & Company delivers enterprisewide patient care, clinical, financial and
strategic management software solutions, as well as networking technologies,
outsourcing and other services to healthcare organizations in the United States,
United Kingdom, Canada, Australia and New Zealand.
SOFTWARE AND HARDWARE PRODUCTS -- Information systems are marketed under
equipment purchase and software license agreements, as well as service
agreements. Hardware is recognized at the time of delivery, and software
license fees are recognized either when the software is installed or, for
packaged software, upon shipment. Under service agreements, the customer
pays a monthly fee for use of the hardware and software, and revenue is
recognized monthly over the life of the contract.
SERVICES -- Implementation fees are recognized as the work is performed or
on a percentage-of-completion basis. Software maintenance and support
agreements are marketed under annual and multiyear renewable agreements.
Maintenance and support revenue is generally billed annually and recognized
ratably over the period. Fees for outsourcing services are either
recognized monthly as the work is performed or on a
percentage-of-completion basis.
OTHER EXPENSE, NET
Other expense, net is comprised primarily of interest income on cash, cash
equivalents, notes receivable and discounted future contract payments; interest
expense on long-term debt and short-term line of credit borrowings; and
miscellaneous expense related primarily to foreign exchange transaction gains
and losses.
EARNINGS PER SHARE
Earnings per share is based upon the weighted average number of shares and the
dilutive effect of stock options outstanding.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an original
maturity of three months or less from date of purchase to be cash and cash
equivalents.
INVENTORIES
Inventories are valued at lower of cost or market. Cost is determined by
specific identification.
CAPITALIZED SOFTWARE
The Company capitalized software development costs of $9.7 million, $7.5
million and $6.1 million in 1994, 1993 and 1992. In addition, business
acquisitions resulted in a $.7 million increase in capitalized software in 1993
and a $1.0 million increase in 1992. Amortization of capitalized software costs
totalled $5.6 million, $3.7 million and $2.9 million in 1994, 1993 and 1992.
Amortization is computed using the straight-line method based on estimated
useful lives of three to five years.
Royalty fees in the amount of $10.4 million, $2.4 million and $2.7 million were
paid in 1994, 1993 and 1992 to third-party business partners and customers that
assisted in the Company's development efforts.
INTANGIBLES
Intangible assets consists of certain items related to the Company's
acquisitions as follows:
<TABLE>
<CAPTION>
December 31,
(000 Omitted) 1994 1993
GROSS NET GROSS NET
<S> <C> <C> <C> <C>
Series Customer Lists $51,849 $49,833 $ -- $ --
Goodwill 6,680 5,811 5,345 4,874
Other 2,522 1,925 1,770 1,617
-------------------- --------------------
Total $61,051 $57,569 $ 7,115 $ 6,491
-------------------- --------------------
--------------------
</TABLE>
The Series customer lists are being amortized over 15 years beginning in June
1994. Goodwill relates to three acquisitions and is being amortized over
periods ranging from 10 to 15 years from the various acquisition dates.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Computer equipment is depreciated
over a useful life of two to five years, office furniture and equipment over
two to 10 years and buildings over 30 years, all using the straight-line method.
Leasehold improvements are amortized on a straight-line basis over the remaining
lease term.
Expenditures for maintenance and repair of equipment are expensed as incurred
and amounted to $4.4 million in 1994, $3.4 million in 1993 and $4.4 million in
1992.
23
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OTHER NONCURRENT ASSETS
Other noncurrent assets consists primarily of long-term unbilled receivables
related to monthly service fee agreements.
2. INDEBTEDNESS AND COMMITMENTS:
During the second quarter of 1994, HBOC cancelled its $10 million long-term
revolving credit agreement with one bank and entered into a similar agreement
with another bank, subsequently increasing the amount available to $20 million.
Interest is payable at the Company's option of prime (8.5% at December 31, 1994)
or LIBOR (5.9375% at December 31, 1994) plus 1.50%. A commitment fee of 3/8%
is payable quarterly on the unused portion of the commitment. The maturity date
is June 30, 1997. At December 31, 1994, the Company had $20 million available
under this agreement. In February 1995, the amount available under the agreement
was increased to $25 million.
During 1994, the Company entered into a $25 million five-year term loan maturing
on June 30, 1999, with 20 quarterly payments of $1.25 million of principal plus
interest at prime or LIBOR plus 1.75%. The Company elected to repay the
majority of the principal in 1994, leaving a short-term payable of $.4 million
at December 31, 1994.
These agreements contain certain net worth, income, cash flow and financial
ratio covenants. The Company was in compliance with these covenants as of
December 31, 1994.
The Company has a $5 million committed, unsecured line of credit to cover
several types of credit extensions, including letters of credit and short-term
borrowings. In addition, the Company has a $5 million uncommitted, unsecured
line of credit with another bank at the prime rate less .5%. No facility fees
or compensating balances are associated with either line.
During 1994, the Company cancelled its 1993 receivables purchase agreement with
one bank and sold, with recourse, a $20 million undivided interest in a pool of
receivables to another bank under similar terms and conditions. Interest is
payable at the lesser of prime or LIBOR plus 1.50%. The two-year agreement
expires June 25, 1996. The Company, as agent for the purchaser,
retains collection and administrative responsibilities for the
receivables sold.
The Company acquired two $5 million notes payable in the acquisition of IBAX
Healthcare Systems, which, per the acquisition agreement, were paid in full on
January 31, 1995.
The Company occupies leased facilities and leases customer and other equipment
under noncancelable leases that expire through 2002. Most of the leases
contain certain options to renew. The future minimum lease commitments under
the terms of the Company's noncancelable leases as of December 31, 1994, were
as follows:
<TABLE>
<CAPTION>
(000 Omitted)
<S> <C>
1995 $ 12,800
1996 9,600
1997 9,400
1998 7,500
1999 and thereafter 6,900
--------
TOTAL $ 46,200
--------
--------
</TABLE>
3. CAPITAL STOCK:
In February 1994 the Company declared a two-for-one stock split of all common
stock outstanding and in the treasury, effected in the form of a stock dividend
payable on March 28, 1994, to stockholders of record on March 14, 1994. All
financial data has been restated for this stock split.
Beginning in 1987, the Board of Directors authorized open market purchase
programs to purchase the Company's common stock, which resulted in the purchase
of 22.6 million shares at an aggregate cost of $102.4 million between 1987 and
1994, leaving 621,000 shares authorized under this program.
On February 12, 1991, the Company designated 20,000 shares of its 1,000,000
shares of authorized preferred stock with no par value as Series A Junior
Participating Preferred Stock with no par value and declared a dividend
distribution of one Preferred Share Purchase Right on each outstanding share of
the Company's common stock. Due to the 1994 stock split, each such outstanding
share is entitled to one-half of a Right. Each Right, when exer- cisable,
entitles its holder to buy one-thousandth of a share of the newly authorized
preferred stock at an exercise price of $35, subject to adjustment. The Rights
initially will trade together with the Company's common stock and will not be
exercisable unless certain triggering events occur. Until exercisable, the
Rights will not have a dilutive effect on earnings per share. Following certain
events, including the acquisition of 15% of the Company's common stock, the
Board of Directors may elect to exchange each outstanding whole Right for two
shares of the Company's common stock, subject to adjustment. In certain other
circumstances, including the acquisition of 20% or more of the Company's common
stock, the Rights may become exercisable for common stock of the Company having
a market value of twice the Right's exercise price. The Company will be
entitled to redeem the Rights at one cent per Right at any time prior to the
time the Rights become exercisable.
24
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
If the Company is acquired in a merger or other business combination transaction
and the Rights have not been redeemed, each Right will entitle its holder to
purchase, at the Right's then current exercise price, a number of the acquiring
company's common shares having a market value at the time of two times the
Right's exercise price. The Rights will expire on February 22, 2001.
4. EMPLOYEE BENEFIT PLANS:
STOCK PURCHASE PLAN
The Company has an employee discount stock purchase plan for all eligible
employees of HBO & Company and designated subsidiaries. Participants may use up
to 10% of their compensation to purchase through payroll deductions the
Company's common stock at the end of each plan year for 85% of the lower of the
beginning or ending stock price in the plan year. At December 31, 1994, there
were 793,784 shares of stock reserved for issuance under this plan.
STOCK OPTION PLANS
The Company has nonqualified and incentive stock option plans to provide key
employees and directors with an increased incentive to work for the success of
the Company. The option price for all stock options is the market value at the
dates of grant. The options expire 10 years after the dates of their respective
grants. Transactions involving stock options follow:
<TABLE>
<CAPTION>
OPTION
OPTIONS PRICE RANGE
<S> <C> <C>
BALANCE - DECEMBER 31, 1991 4,379,712 $ 3.00 - $12.09
Granted 320,750 $ 5.94 - $ 8.44
Exercised 1,708,730 $ 3.00 - $ 5.94
Forfeited 315,000 $ 3.00 - $ 5.06
--------- ---------------
BALANCE - DECEMBER 31, 1992 2,676,732 $ 3.00 - $12.09
Granted 478,000 $10.00 - $11.53
Exercised 672,930 $ 3.00 - $10.00
Forfeited 102,700 $ 3.00 - $12.09
--------- ---------------
BALANCE - DECEMBER 31, 1993 2,379,102 $ 3.00 - $11.53
Granted 602,352 $12.89 - $32.50
Exercised 610,863 $ 3.00 - $13.75
Forfeited 88,259 $ 4.57 - $22.59
--------- ---------------
BALANCE - DECEMBER 31, 1994 2,282,332 $ 3.00 - $32.50
--------- ---------------
EXERCISABLE AT DECEMBER 31, 1994 1,083,293 $ 3.00 - $26.87
--------- ---------------
RESERVED FOR FUTURE OPTIONS 1,072,082
---------
---------
</TABLE>
PROFIT SHARING AND SAVINGS PLAN
The Company has a qualified profit sharing and savings plan covering all
employees with more than six months of service. Participants, except for
certain highly paid employees who are subject to certain limitations, may
contribute up to 15% of their compensation to the plan. The Company matches
these contributions at a rate determined annually by its Board of Directors (75%
of the first 4% of compensation contributed in 1994, 1993 and 1992). In
addition, the Company's Board may, at its discretion, authorize within
prescribed limits a profit sharing contribution to all eligible participants.
Total plan expense was $2.6 million in 1994, $1.9 million in 1993 and $1.6
million in 1992.
5. INCOME TAXES:
During the first quarter of 1993, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes," which
requires the use of the liability method in accounting for income taxes. The
Company has determined that there is no cumulative adjustment due to the
adoption of SFAS No. 109. Prior to the adoption of SFAS No. 109, the Company
accounted for income taxes using Accounting Principles Board Opinion No. 11.
The components of the Company's net deferred tax liabilities follow:
<TABLE>
<CAPTION>
December 31,
(000 Omitted) 1994 1993
<S> <C> <C>
DEFERRED TAX LIABILITIES:
Capitalized Software $ (9,465) $ (8,084)
Tax vs. Book Depreciation (641) (857)
Other (1,102) (1,274)
-------- --------
Total Deferred Tax Liabilities (11,208) (10,215)
-------- --------
DEFERRED TAX ASSETS:
Accruals 4,075 2,748
Deferred Revenue 940 1,041
Nonrecurring Charges 340 720
Bad Debts 574 620
Other 789 375
-------- --------
Total Deferred Tax Assets 6,718 5,504
-------- --------
NET DEFERRED TAX LIABILITIES $ (4,490) $ (4,711)
-------- --------
--------
</TABLE>
The provision for income taxes consists of the
following components:
<TABLE>
<CAPTION>
(000 Omitted) 1994 1993 1992
<S> <C> <C> <C>
Current Portion -
Federal $ 16,208 $ 8,421 $ 5,378
State 1,340 1,101 1,237
-------- -----------------------
17,548 9,522 6,615
-------- -----------------------
Deferred Portion -
Federal 1,132 2,791 310
State 150 365 337
-------- -----------------------
1,282 3,156 647
-------- -----------------------
Total Provision for
Income Taxes $ 18,830 $ 12,678 $ 7,262
-------- -----------------------
--------
</TABLE>
25
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Deferred tax charges (credits) result from timing differences in
the recognition of certain items for tax and financial statement
purposes. The tax effects of major timing differences are
as follows:
<TABLE>
<CAPTION>
(000 Omitted) 1992
<S> <C>
RELATED TO CURRENT BALANCE SHEET ITEMS-
Accrued Expenses $ 766
Nonrecurring Charge-Related Accruals 717
Allowance for Doubtful Accounts 34
Gross Profit on Equipment Purchase and
Software License Agreements and Discounted
Service Agreements (31)
Deferred Revenue (488)
Other, Net (516)
-------
482
-------
RELATED TO NONCURRENT BALANCE SHEET ITEMS-
Research and Development Capitalization, Net 1,316
Accelerated Depreciation 65
Tax Reserve Adjustment (1,205)
Other, Net (11)
-------
165
-------
TOTAL DEFERRED TAX CHARGE $ 647
-------
-------
</TABLE>
A reconciliation from the federal statutory rate to the total provision for
income taxes is as follows:
<TABLE>
<CAPTION>
(000 Omitted) 1994 1993 1992
<S> <C> <C> <C>
Tax at Statutory Rate $ 16,447 $ 11,015 $ 7,147
State Income Taxes, Net of
Federal Tax Benefit 2,349 1,500 1,022
Tax Reserve Adjustment (424) -- (1,205)
Deferred Tax Turnaround at
Statutory Rate -- -- (8)
Other, Net 458 163 306
-------- -----------------------
$ 18,830 $ 12,678 $ 7,262
-------- -----------------------
--------
</TABLE>
6. CURRENT LIABILITIES:
The following significant items are included in current liabilities at
year-end:
<TABLE>
<CAPTION>
(000 Omitted) 1994 1993
<S> <C> <C>
Deferred Revenue $ 51,215 $ 19,299
Accounts Payable 17,941 13,304
Customer Deposits 10,733 6,347
Notes Payable 10,000 45
Accrued Commissions and Bonuses 9,490 5,922
Accrued Royalties 7,029 724
Other 24,974 18,030
--------- ---------
TOTAL $ 131,382 $ 63,671
--------- ---------
---------
</TABLE>
7. ACQUISITION OF IBAX HEALTHCARE SYSTEMS:
On May 31, 1994, HBOC completed the acquisition of IBAX Healthcare Systems
(IBAX), a partnership of subsidiaries of Baxter Healthcare Corp. (Baxter) and
International Business Machines Corporation (IBM) focused on extending
healthcare management within and beyond the hospital to the community care
network. HBOC purchased the net assets (approximately $62 million of assets and
$33 million of liabilities at May 31) of IBAX for approximately $44 million in a
transaction accounted for as a purchase. The cost of the acquisition has been
allocated on a preliminary basis to the estimated fair market value of the
assets acquired and the liabilities assumed. The primary asset acquired was
customer lists, a $52 million intangible asset, which is being amortized over 15
years. The results of operations of IBAX are included in the accompanying
financial statements since the date of acquisition. The following unaudited pro
forma information was prepared assuming the transaction was consummated on
January 1 of each year presented:
<TABLE>
<CAPTION>
Year Ended Dec. 31,
(000 Omitted Except for Per Share Data) 1994 1993
<S> <C> <C>
Revenue $ 353,424 $ 315,394
Net Income $ 30,724 $ 22,051
Earnings Per Share $ .93 $ .67
--------- ---------
---------
</TABLE>
This pro forma information is not necessarily indicative of the results of
operations that would have been attained had the acquisition been consummated on
January 1 of each year presented or that may be attained in the future.
8. ACQUISITION OF SERVING SOFTWARE, INC.:
In September 1994 HBOC completed the acquisition of Serving Software, Inc. in a
transaction accounted for as a pooling of interests. Serving Software is a
Minneapolis-based developer of healthcare enterprise resource management
software. All of Serving Software's outstanding shares were exchanged for
1,479,029 shares of HBO & Company common stock. All prior period financial
information has been restated. Acquisition related expense was expensed as
incurred.
Summarized results of operations of the separate companies for the nine-month
period ended September 30, 1994, are as follows:
<TABLE>
<CAPTION>
(000 Omitted) Nine Months Ended Sept. 30, 1994
HBOC SERVING SOFTWARE TOTAL
<S> <C> <C> <C>
Revenue $220,798 $10,990 $231,788
Net Income $ 19,206 $ 283 $ 19,489
------------------------ --------
--------
</TABLE>
26
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A reconciliation between revenue and net income as previously reported and as
restated follows:
<TABLE>
<CAPTION>
(000 Omitted) 1993 1992
<S> <C> <C>
REVENUE:
As Previously Reported $237,129 $202,221
Serving Software 13,662 12,733
-------- --------
As Restated $250,791 $214,954
NET INCOME:
As Previously Reported $ 18,347 $ 13,117
Serving Software 472 641
-------- --------
As Restated $ 18,819 $ 13,758
--------
--------
</TABLE>
9. LEGAL PROCEEDINGS:
In October 1986 a class action lawsuit was filed against the Company by a
plaintiff who purchased 500 shares of the Company's stock in 1985. In April
1991 the United States Federal District Court for the Northern District of
Georgia, Atlanta Division (the "District Court"), certified the case as a class
action on behalf of all purchasers of the Company's common stock on the open
market during the period from March 29, 1985, to April 20, 1986. The plaintiff
alleges that HBOC's filings with the Securities and Exchange Commission did not
fairly present the Company's financial position and results of operations for
the years ended December 31, 1984 and 1985, and the intervening quarters with
respect to, among other things, reporting the effect of discounting service
agreement contracts. In November 1992 the lawsuit was amended to add a claim
regarding the timeliness of recognition and disclosure of various expense items
by the Company during fiscal year 1985. The plaintiff also alleges that the
market price of the Company's common stock during the period was inflated due to
the alleged nondisclosures and misrepresentations in the Company's filings. In
early February 1993 the plaintiff evidenced an intention to allege substantial
damages. Management believes that the members of the class have suffered no
damages that entitle them to compensation and that, in any event, the
plaintiff's calculation of alleged damages is unrealistic and without merit.
On April 1, 1994, the District Court issued an Order granting the Company's
motion for summary judgement and dismissed the suit. On April 20, 1994, the
District Court issued an Order setting forth the reasons for dismissing the
suit. The plaintiff has filed a Notice of Appeal from the District Court's
determination. In the event that the outcome is ultimately unfavorable, the
amount of loss could be substantial. Management believes, however, that the
Company should be able to continue to defend the suit successfully.
The Company is subject to other legal proceedings and claims that arise in the
ordinary course of business. In the opinion of management, the amount of
potential liability with respect to these actions will not materially affect the
Company's financial position or results of operations.
10. SUBSEQUENT EVENT (UNAUDITED):
ACQUISITION OF ADVANCED LABORATORY SYSTEMS, INC.
On February 22, 1995, HBOC completed the acquisition of Advanced Laboratory
Systems, Inc. (ALS) for approximately $9 million. ALS is a Eugene,
Oregon-based developer of laboratory software for the healthcare and commercial
marketplace. The transaction will be accounted for as a purchase.
COMMON STOCK DATA
The tables below present the quarterly high and low closing sales prices and
dividend information for the Company's stock as furnished by The Nasdaq Stock
Market's National Market. There were 1,563 holders of record of the Company's
common stock as of December 31, 1994.
<TABLE>
<CAPTION>
1994
- ----
DIVIDENDS
DECLARED
QUARTER HIGH LOW PER SHARE
<S> <C> <C> <C>
First $ 26.38 $ 20.88 $ .04
Second $ 31.13 $ 20.75 $ .04
Third $ 34.50 $ 24.50 $ .04
Fourth $ 36.13 $ 29.00 $ .04
---------------------------- -------
Total $ .16
-------
-------
</TABLE>
<TABLE>
<CAPTION>
1993
- -----
DIVIDENDS
DECLARED
QUARTER HIGH LOW PER SHARE
<S> <C> <C> <C>
First $ 13.31 $ 10.31 $ .0375
Second $ 13.50 $ 8.44 $ .0375
Third $ 19.13 $ 13.19 $ .0375
Fourth $ 23.00 $ 16.38 $ .0375
---------------------------- -------
Total $ .15
-------
-------
</TABLE>
27
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of HBO & Company:
We have audited the accompanying consolidated balance sheets of HBO & Company (a
Delaware Corporation) and subsidiaries as of December 31, 1994 and 1993, and the
related consolidated statements of income, stockholders' equity and cash flows
for each of the three years in the period ended December 31, 1994. 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 generally accepted auditing
standards. 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 financial position of HBO & Company and subsidiaries
as of December 31, 1994 and 1993, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 1994,
in conformity with generally accepted accounting principles.
Atlanta, Georgia Arthur Andersen LLP
February 8, 1995
STOCKHOLDER INFORMATION
CORPORATE HEADQUARTERS
HBO & Company
301 Perimeter Center North
Atlanta, Georgia 30346
(404) 393-6000
FAX: (404) 393-6092
STOCK LISTING
HBO & Company's common stock is traded on The Nasdaq Stock Market's National
Market (symbol: HBOC). Put and call options on HBO & Company common stock are
traded on the Pacific Stock Exchange.
ANNUAL MEETING
HBO & Company's annual stockholders' meeting will be held on Tuesday, May 9,
1995, at 9:00 a.m. Eastern time at its Corporate Headquarters. You are cordially
invited to attend.
TRANSFER AGENT AND REGISTRAR
Trust Company Bank
Corporate Trust Department
P.O. Box 4625
Atlanta, GA 30302
(800) 568-3476
(404) 588-7815
Communications regarding transfers, lost certificates, dividends or change of
address should be directed to Trust Company Bank at the above address.
INVESTOR RELATIONS
Security analysts and other investor inquiries should be directed to:
Monika H. Brown
Investor Relations
HBO & Company
(404) 668-5926
The Company routinely sends its annual reports, interim quarterly reports and
press releases to interested investors. To be included on our mailing list,
please write the Company or call (404) 668-5492.
S.E.C. FORM 10-K
Copies of the 10-K report filed with the Securities and Exchange Commission are
available without charge, except for exhibits. To request a copy, please write
the Company or call (404) 668-5492.
AUDITORS
Arthur Andersen LLP
133 Peachtree Street, N.E.
Atlanta, GA 30303
(404) 658-1776
CORPORATE COUNSEL
Jones, Day, Reavis & Pogue
3500 One Peachtree Center
303 Peachtree Street, N.E.
Atlanta, GA 30308-3242
(404) 521-3939
28
<PAGE>
BOARD OF DIRECTORS
Holcombe T. Green, Jr. -- Chairman
Chairman and Chief Executive Officer
WestPoint Stevens Inc.
Charles W. McCall
President and Chief Executive Officer
HBO & Company
John P. Crecine
Chief Executive Officer
Integrated Digital Systems, Inc.
Alfred C. Eckert III
President
Greenwich Street Capital Partners, Inc.
Partner
Greycliff Partners
Alton F. Irby III
Principal and Deputy Chairman
J O Hambro Magan & Co.
Gerald E. Mayo
Chairman and President
Midland Financial Services, Inc.
James V. Napier
Chairman
Scientific-Atlanta, Inc.
Charles E. Thoele
Consultant and Director
Sisters of Mercy Health System
Donald C. Wegmiller
President and Chief Executive Officer
Management Compensation Group/HealthCare
CORPORATE OFFICERS
Charles W. McCall
President and Chief Executive Officer
Michael W. McCarty
Executive Vice President --
Sales
Jay P. Gilbertson
Vice President -- Finance
Treasurer, Assistant Secretary,
Chief Financial Officer
and Chief Accounting Officer
James A. Gilbert
Vice President --
General Counsel and Secretary
Michael L. Kappel
Vice President --
Pathways 2000
Russell G. Overton
Senior Vice President --
Business Development
Glenn N. Rosenkoetter
Senior Vice President --
Amherst Product Group,
Serving Software Group,
HBO & Company (UK)
David A. Schenk
Senior Vice President --
Connect Technology Group,
Outsourcing Services Group
Thanks to Kennestone Hospital (Marietta, Ga.) of PROMINA Northwest and Northside
Hospital (Atlanta, Ga.) for the use of their facilities for photography.
Designed by Crawford/Mikus Design, Inc., Atlanta, Ga.
Photography by Kevin Irby, San Francisco, Ca.
Printed by Color Graphics, Inc., Atlanta, Ga.
<PAGE>
HBO & COMPANY OFFICES
CORPORATE HEADQUARTERS
301 Perimeter Center North
Atlanta, GA 30346
(404) 393-6000
AMHERST, MA
210 Old Farm Road
Amherst, MA 01002
(413) 549-7100
ATLANTA, GA
303 Perimeter Center North
Atlanta, GA 30346
(404) 395-4200
CHARLOTTE, NC
2101 West Rexford Road
Suite 250
Charlotte, NC 28211-3478
(704) 362-9000
CHICAGO, IL
Continental Tower
1701 Golf Road
Tower One-Suite 1200
Rolling Meadows, IL 60008
(708) 956-2000
COVINGTON, KY
50 East RiverCenter Blvd.
Suite 600
Covington, KY 41011
(606) 491-4229
DALLAS, TX
601 East Corporate Drive
Lewisville, TX 75057
(214) 219-4200
EUGENE, OR
1400 Executive Parkway
Suite 120
Eugene, OR 97401-6712
(503) 485-2338
HAUPPAUGE, NY
140 Adams Avenue
Hauppauge, NY 11788
(516) 435-2300
LEXINGTON, MA
70 Westview Street
Third Floor
Lexington, MA 02173
(617) 863-0600
LONGWOOD, FL
587 East State Road 434
Longwood, FL 32750-5187
(407) 831-8444
LOS ANGELES, CA
11845 West Olympic Blvd.
West Tower-Suite 625
Los Angeles, CA 90064
(310) 312-8000
MINNEAPOLIS, MN
215 Riverplace Center
65 Main Street, S.E.
Minneapolis, MN 55414-1054
(612) 623-4038
MISSION VIEJO, CA
23120 Alicia Parkway
Suite 200
Mission Viejo, CA 92692
(714) 581-7125
MT. LAUREL, NJ
700 East Gate Drive
Suite 500
Mt. Laurel, NJ 08054
(609) 234-4041
PITTSBURGH, PA
One Penn Center West
Suite 120
Pittsburgh, PA 15276
(412) 787-7780
SALT LAKE CITY, UT
860 East 4500 South
Suite 300
Salt Lake City, UT 84107
(801) 262-0322
SAN FRANCISCO, CA
1900 South Norfolk Street
Suite 310
San Mateo, CA 94403
(415) 572-1920
TAMPA, FL
2805 West Busch Blvd.
Suite 221
Tampa, FL 33618
(813) 931-0158
HBO & COMPANY CANADA LTD.
1195 Glenora Drive
London, Ontario, Canada
N5X 2P6
(519) 432-4764
50 San Antonio Drive
Hamilton, Ontario, Canada
L9C 5N1
(905) 385-4997
HBO & COMPANY (UK) LIMITED
Lacemaker House
Chapel Street
Marlow
Buckinghamshire, UK
SL7 3HQ
011-44-1628-470800
10 Faraday Building
Highfields Science Park
University Blvd.
Nottingham, UK
NG7 2QP
011-44-115-9683200
2 Cross Lane
Dronfield
Sheffield, UK
S18 6SH
011-44-1246-298000
HBOC Computer Centre
Harold Wood Hospital
Grubbins Lane
Romford, UK
RM3 0NE
011-44-1708-371821
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
Subsidiaries of the Company are as follows:
<TABLE>
<CAPTION>
JURISDICTION
OF INCORPORATION
----------------------
<S> <C> <C> <C>
HBO & Company of Georgia 100% Delaware, USA
HBO & Company (UK) Limited 100% United Kingdom
HBO & Company (VI), Inc. 100% U.S. Virgin Islands
HBO & Company Canada Ltd. 100% Canada
HealthQuest Ltd. 100% owned until merged with Delaware, USA
HBO & Company of Georgia
in December 1992
HBO JV, Inc. 100% owned by HBO & Company of Delaware, USA
Georgia until dissolved
in 1993
IBAX Healthcare Systems Ltd. 100% owned until merged with Canada
HBO & Company Canada Ltd.
in December 1994
Data-Med Computer Services Limited 100% owned by HBO & Company United Kingdom
(UK) Limited
</TABLE>
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our report incorporated by reference in this Form 10-K into the Company's
previously filed Registration Statements on Form S-8, which are listed in Part
IV, Item 14 (a)3 of this Form 10-K.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
March 13, 1995
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<EXCHANGE-RATE> 1
<CASH> 5,825
<SECURITIES> 0
<RECEIVABLES> 103,206
<ALLOWANCES> 1,749
<INVENTORY> 1,280
<CURRENT-ASSETS> 122,663
<PP&E> 87,764
<DEPRECIATION> 61,166
<TOTAL-ASSETS> 233,877
<CURRENT-LIABILITIES> 131,382
<BONDS> 0
<COMMON> 2,455
0
0
<OTHER-SE> 89,020
<TOTAL-LIABILITY-AND-EQUITY> 233,877
<SALES> 136,381
<TOTAL-REVENUES> 327,201
<CGS> 55,317
<TOTAL-COSTS> 172,894
<OTHER-EXPENSES> 106,287
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,910
<INCOME-PRETAX> 46,989
<INCOME-TAX> 18,830
<INCOME-CONTINUING> 28,159
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 28,159
<EPS-PRIMARY> .85
<EPS-DILUTED> .85
</TABLE>
