<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
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, 1995
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
--------------------------
HBO & COMPANY
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 37-0986839
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
301 PERIMETER CENTER NORTH
ATLANTA, GEORGIA 30346
(Address of principal (Zip Code)
executive office)
</TABLE>
Registrant's telephone number, including area code: (770) 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 29, 1996:
$3,984,744,951.
Indicate the number of shares outstanding of the registrant's common stock
as of the latest practicable date:
<TABLE>
<CAPTION>
OUTSTANDING AT
CLASS FEBRUARY 29, 1996
- ------------------------------ ------------------
<S> <C>
Common Stock, $.05 par value 40,249,949
</TABLE>
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Stockholders for the year ended December
31, 1995, 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 14, 1996, are incorporated by reference into Part
III of this Form 10-K.
All prior period amounts have been restated to reflect the 1995 acquisition
of CliniCom Incorporated.
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PART I
ITEM 1: BUSINESS
GENERAL
OVERVIEW. HBO & Company (HBOC or the Company), incorporated in 1974,
develops integrated patient care, clinical, financial and strategic management
software solutions for the healthcare industry. These open systems applications
facilitate the integration of clinical, financial and administrative data from a
wide range of customer systems and software. HBOC's broad product portfolio can
be implemented in a variety of combinations from stand-alone to enterprisewide,
enabling customers to add incremental capabilities to existing information
systems without making prior capital investments obsolete. HBOC also provides a
full complement of network communications technologies, including wireless
capabilities, as well as outsourcing services that are offered under contract
management agreements whereby its staff manages and operates data centers,
information systems, organizations and business offices of healthcare
institutions of various sizes and structures.
HBOC markets its products and services to integrated health delivery
networks, hospitals, physicians' offices, home health providers, pharmacies,
reference laboratories, managed care providers and payers. At December 31, 1995,
HBOC had 2,700 customers of which 2,200 were United States community hospitals.
Currently there are a total of 5,300 community hospitals in the United States.
HBOC also sells its products and services internationally through subsidiaries
and/or distribution agreements in the United Kingdom, Canada, Ireland, Saudi
Arabia, Australia, Puerto Rico and New Zealand.
As of December 31, 1995, the Company's customers include 897 active users of
patient care systems, 986 active users of clinical/departmental systems, 1,298
active users of financial systems, 755 active users of decision support systems
and 68 active users of enterprise information systems. In addition, HBOC had 183
networking technology customers and 15 outsourcing services sites.
As of December 31, 1995, HBOC had 3,363 employees worldwide.
INDUSTRY. The healthcare industry is undergoing significant and rapid
change. Healthcare delivery costs have increased dramatically in recent years as
compared to the overall rate of inflation. The growing influence of managed care
has resulted in increased pressure on participants in healthcare systems to
contain costs. Accordingly, healthcare systems are migrating toward more managed
care reimbursement, including discounted fee-for-service and capitation. Under
capitation, providers are paid a predetermined fee per individual to provide all
healthcare services, thereby assuming the potential financial risks of
escalating healthcare costs.
To deliver care in a more cost-effective manner, providers are forming
integrated health delivery networks that may include acute-care hospitals,
physicians' offices, outpatient clinics, homecare and long-term care facilities.
The success of these comprehensive delivery networks is dependent on effectively
managing and delivering information to caregivers and managers across multiple
points of care.
Traditionally, the hospital information systems market has been the largest
segment of healthcare information services. According to industry analysts, the
healthcare industry spent approximately $10 billion in 1995 for products and
services to support automated information systems and the growth in healthcare
information systems expenditures will continue to rise, reaching an expected $20
billion by 2000.
In addition to this expanding market opportunity, the demand for healthcare
information systems is also increasing because hospitals and other providers are
under pressure to quantify and control their costs. As a result, they are
spending more of their operating budgets on systems that enable them to access
such information. In the 1995 Annual HIMSS/HP Leadership Survey, an
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industry survey conducted by Hewlett-Packard at the Healthcare Information and
Management Systems Society conference, 75 percent of the respondents stated that
their information system investments will increase at a rate of 20 percent or
more over the next two years.
Healthcare information systems are evolving to meet the needs of a changing
marketplace. Initially, these systems were financially oriented, focusing on the
ability to capture charges and generate patient bills. However, as reimbursement
has shifted more toward risk sharing and capitation, providers and payers need
to better manage risk by controlling costs, demonstrating quality, measuring
outcomes and influencing utilization. Because this requires an integration of
clinical and financial information, systems have evolved from processing billing
information to include enterprisewide systems capable of capturing, storing and
analyzing both clinical and financial data across the continuum of care.
While the availability of a complete, timely and cost-effective
patient-focused information system is essential to providing quality care and
controlling costs, the source of patient information usually covers a number of
different sites. Therefore, current and historical paper records must be made
available by computer at all points of care. All players in the delivery network
need information systems that can capture data at the point of care, communicate
data across the continuum of care and process and store large volumes of data
necessary for the development of a lifelong computer-based patient record.
STRATEGY
HBOC's strategy is to provide a comprehensive range of computer-based
information systems and services designed to meet the evolving needs of health
enterprises while protecting as much as possible the current systems investments
of those enterprises. The key elements of this strategy are as follows:
LEVERAGE THE EXISTING CUSTOMER BASE. With one or more of its products
installed in approximately 42 percent of the community hospitals in the United
States, HBOC is a leader in the healthcare information systems marketplace. HBOC
expands its customer base through sales and marketing efforts and through
strategic acquisitions such as IBAX Healthcare Systems and First Data Health
Systems Corporation, which had 475 and 500 hospital customers, respectively (see
"Recent Acquisitions" below). This expanded customer base offers HBOC
significant opportunities to sell both additional applications of its
established product lines and its Pathways 2000 enterprisewide solutions. In
addition, HBOC believes its relationships with customers and its familiarity
with their existing systems give HBOC an advantage over many of its competitors
in marketing applications to meet the evolving needs of these customers. HBOC
also seeks to further leverage its relationships with existing customers to
access additional healthcare organizations throughout newly formed health
delivery networks.
PROVIDE ENTERPRISEWIDE SOLUTIONS TO THE EVOLVING HEALTHCARE MARKET. HBOC
offers one of the broadest product lines in the healthcare information systems
industry to serve patient care, clinical, financial and strategic management
needs. Through its Pathways 2000 family of enterprisewide information systems,
HBOC facilitates the more efficient integration of delivery networks. HBOC's
Pathways 2000 client/server applications are designed to provide a common
information infrastructure that enables organizations to collect, manage and
disseminate clinically oriented information organized on the basis of a
patient's entire history of care. The Pathways 2000 product line provides the
capability to create longitudinal computerized patient records as well as
connectivity along the entire continuum of care, enabling users to access
patient data from any point within an integrated delivery system.
PROVIDE SUPERIOR INTEGRATION OF PRODUCTS AND DATA. HBOC's products offer
healthcare organizations open system solutions with the flexibility to add
incremental capabilities, which protect their capital investments. In addition,
HBOC's client/server architecture facilitates the integration of clinical data
with financial and administrative data from both HBOC and non-HBOC applications
for
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efficient resource allocation, allowing organizations to benefit from
price/performance advances. HBOC believes that these features will be of key
significance to its customers as they face industry consolidation and evolve as
part of integrated care delivery systems.
EXPAND INTO NEW MARKETS. HBOC strives to provide premier business-critical
applications to every essential care setting as well as to the payer market.
HBOC believes that as healthcare organizations expand and decentralize,
management information requirements at the point of care will increase. HBOC is
developing or has acquired client/server applications to meet these needs in the
physician's office, home health market, reference laboratory and the payer
market. Applications for other components of the care delivery network, such as
long-term care, are under consideration.
CONTINUE PRODUCT DEVELOPMENT. HBOC believes that a key to its growth is an
ongoing focus on research and development to ensure its product offerings will
continue to meet the evolving needs of its existing and potential customer base.
HBOC's research efforts focus on enhancements to existing product offerings as
well as new product development. In developing products, HBOC's strategy is to
ensure its information systems are highly flexible and quickly adaptable and can
serve the information access needs of an increasingly broad range of users.
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. While HBOC's
efforts focus primarily on the internal research and development of new
products, HBOC has made and continues to explore strategic acquisitions of
developers of niche product software to complement and diversify its product
portfolio.
RECENT ACQUISITIONS
A substantial portion of HBOC's recent growth has resulted from acquisitions
of companies that have expanded its product lines and enhanced its installed
customer base. The following table outlines these acquisitions:
<TABLE>
<CAPTION>
DATE ACQUIRED COMPANY PRIMARY SIGNIFICANCE
- --------------- ---------------------------------------- ---------------------------------------------
<S> <C> <C>
June 1993 Biven Software, Inc. Managed care applications
December 1993 Data-Med Computer Services Limited Installed base of 100 hospitals in the United
Kingdom
May 1994 IBAX Healthcare Systems Presence in the IBM AS/400 market; installed
base of 475 hospitals
September 1994 Serving Software, Inc. Health enterprise patient and resource
scheduling software
December 1994 Care 2000, Inc. Case management methodologies
February 1995 Advanced Laboratory Systems, Inc. Laboratory software for the healthcare and
commercial marketplaces
June 1995 First Data Health Systems Corporation Installed base of 500 hospitals
July 1995 Pegasus Medical Ltd. Electronic patient record built by physicians
for physicians
September 1995 CliniCom Incorporated Multidisciplinary point-of-care clinical
information systems
</TABLE>
PRODUCT SUMMARY
HBOC's products and services are designed to serve the information needs of
all participants in the integrated health delivery system: the caregiver, in
whatever discipline or capacity; the institution or enterprise, in whatever
aspect of its business; and the patient (increasingly referred to by healthcare
organizations as the "customer"), in whatever setting of care. Today, the health
services delivery network through which these participants relate can include
acute-care hospitals, outpatient clinics,
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physicians' offices, reference laboratories, commercial pharmacies, long-term
care facilities, patients' homes and wellness centers. In addition, employers,
payers and governmental agencies play a major role in directing how healthcare
resources are deployed.
To serve this wide-ranging and diverse network of health delivery, HBOC
bases its offerings on a strategic mix of applications and technologies backed
by implementation, support and other services. HBOC's portfolio of products is
organized into five components: acute-care, infrastructure, clinical/ practice
management, access management and enterprise management. In addition, HBOC
offers a suite of services that allow healthcare organizations to select just
the right level of resources to most effectively serve their needs.
ACUTE-CARE -- Acute care applications automate the operation of individual
departments and their respective functions within the traditional hospital
setting. These hospital-based transaction and decision support systems form the
core of systems that, in conjunction with other tools designed to directly
support clinical decision-making, help streamline the care process over the
continuum of care delivery settings. HBOC's acute-care systems include
applications for patient care, laboratory, pharmacy, radiology, financials and
management decision-making.
INFRASTRUCTURE -- Infrastructure applications are not limited to a single
department or function; rather, they form the foundation of the emerging
information structures of health enterprises. HBOC's wide array of networking
and database applications provides the key elements for integrating and uniting
providers across the continuum of care. Components include local, metropolitan
and wide area networks, as well as wireless technology and electronic data
interchange (EDI) capabilities. An interface manager coordinates the flow of
information, often from disparate sources, throughout the entire system, and a
data repository stores all patient information for access throughout the
enterprise. In bringing the enterprise together, these solutions establish the
physical basis for a lifelong patient record.
CLINICAL/PRACTICE MANAGEMENT -- Clinical applications facilitate and improve
the actual practice of medicine in a variety of care settings, whether
acute-care, physician office, home or clinic. Drawing from a common database of
patient information, computer technology gives professionals immediate access to
the critical information necessary to provide better quality care wherever they
are in the delivery system. There are applications that allow physicians and
other clinicians to document all patient information at the point of care and
others that make use of patient information to create protocols and care
pathways. Still other applications give them the tools they need to more
efficiently manage their practices or businesses and thereby provide better
service to those under their care. These clinical solutions support the need for
collaboration among multiple disciplines and for integration with other
information systems in the health delivery network.
ACCESS MANAGEMENT -- Access management solutions allow the healthcare
organization's "customers" to access health services more easily and
cost-effectively. Indexing applications organize the vast information collected
about a person throughout the enterprise, allowing patients to be tracked and
information about them to be accessed anywhere they go for care. Scheduling
systems instantly register and schedule patients from anywhere to anywhere in
the enterprise, as well as the resources needed to serve them. Other system
capabilities allow for information tied to specific episodes of care to be
collected and managed. Besides increasing accuracy, these applications help cut
patient frustration with having to provide duplicate information from one
setting of care to another and therefore enhance "customer satisfaction."
ENTERPRISE MANAGEMENT -- Enterprise management applications facilitate and
improve the management and operation of all aspects of the healthcare enterprise
payer as well as provider. These applications focus on providing managers with
the clinical, financial and other information necessary to contain costs while
ensuring high quality care. Examples include utilization review and accounts
receivable management, as well as managed care contracting and member management
applications.
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The following table outlines the principal products in each area:
<TABLE>
<CAPTION>
PRODUCT DESCRIPTION
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
ACUTE-CARE:
STAR, SAINT, The Precision Alternative, AdVantage RISC-based patient care, clinical and financial systems
(including a laboratory system that also has
commercial, reference and hybrid laboratory
capabilities)
HealthQuest, Series 5000 IBM mainframe-based patient care, clinical, and
financial systems
Series, OR Series IBM AS/400-based patient care, clinical and financial
systems
Surgi-Server 2000, Omni-Server 2000, DME 2000 PC-based scheduling, management and equipment tracking
systems
Host Based Systems Tandem-based patient care management systems and remote
processing systems for patient financials
INFRASTRUCTURE:
Pathways Interface Manager Interface engine that manages network traffic and
performs protocol conversion and translation
Pathways Health Network Server Relational database and repository for all patient
information
Pathways Image Manager Medical records document imaging and workflow management
Networking technologies Local and wide area networks and wireless technology
Value Added Network Electronic data interchange (EDI) capabilities that
support the movement of information among various
sources
CLINICAL/PRACTICE MANAGEMENT:
Pathways Clinical Workstation Workstation for inputting and viewing online clinical
information (later phases will have multimedia
capabilities)
Smart Medical Record Patient information documentation tool for physicians
Physician Practice Management System Billing, time management and administration for
physicians' offices
Pathways Care Manager Multidisciplinary point-of-care system
Pathways Homecare Clinical, administrative and human resource management
for home health
ACCESS MANAGEMENT:
Pathways Health Network Management Enterprisewide system for managing information about an
enrolled population
Pathways Healthcare Scheduling Enterprisewide patient and resource scheduling system
</TABLE>
5
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<TABLE>
<CAPTION>
PRODUCT DESCRIPTION
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
Pathways Encounter Management Enterprisewide system for managing information about
patients' episodes of care
ENTERPRISE MANAGEMENT:
Pathways Contract Management Monitoring and management of multiple varied contracts
for providers with managed care focus
Pathways Managed Care Full-function management of contractual agreements for
providers, payers, HMOs, PPOs, PHOs and others
TRENDSTAR Decision support system, including cost accounting,
budgeting and forecasting
QUANTUM Enterprise information system
Pathways Decision Support Enterprisewide decision support system
</TABLE>
In addition to the above applications, HBOC offers software applications
provided by a host of industry-leading business partners. These partnerships
also include value-added reseller agreements with computer hardware
manufacturers such as Data General Corp., Digital Equipment Corp.,
Hewlett-Packard Co. and IBM Corp.
INTERNATIONAL OFFERINGS
Most of the Pathways 2000 and acute-care products in HBOC's product
portfolio are offered internationally. 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.
SERVICES
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
customer requirements. Equipment maintenance services are provided through
HBOC's various hardware partners.
ENTERPRISE SERVICES. HBOC provides a suite of specially developed services
to serve the needs of enterprises whose dependence on information systems is
growing. It includes services such as UNIX processing support, disaster recovery
and single-point issue resolution. In addition, a line of service offerings
called Service Tracks 2000 provides a flexible suite of implementation services
that can include an enterprise project manager to assist in planning, installing
and supporting Pathways 2000 products.
CONNECT TECHNOLOGY GROUP. 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 a comprehensive Value Added
Network, a suite of information services that extend local and metropolitan area
networks outside of the hospital to include payers, vendors, financial
institutions and the Internet. All together, HBOC's networking solutions provide
customers with a complete network solution for electronic access throughout a
provider enterprise.
OUTSOURCING SERVICES GROUP. HBOC has been in the outsourcing business in
the United States for more than 20 years and offers outsourcing services in the
United Kingdom as well. With the change and uncertainty engendered by healthcare
reform and resulting economic pressures, information systems outsourcing is
becoming increasingly popular in the United States. Outsourcing services go
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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
by Business Unit" on page 17 of the Company's Annual Report to Stockholders for
the year ended December 31, 1995 (the Annual Report), and under the caption
"Revenue Recognition" 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.
BACKLOG
Information regarding backlog as of December 31, 1995, is included in the
"Financial Review" section under the caption "General" on page 14 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 enhanced existing products for installed
systems. The Company expensed $42,964,000 (9% of revenue) for research and
development activities during 1995, as compared to $32,130,000 (9% of revenue)
and $25,829,000 (10% of revenue) during 1994 and 1993. The Company capitalized
25%, 25% and 23% of its research and development expenditures in 1995, 1994 and
1993.
Information regarding research and development is included in the schedule
"Five-Year Selected Financial Information" on page 13 of the Annual Report and
under the captions "Capitalized Software" and "Nonrecurring Charge" 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," "PATHWAYS 2000," "PATIENT VIEW," "SAINT," "SAINT PLUS," "THE
PRECISION ALTERNATIVE," and the triangular design that forms the Company logo,
but such registration provides limited protection as to the trademark or service
mark.
COMPETITION
HBOC 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 comparable in size to the
Company, the Company believes that few competitors can offer the breadth and
depth of product and service offerings it provides or the number of platforms
and operating systems it supports.
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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 1995.
The Company also owns two buildings and leases space in 40 buildings
throughout the United States, Canada, the United Kingdom, Ireland, Israel and
Australia 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 8 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, 1995, 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 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.
9
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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, 1996. 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 14, 1996, under the
captions "Election of Directors" and "Security Ownership of Certain Beneficial
Owners and Management," which is incorporated herein by reference.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- -------------------- --- --------------------------------------------------
<S> <C> <C>
Charles W. McCall 51 Director, President and Chief Executive Officer
Albert J. Bergonzi 46 Executive Vice President -- Sales and Pathways
2000
James A. Gilbert 47 Senior Vice President -- Charlotte Product Group,
Mainframe Products Group, Series Product Group,
General Counsel and Secretary
Jay P. Gilbertson 35 Senior Vice President -- Finance, Chief Financial
Officer, Principal Accounting Officer, Treasurer
and Assistant Secretary
Russell G. Overton 48 Senior Vice President -- Business Development
</TABLE>
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 EIS
International, Inc. and WestPoint Stevens Inc.
Albert J. Bergonzi has served as Executive Vice President -- Sales of HBOC
since June 1995 and Pathways 2000 since March 1996. From 1985 through 1995 he
served as the Vice President and General Manager of HBOC's Amherst Product
Group.
James A. Gilbert has served as Senior Vice President -- Charlotte Product
Group, Mainframe Products Group and Series Product Group since 1995. Prior to
that he served as Vice President from 1988 through 1995. He has served as
General Counsel since joining the Company in 1988 and as Secretary since 1992.
Jay P. Gilbertson has served as Senior Vice President -- Finance since 1995.
Since 1993 he has served as Vice President -- Finance, Chief Financial Officer,
Principal Accounting Officer, Treasurer and Assistant Secretary. In 1992, he
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.
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 HBOC).
ITEM 11: EXECUTIVE COMPENSATION
The Company's definitive Proxy Statement for the Annual Meeting of
Stockholders to be held on May 14, 1996, contains under the captions
"Compensation of Directors" and "Executive Compensation," information relating
to director and executive compensation for the year ended December 31, 1995, 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 14, 1996, 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 14, 1996, under the caption
"Certain Relationships and Related Transactions" is incorporated herein by
reference.
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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
<TABLE>
<C> <S>
- Report of Independent Public Accountants as to Schedules Supporting
Financial Statements
- Schedules Supporting Financial Statements
SCHEDULE
NUMBER
- --------
II Valuation and Qualifiying Accounts for the Three Years Ended December
31, 1995.
</TABLE>
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 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>
11
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- ------------------------------------------------------------------------
<C> <S>
ON MARCH 27, 1992, AS A PART OF ITS FORM 10-K FOR THE YEAR ENDED DECEMBER 31,
1991:
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.
ON MARCH 26, 1993, AS PART OF ITS FORM 10-K FOR THE YEAR ENDED DECEMBER 31,
1992:
10(d) -- Standard Form of Credit Agreement without recourse between the
Company and The First National Bank of Boston.
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:
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.
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.
ON JUNE 14, 1994, AS PART OF ITS FORM 8-K REPORT 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 AUGUST 11, 1994:
2 -- Agreement of Merger dated June 30, 1994, by and among HBO & Company,
HBO & Company of Georgia and Serving Software, Inc.
3 -- Amended Bylaws of Registrant.
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.
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- ------------------------------------------------------------------------
<C> <S>
*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 REPORT FOR THE QUARTER ENDED JUNE
30, 1994:
10 -- Second Amendment to the 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 AUGUST 17, 1994, AS PART OF ITS FORM S-8 (REGISTRATION NUMBER 33-82962):
*4 -- HBO & Company 1990 Executive Incentive Plan, as amended.
ON SEPTEMBER 15, 1994, AS PART OF ITS FORM S-8 (REGISTRATION NUMBER 33-84034):
*4 -- 1986 Incentive Stock Option Plan of Serving Software, Inc.
ON NOVEMBER 10, 1994, AS PART OF ITS FORM 10-Q REPORT 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.
ON MARCH 17, 1995, AS PART OF ITS FORM 10-K FOR THE YEAR ENDED DECEMBER 31,
1994:
*4 -- Chief Executive Officer Incentive Plan.
ON MAY 9, 1995, AS PART OF ITS FORM S-8 (REGISTRATION NUMBER 33-59173):
*4 -- HBO & Company 1986 Nonqualified Stock Option Agreement, HBO & Company
1991 Nonqualified Stock Option Agreement 1 and HBO & Company 1991
Nonqualified Stock Option Agreement 2.
ON MAY 9, 1995, AS PART OF ITS FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1995:
10 -- Second Amendment to Receivables Purchase Agreement dated March 31,
1995.
ON JUNE 23, 1995, AS PART OF ITS FORM 8-K DATED JUNE 23, 1995, AS AMENDED BY
FORM 8-KA DATED JULY 31, 1995, AND FILED WITH THE COMMISSION ON JULY 31, 1995, AS
FURTHER AMENDED BY FORM 8-KA2 DATED AUGUST 8, 1995, AND FILED WITH THE COMMISSION
ON AUGUST 8, 1995:
2 -- Stock Purchase Agreement, dated as of May 16, 1995, among First Data
Corporation, FDC Health, Inc., First Data Health Systems Corporation,
HBO & Company, and HBO & Company of Georgia, as amended by letter
agreement dated June 17, 1995.
ON JULY 31, 1995, AS PART OF ITS FORM 10-Q FOR THE QUARTER ENDED JUNE 30,
1995:
10(a) -- Interim Loan and Security Agreement between General Electric Capital
Corporation, HTG Corp. and HBO & Company of Georgia and letter
agreement between HTG Corp. and HBO & Company of Georgia, dated June
26, 1995.
ON AUGUST 17, 1995, AS PART OF ITS FORM S-4 REGISTRATION STATEMENT DATED
AUGUST 17, 1995, AS AMENDED BY AMENDMENT NO. 1 TO FORM S-4 DATED SEPTEMBER 1,
1995, AND FILED WITH THE COMMISSION ON SEPTEMBER 1, 1995:
2 -- Agreement of Merger dated July 14, 1995, by and among HBO & Company,
HBO & Company of Georgia and CliniCom Incorporated.
ON OCTOBER 5, 1995, AS PART OF ITS FORM S-8 (REGISTRATION NUMBER 33-63213):
*4 -- 1985 Employee Stock Option Plan of CliniCom Incorporated.
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- ------------------------------------------------------------------------
<C> <S>
ON OCTOBER 5, 1995, AS PART OF ITS FORM S-8 (REGISTRATION NUMBER 33-63217):
*4 -- Nonemployee Director Stock Option Plan of CliniCom Incorporated.
THE FOLLOWING EXHIBITS ARE INCLUDED IN THIS FORM 10-K:
*4 -- HBO & Company 1983 Employee Discount Stock Purchase Plan, as
restated.
11 -- Computation of Earnings (Loss) Per Share of Common Stock for the
Years Ended December 31, 1995, 1994 and 1993.
13 -- Annual Report to Stockholders for the year ended December 31, 1995.
21 -- Subsidiaries of Registrant.
23 -- Consent of Arthur Andersen LLP.
27a -- Financial Data Schedule.
27b -- Financial Data Schedule restated for December 31, 1994.
27c -- Financial Data Schedule restated for March 31, 1995.
27d -- Financial Data Schedule restated for June 30, 1995.
(b) Reports on Form 8-K during the quarter ended December 31, 1995, or
subsequent to that date but prior to the filing date of this Form 10-K:
FORM 8-K DATED OCTOBER 4, 1995:
-- Reporting under Item 2 that the Company completed the acquisition of
CliniCom Incorporated, a Boulder, Colorado-based developer of
point-of-care clinical information systems. The following financial
statements of CliniCom were incorporated by reference from HBOC's
Form 8-K, Item 5, dated August 16, 1995:
CliniCom Incorporated Condensed Balance Sheets, Condensed Statements
of Operations, Condensed Statements of Cash Flows and Notes to
Condensed Financial Statements for the quarter ended June 30, 1995.
CliniCom Incorporated Report of Independent Public Accountants,
Balance Sheets as of December 31, 1994 and 1993, Statements of
Operations, Statements of Stockholders' Equity and Statements of Cash
Flows for each of the three years ended December 31, 1994, 1993 and
1992 and Notes to Financial Statements.
FORM 8-K DATED NOVEMBER 16, 1995:
-- Reporting under Item 5 that the Company announced the election of
Philip A. Incarnati, President and Chief Executive Officer of McLaren
Health Care Corporation, to the HBOC Board of Directors.
FORM 8-K DATED FEBRUARY 27, 1996:
-- Reporting under Item 5 that the Company's Board of Directors: i)
approved an amendment to the Certificate of Incorporation to increase
the number of shares of authorized Common Stock from 60 million to
250 million subject to Stockholder approval; ii) anounced its
intention to declare a two-for-one stock split in the form of a stock
dividend contingent upon Stockholder approval of the increase in
authorized shares and iii) declared a quarterly dividend of $.04 per
share payable April 22, 1996 to Stockholders of Record on March 29,
1996.
</TABLE>
14
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of HBO & Company:
We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements included in HBO & Company's annual report
to stockholders incorporated by reference in this Form 10-K, and have issued our
report thereon dated February 6, 1996. Our audits were made for the purpose of
forming an opinion on those statements taken as a whole. The schedule listed in
item 14(a)2 is the responsibility of the Company's management and is presented
for purposes of complying with the Securities and Exchange Commission's rules
and is not part of the basic financial statements. This schedule has been
subjected to the auditing procedures applied in the audits of the basic
financial statements and, in our opinion fairly states in all material respects
the financial data required to be set forth therein in relation to the basic
financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
February 6, 1996
15
<PAGE>
SCHEDULE II
HBO & COMPANY AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(000 OMITTED)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE AT
BEGINNING OF COSTS AND END OF
PERIOD EXPENSES ADJUSTMENTS PERIOD
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
Year Ended December 31, 1993:
Allowance for Doubtful Accounts............................ $ 1,919 $ 303 $ (597) $ 1,625
Inventory Reserves......................................... $ 280 $ 504 $ (166) $ 618
------------ ----------- ------------ -----------
------------ ----------- ------------ -----------
Year Ended December 31, 1994:
Allowance for Doubtful Accounts............................ $ 1,625 $ 815 $ 35 $ 2,475
Inventory Reserves......................................... $ 618 $ 252 $ -- $ 870
------------ ----------- ------------ -----------
------------ ----------- ------------ -----------
Year Ended December 31, 1995:
Allowance for Doubtful Accounts............................ $ 2,475 $ 644 $ 5,211* $ 8,330
Inventory Reserves......................................... $ 870 $ 2,075** $ (233) $ 2,712
------------ ----------- ------------ -----------
------------ ----------- ------------ -----------
</TABLE>
- ------------------------
* Adjustment associated with the purchase of First Data Health Systems
Corporation.
** Nonrecurring charge related to the acquisition of CliniCom Incorporated in a
pooling transaction.
16
<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: February 29, 1996
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 February 29, 1996
(Charles W. McCall) Chief Executive Officer
Senior Vice President -- Finance,
/s/ JAY P. GILBERTSON Chief Financial Officer, Principal
------------------------------------------ Accounting Officer, Treasurer and February 29, 1996
(Jay P. Gilbertson) Assistant Secretary
/s/ HOLCOMBE T. GREEN, JR.
------------------------------------------ Chairman of the Board February 29, 1996
(Holcombe T. Green, Jr.) of Directors
/s/ ALFRED C. ECKERT III
------------------------------------------ Director February 29, 1996
(Alfred C. Eckert III)
/s/ PHILIP A. INCARNATI
------------------------------------------ Director February 29, 1996
(Philip A. Incarnati)
/s/ ALTON F. IRBY III
------------------------------------------ Director February 29, 1996
(Alton F. Irby III)
/s/ GERALD E. MAYO
------------------------------------------ Director February 29, 1996
(Gerald E. Mayo)
/s/ JAMES V. NAPIER
------------------------------------------ Director February 29, 1996
(James V. Napier)
/s/ CHARLES E. THOELE
------------------------------------------ Director February 29, 1996
(Charles E. Thoele)
/s/ DONALD C. WEGMILLER
------------------------------------------ Director February 29, 1996
(Donald C. Wegmiller)
</TABLE>
17
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- ------- -------------------------------------------------------------------------------- ----
<C> <S> <C>
4 -- HBO & Company 1983 Employee Discount Stock Purchase Plan, as restated........
11 -- Computation of Earnings (Loss) Per Share of Common Stock for years ended
December 31, 1995, 1994 and 1993............................................
13 -- Annual Report to Stockholders for the year ended December 31, 1995...........
21 -- Subsidiaries of Registrant...................................................
23 -- Consent of Arthur Andersen LLP...............................................
27a -- Financial Data Schedule......................................................
27b -- Financial Data Schedule restated for December 31, 1994.......................
27c -- Financial Data Schedule restated for March 31, 1995..........................
27d -- Financial Data Schedule restated for June 30, 1995...........................
</TABLE>
<PAGE>
EXHIBIT 4
HBO & COMPANY
1983 EMPLOYEE DISCOUNT STOCK PURCHASE PLAN
(1996 RESTATEMENT)
PURPOSE
Section 1. PURPOSE OF THE PLAN. The purpose of the HBO & Company 1983
Employee Discount Stock Purchase Plan (the "Plan") is to provide the eligible
employees of HBO & Company, and certain of its subsidiaries, an opportunity
through regular payroll savings to acquire HBO & Company Common Stock at a
discount from market price, and thereby to develop the Participant's continued
interest in the success of HBO & Company. This Plan was adopted by the Board of
Directors on October 21, 1982, was effective on March 1, 1983, and approved by
the stockholders on July 28, 1983. On October 24, 1988, the Board of Directors
approved an amendment to increase the maximum shares available for purchase
thereunder by an additional 1,000,000 shares and the Company's stockholders
approved such an amendment on May 3, 1989. On February 8, 1994, the Board of
Directors approved an amendment to the Plan to increase the maximum shares
available for purchase thereunder by an additional 500,000 shares and the
Company's stockholders approved such an amendment on May 10, 1994. An aggregate
of 2,400,000 shares has been registered under the Securities Act of 1933
pursuant to the terms of this Plan.
DEFINITIONS
Section 2. DEFINITIONS. As used herein, the following terms have the
meanings hereinafter set forth unless the context clearly indicates to the
contrary:
2.01 "COMMITTEE" shall mean the committee appointed to administer the Plan
as provided in the Plan.
2.02 "BENEFICIARY" shall mean the person, if any, named on the Payroll
Deduction Authorization form by a Participant according to the Plan provisions
to receive benefits in the event of the death of such Participant. If no
Beneficiary is named, the Participant's estate shall receive any such benefits.
2.03 "BOARD" shall mean the Board of Directors of HBO & Company.
2.04 "COMMON STOCK" shall mean the class of stock which, at the effective
date of this Plan, is designated HBO & Company Common Stock, par value $.05 and
stock of any other class or classes into which such common stock may thereafter
be changed or reclassified.
2.05 "COMPANY" shall mean HBO & Company and any subsidiary corporation as
defined in Section 425(f) of the Internal Revenue Code of 1954, as amended (the
"Code"), which may be designated by the Board of Directors of HBO & Company as
entitled to participate in the Plan. As of March 1, 1996, said subsidiaries
include HBO & Company of Georgia and HBO & Company Canada Ltd.
2.06 "COMPENSATION" shall mean an Eligible Employee's gross earnings for
the Plan Year, inclusive of overtime earnings, bonus payments, commissions and
any other type of earnings received during the Plan Year.
2.07 "DISTRIBUTION DATE" shall mean the last day of February of each Plan
Year.
2.08 "ELIGIBLE EMPLOYEE" shall mean any person who is receiving
remuneration through the Company's payroll system for services rendered to the
Company or who is on an approved leave of absence of two months or less;
provided, however, that a person shall not be an "Eligible Employee" if his
customary employment is for not more than twenty (20) hours per week or for not
more than five (5) months in any calendar year.
2.09 "PARTICIPANT" shall mean any Eligible Employee who has elected to
participate in the Plan by filing a Payroll Deduction Authorization form as
provided in the Plan.
<PAGE>
2.10 "PAYROLL DEDUCTION AUTHORIZATION" shall mean the form prescribed by
the Committee for use by Eligible Employees to authorize payroll deductions, to
specify the payroll deduction amount and to designate a Beneficiary, if any, all
as provided in this Plan.
2.11 "PLAN" shall mean the HBO & Company 1983 Employee Discount Stock
Purchase Plan, the terms and provisions of which are herein set forth, as the
same may be amended from time to time.
2.12 "PLAN YEAR" shall mean the 12-month period commencing each March 1 and
ending on the last day of the succeeding February, with the first Plan Year
commencing March 1, 1983.
2.13 "PROPER NOTICE" shall mean delivery to the Committee of notice of any
action requested by the Participant on the form provided by the Committee for
the specified action no later than twenty (20) days before the requested action.
2.14 "STOCK PURCHASE ACCOUNT" shall mean the Participant's account as
described in the Plan.
2.15 "STOCK VALUE" shall mean the average of the bid and ask prices as
reported by the National Association of Security Dealers in the Wall Street
Journal for a particular day, provided, however, if there was no activity on
that day, the stock is valued on the next subsequent day with activity.
ELIGIBILITY AND PARTICIPATION
3.01 ELIGIBILITY. Any Eligible Employee may become a Participant in the
Plan as of March 1 of any Plan Year only by filing with the Company not later
than preceding February 10 the Payroll Deduction Authorization form which shall
constitute the employee's election to participate in the Plan for the specified
Plan Year only. Persons owning five percent (5%) or more of the total combined
voting power or value of all classes of stock of HBO & Company or of any parent
or subsidiary corporation of HBO & Company, as said terms are defined in Section
425(e) and (f) of the Code, including stock subject to options in favor of the
Employee or purchasable under this Plan, may not participate. No one who is not
an Eligible Employee may participate in this Plan.
3.02 ENTRY DATE. The Plan has only one entry date each Plan Year on March
1, commencing March 1, 1983.
3.03 PAYROLL DEDUCTIONS. Participant contributions to the Plan shall be
made only by payroll deductions. The election with respect to contributions
shall be contained in the Participant's Payroll Deduction Authorization form.
Each participant may elect to contribute to the Plan any whole percentage amount
with the minimum being one percent (1%) per month, but not to exceed in the
aggregate during the Plan Year an amount equal to a specified percentage of a
Participant's Compensation. Such percentage shall be determined by the Board
prior to the start of each Plan Year. Contributions so deducted shall be
allocated to a Stock Purchase Account in the name of the Participant making the
contribution for the purpose of purchasing Common Stock at the end of the Plan
Year. Under no circumstances may any Participant purchase more than 2,500 shares
of Common Stock under this Plan with respect to each Plan Year, nor may he
purchase stock under all stock purchase plans of the Company and its related
corporations in excess of $25,000 in fair market value of said Common Stock
(determined as of the first day of the applicable Plan Year) for each calendar
year in which the Participant may purchase stock hereunder. For purposes hereof,
"related corporations" shall include any parent corporation (within the meaning
of Section 425(e) of the Code) and any subsidiary corporation (within the
meaning of Section 425(f) of the Code) of HBO & Company.
3.04 CHANGE IN CONTRIBUTION. The contribution amount designated by a
Participant shall continue in effect for the entire Plan Year, unless the
Participant withdraws from the Plan in accordance with the Plan provisions.
3.05 WITHDRAWAL.
3.05.1 TERMINATION OF EMPLOYMENT, OTHER THAN DEATH, DISABILITY OR
RETIREMENT. When a Participant ceases to be an employee of the Company or any
related corporation as defined in Section 3.03, for reasons other than death,
disability or retirement, his or her participation in the Plan terminates and
the total amount credited to his or her Stock Purchase Account will be returned
without interest to the Participant as soon as reasonably practicable upon
termination.
<PAGE>
3.05.2 DEATH, DISABILITY, RETIREMENT OR LEAVE OF ABSENCE (IN EXCESS OF TWO
MONTHS). When a Participant dies, becomes disabled, retires or takes an
approved leave of absence (in excess of two months), participation in the Plan
terminates. At the option of the Participant, or the Participant's Beneficiary,
where applicable, the total amount credited to the Participant's Stock Purchase
Account shall be either (a) returned without interest to the Participant or the
Participant's designated beneficiary, where applicable, or (b) held in the Plan
until the end of the current Plan Year and distributed in Common Stock and cash
in lieu of fractional shares, as provided in the Plan, to the Participant or the
Participant's Beneficiary, where applicable. An employee returning to employment
from disability or leave of absence may participate in the Plan during a
subsequent Plan Year provided he or she meets the eligibility requirements of
the Plan.
3.05.3 VOLUNTARY TERMINATION OF CONTRIBUTION. At any time during the Plan
Year, a Participant may terminate his or her participation in the Plan for the
current Plan Year by filing the Proper Notice and in such event (a) there will
be no further payroll deductions from the Participant's earnings during the
current Plan Year; (b) at the Participant's option, the total amount credited to
his or her Stock Purchase Account shall be either (i) returned without interest
to the Participant or (ii) held in the Plan until the end of the current Plan
Year and distributed in Common Stock and cash in lieu of fractional shares, as
provided in the Plan, to the Participant; and (c) the Participant may
participate in the Plan during a subsequent Plan Year provided he or she meets
the eligibility requirements of the Plan.
3.06 PARTICIPANT RECORDS. The Committee or other person designated by the
Company shall create and maintain adequate records to disclose the interest in
the account of each Participant. Such records shall be in the form of individual
Stock Purchase Accounts, and shall contain such information as herein described,
as well as other information the Committee deems advisable. Actual segregation
of the assets in the separate Stock Purchase Accounts of each Participant,
however, shall not be required.
3.07 CASH BALANCE. The cash balance reflected in each Participant's
account shall be used to purchase for such account whole shares of Common Stock
immediately after the close of each Plan Year, either on the open market or from
the Company, as the Committee shall direct. In any event, the Company shall pay
all brokerage fees, if any, for the Participants. All purchases of Common Stock
under the Plan for each Plan Year must be effected no later than fifteen (15)
months after the first day (March 1) of said Plan Year. To the extent that the
Participant's account balance would result in the purchase of shares of Common
Stock in excess of the maximum amount permitted in Section 3.03, said excess
cash shall be returned to the Participant at the time the Common Stock is
distributed to him.
3.08 STOCK PURCHASE PRICE. The Stock Purchase Price in any Plan Year will
be equal to eighty-five percent (85%) of the lower of the Stock Value on March 1
or the last day of the succeeding February of each Plan Year. In the event of a
change in the Company's capitalization, such as a stock dividend or stock
split-up, the Stock Purchase Price shall be adjusted proportionately. In the
event of any other change affecting the Common Stock, such adjustments shall be
made as may be deemed equitable by the Board.
3.09 VESTING. The total amounts held in each Participant's Stock Purchase
Account shall at all times be fully vested in the Participants concerned.
3.10 TRANSFERABILITY. Amounts credited to a Participant's Stock Purchase
Account may not be assigned, transferred or pledged in any way, except by will
or by the laws of descent and distribution upon his death, and any attempted
assignment, transfer, pledge or other disposition of such amounts shall be null
and void. During a Participant's lifetime, only he may exercise the rights to
purchase Common Stock under this Plan.
3.11 DISTRIBUTION IN STOCK. Except as provided for as to withdrawals from
the Plan, all benefits shall be payable in whole shares of Common Stock issued
in the name of each Participant or Beneficiary, if applicable, with cash paid in
lieu of fractional shares, as soon as practical after the end of each Plan Year.
3.12 FOREIGN EMPLOYEES. The Committee may provide for such special terms
for Participants who are foreign nationals, or who are employed by the Company
outside of the United States of
<PAGE>
America, as the Committee may consider necessary or appropriate to accommodate
differences in local law, tax policy or custom. Moreover, the Committee may
approve such supplements to, or amendments, restatements or alternative versions
of, this Plan as it may consider necessary or appropriate for such purposes
without thereby affecting the terms of this Plan as in effect for any other
purpose; PROVIDED, HOWEVER, that no such supplements, amendments, restatements
or alternative versions shall include any provisions that are inconsistent with
the terms of this Plan, as then in effect, unless this Plan could have been
amended to eliminate such inconsistency without further approval by the
stockholders of the Company, or which would cause the Plan to fail to meet the
requirements of Section 423 of the Code. The remaining provisions of the Plan
not inconsistent herewith are hereby ratified and confirmed.
ADMINISTRATION
4.01 ADMINISTRATIVE COMMITTEE. The Plan shall be administered by a
Committee appointed by the Board. Such Committee shall have authority to
establish, administer and interpret such rules with respect to the Plan that it
deems appropriate or necessary, including without limitation, rules providing
for payroll deductions. Any decision of the Committee with respect to such rules
and the interpretation, construction, administration and application of the Plan
shall be conclusive and binding. The Company shall pay all costs of
administration of the Plan, including any reasonable expenses incurred by
members of the Committee in the performance of their duties.
4.02 PLAN TERMINATION AND AMENDMENT. The Board may terminate the Plan at
any time and may amend the Plan in any respect at any time or from time to time,
except that the Board may not without the approval of the Company's
stockholders, alter the maximum number of shares of Common Stock to be sold
pursuant to the Plan; and the Board may at any time or from time to time amend
the Plan for the sole purpose of providing the inclusion or exclusion from
participation therein of Eligible Employees of corporations which are
subsidiaries of the Company, as provided in Section 2.05, but may not otherwise
amend the Plan as to eligibility to participate, except with the approval of the
Company's stockholders; provided, however, that no such termination or amendment
shall adversely affect the rights of any Participant with respect to amounts
previously credited to his Stock Purchase Account.
MISCELLANEOUS
5.01 OTHER COMPENSATION PLANS. The adoption of the Plan shall not affect
any incentive or other compensation plans in effect for the Company nor shall
the adoption of the Plan preclude the Company from establishing any other forms
of incentive or other compensation for employees of the Company.
5.02 PLAN BINDING ON SUCCESSORS. The Plan shall be binding upon the
successors and assigns of the Company.
5.03 SINGULAR, PLURAL; GENDER. Whenever used herein, nouns in the singular
shall include the plural, and the masculine pronoun shall include the feminine
gender.
5.04 HEADINGS, ETC., NOT PART OF PLAN. Headings of articles and paragraphs
hereof are inserted for convenience and reference; they constitute no part of
the Plan.
5.05 NO CONTRACT OF EMPLOYMENT. This Plan shall not constitute a contract
of employment, and the participation herein by any Employee shall not of itself
create any rights of future employment with the Company. The Company remains
free to terminate the employment of any Participant according to its standard
employment practices.
5.06 RIGHTS AS A STOCKHOLDER. No participant shall possess any rights of a
stockholder in the Company as to Common Stock being purchased under this Plan
until said Common Stock has been issued to him in accord with the terms hereof.
5.07 INVESTMENT REPRESENTATIONS. No shares of Common Stock shall be issued
pursuant to this Plan unless and until the Participant or Beneficiary to whom
issuance is to be made shall have
<PAGE>
executed any letter or agreement required by the Company for the purpose of
stating the investment intentions of said individual with regard to the Common
Stock. The Company may, on advice of its counsel, waive this requirement.
5.08 ADJUSTMENTS FOR STOCK SPLIT, ETC. In the event that the outstanding
shares of Common Stock of the Company are changed into or exchanged for a
different number of shares of Common Stock by reason of recapitalization,
combination of shares, stock split-up, stock dividend or similar action, then
the maximum number of shares which may be purchased pursuant to Section 1 hereof
and the maximum number of shares which any Participant hereunder may purchase
with respect to any Plan Year pursuant to Section 3.03 hereof and the stock
purchase price shall, without further action of the Board of the Committee,
including, without limitation, amendment of this Plan, be apportionately
adjusted in a manner identical to the changes in the outstanding number of
shares of Common Stock and in the Stock Value.
<PAGE>
EXHIBIT 11
HBO & COMPANY AND SUBSIDIARIES
COMPUTATION OF EARNINGS (LOSS) PER SHARE OF COMMON STOCK
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(000 OMITTED EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
1995 1994 1993
---------- --------- ---------
<S> <C> <C> <C>
Weighted Average Number of Common Shares Outstanding.......................... 37,822 34,848 33,862
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*................................................ -- 1,685 1,787
---------- --------- ---------
Number of Common and Common Equivalent Shares Outstanding..................... 37,822 36,533 35,649
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*........................... -- 134 361
---------- --------- ---------
Number of Common and Common Equivalent Shares Outstanding Assuming Full
Dilution..................................................................... 37,822 36,667 36,010
---------- --------- ---------
---------- --------- ---------
Net Earnings (Loss) for Primary and Fully Diluted Earnings Per Share.......... $ (25,235) $ 31,555 $ 18,897
---------- --------- ---------
---------- --------- ---------
Earnings (Loss) Per Share:
Primary..................................................................... $ (.67) $ .86 $ .53
---------- --------- ---------
---------- --------- ---------
Fully Diluted............................................................... $ (.67) $ .86 $ .52
---------- --------- ---------
---------- --------- ---------
</TABLE>
- ------------------------
* Common Equivalent shares are not presented for 1995 because the effect is
anti-dilutive.
All prior period amounts have been restated to reflect the 1995 acquisition of
CliniCom Incorporated in a pooling transaction.
<PAGE>
HBOC
Annual Report 1995
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
COMPANY PROFILE 1
RECENT ACQUISITIONS 2
FINANCIAL HIGHLIGHTS AND 1995 ORGANIZATIONAL HIGHLIGHTS 3
INFORMATION FOR THOSE WHO CARE (LETTER TO STOCKHOLDERS) 4
INFORMATION - PATIENT 6
INFORMATION - CAREGIVER 8
INFORMATION - ENTERPRISE 10
FINANCIAL REPORT 12
STOCKHOLDER INFORMATION 28
BOARD OF DIRECTORS AND CORPORATE OFFICERS IBC
HBO & COMPANY OFFICES BACK
</TABLE>
AT HBO & COMPANY, OUR PEOPLE, PRODUCTS AND SERVICES HAVE A PRIMARY GOAL: TO
SERVE HEALTH ENTERPRISES BY PUTTING THE RIGHT INFORMATION IN THE RIGHT HANDS
AT THE RIGHT TIME. IN ALL THAT WE DO, WE ARE COMMITTED TO A CONTINUOUS
PURSUIT OF QUALITY IN FACT AND QUALITY IN PERCEPTION, SO THAT EVERY PRODUCT
AND SERVICE WE OFFER IS KNOWN AS THE BEST IN THE INDUSTRY.
-- HBOC MISSION STATEMENT
<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 ADDRESS VIRTUALLY EVERY NEED THE
ENTERPRISE HAS FOR INFORMATION, WHETHER FOR PATIENT CARE, CLINICAL, FINANCIAL
OR STRATEGIC MANAGEMENT.
HBOC has approximately 2,700 healthcare customers, of which 2,200 are
community hospitals in the United States. Currently, there are a total of
5,300 U.S. community hospitals. The Company also sells its products and
services internationally through subsidiaries and/or distribution agreements
in the United Kingdom, Ireland, Canada, Saudi Arabia, Australia, Puerto Rico
and New Zealand. Its comprehensive portfolio of open systems solutions can
be implemented in a variety of combinations from stand-alone to
enterprisewide, enabling customers to choose their own paths for reaching
their information management goals.
The Company's offerings are based on a strategic mix of applications,
technologies and services that support the continued restructuring of
healthcare delivery. This product/service mix meets the needs of healthcare
organizations in five key areas: supporting the information needs of the
acute-care setting, building an enterprise information infrastructure,
facilitating clinical/practice management, reducing service fragmentation
through access management solutions and strategically managing the enterprise.
HBOC's comprehensive local, metropolitan and wide area network services and
its client/ server-based Pathways 2000-Registered Trademark- family of
applications provide the key elements for integrating and uniting providers
across the continuum of care and provide the basis for a lifelong patient
record.
Through the use of open systems architecture, HBOC offers healthcare
organizations the flexibility to add incremental capabilities, thereby
helping to preserve capital investment in current hospital information
systems. In addition, HBOC's client/server solutions facilitate the
integration of clinical, financial and administrative data from both HBOC and
non-HBOC applications for efficient resource allocation, allowing healthcare
customers to benefit from price/ performance advances.
Wrapped around HBOC's offerings is a full set of services that includes
planning, implementation and support as well as education and training. HBOC
also offers a range of outsourcing services that includes transition
management, facilities management, integration services and information
services organizations (ISOs).
1
<PAGE>
RECENT
ACQUISITIONS --
IN ADDITION TO INTERNAL PRODUCT DEVELOPMENT AND STRATEGIC ALLIANCES, OVER THE
PAST THREE YEARS THE FOLLOWING ACQUISITIONS HAVE PLAYED A KEY ROLE IN HBOC'S
STRATEGY TO BUILD CRITICAL MASS AND EXPAND ITS CAPABILITIES AND PRODUCT
OFFERINGS.
"EVERY ADDITION HAS MET THE CRITERIA OF A PLAN THAT WE BEGAN MAPPING OUT
WITH THE HELP OF OUR CUSTOMERS MORE THAN THREE YEARS AGO TO ADDRESS THE
CHALLENGES OF MANAGED CARE AND CAPITATION."
-- HBOC'S GROWTH STRATEGY,
A MESSAGE FROM
CHARLIE MCCALL (1995)
<TABLE>
<CAPTION>
DATE ACQUISITION DESCRIPTION
- ----------------------------------------------------------------------
<S> <C> <C>
JUNE 1993 Biven Software, Inc. Managed care applications
......................................................................
DECEMBER 1993 Data-Med Computer Installed base of 100
Services Limited hospitals in the United
Kingdom
......................................................................
MAY 1994 IBAX Healthcare Presence in the IBM
Systems AS/400 market; installed
base of 475 hospitals
......................................................................
SEPTEMBER 1994 Serving Software, Inc. Health enterprise
patient and resource
scheduling software
......................................................................
DECEMBER 1994 Care 2000, Inc. Case management
methodologies
......................................................................
FEBRUARY 1995 Advanced Laboratory Laboratory software
Systems, Inc. for the healthcare and
commercial marketplaces
......................................................................
JUNE 1995 First Data Health Installed base of 500
Systems Corporation hospitals
......................................................................
JULY 1995 Pegasus Medical Ltd. Electronic patient record
built by physicians, for
physicians
......................................................................
SEPTEMBER 1995 CliniCom Incorporated Multidisciplinary point-of-
care clinical information
systems
</TABLE>
2
<PAGE>
FINANCIAL
HIGHLIGHTS --
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
- ------------------------------------------------------------------------------------------------
(Operating Income, Net Income and Fully Diluted Earnings Per Share Exclude Nonrecurring Charges)
(000 Omitted Except Per Share Data and Employees)
<S> <C> <C> <C> <C> <C>
Revenue $495,595 $357,436 $267,147 $228,988 $184,859
Operating Income $ 95,722 $ 53,042 $ 31,883 $ 22,600 $ 6,560
Net Income $ 56,654 $ 31,555 $ 18,897 $ 14,629 $ 3,949
Fully Diluted Earnings Per Share $ 1.43 $ .86 $ .52 $ .42 $ .12
Total Assets $535,134 $264,132 $156,182 $125,689 $114,490
Long-Term Debt $ 582 $ 252 $ -- $ -- $ 20,752
Stockholders' Equity $318,730 $124,777 $ 83,182 $ 61,608 $ 25,706
Employees at Year-End 3,363 2,542 2,153 1,946 1,765
Revenue Per Average
Number of Employees $ 166 $ 145 $ 130 $ 123 $ 101
- ----------------------------------------------------------------------------------
</TABLE>
NOTES
1991 amounts are shown before Discontinued Operations.
1992 amounts are shown before CliniCom's Cumulative Effect of an Accounting
Change.
All prior period amounts have been restated to reflect the 1995 acquisition of
CliniCom Incorporated in a pooling transaction.
<TABLE>
<CAPTION>
STOCK HIGH AND LOW
CLOSING PRICES
1993 1994 1995
<S> <C> <C>
$85.75
$36.13 -
$23.00 - $33.50
- $20.75
$8.44
- ----------------------
</TABLE>
<TABLE>
<CAPTION>
REVENUE (000 OMITTED)
1993 1994 1995
<S> <C> <C>
$495,595
$357,436
$267,147
- ----------------------------
</TABLE>
<TABLE>
<CAPTION>
FULLY DILUTED EARNINGS
PER SHARE
(Excluding Nonrecurring Charges)
1993 1994 1995
<S> <C> <C>
$1.43
$.86
$.52
- -------------------
</TABLE>
All prior period amounts have been restated to reflect the 1995 acquisition
of CliniCom Incorporated in a pooling transaction.
95 ORGANIZATIONAL
HIGHLIGHTS --
IN ADDITION TO SEVERAL STRATEGIC ACQUISITIONS (SEE OPPOSITE PAGE), 1995
ORGANIZATIONAL HIGHLIGHTS INCLUDED THE FOLLOWING:
- -- Introduced service track methodology for STAR and Pathways 2000 product
lines to streamline implementation processes, control costs and encourage
customer independence.
- -- Purchased rights to the Crescendo nursing information system from CHC
(UK) Ltd., adding another 60 National Health Service hospital customers to
HBOC's United Kingdom operations.
- -- Announced the general availability of STAR Navigator, a Windows-Registered
Trademark--based graphical user interface that will serve as the foundation
for developing a common "look and feel" among HBOC applications.
- -- Signed five new outsourcing contracts totaling approximately $79 million.
- -- Signed a sales agreement with Science Applications International
Corporation (SAIC) to install TRENDSTAR-Registered Trademark- decision
support in 120 U.S. Department of Defense hospitals.
3
<PAGE>
INFORMATION
FOR THOSE WHO CARE
TO OUR
STOCKHOLDERS --
FEW THINGS ARE MORE REWARDING THAN MEETING A CHALLENGE HEAD-ON -- AND
WINNING. THAT'S WHAT 1995 WAS ALL ABOUT FOR HBO & COMPANY. WE BEGAN THE YEAR
WITH THE BAR SET HIGH FOR OURSELVES -- WITH GOALS TO COMPLETE THE
REPOSITIONING HBOC HAS BEEN WORKING TOWARD FOR THE PAST THREE YEARS, TO
DELIVER ON OUR PATHWAYS 2000 ENTERPRISE SOLUTION COMMITMENTS AND TO SET NEW
RECORDS IN REVENUE AND EARNINGS PER SHARE.
[PHOTO]
CHARLES W. MCCALL
PRESIDENT AND CHIEF
EXECUTIVE OFFICER
By year-end, HBOC had achieved those goals. Revenue reached an all-time high
of $495.6 million, and earnings per share stood at $1.43 excluding
nonrecurring charges, a 66 percent increase over 1994. Several Pathways 2000
applications were "live" at development and early adopter sites across the
country. And an aggressive growth strategy resulted in four more
acquisitions in 1995 that added significant critical mass and strategic
capabilities, most notably in the clinical arena. As a result, we believe
HBOC is better equipped than any other vendor -- in terms of people, products
and technology -- to quickly and effectively put information tools in the
hands of those who provide care.
As healthcare continues to evolve rapidly toward a future where wellness is
the goal and managed care is the norm, providing information for those who
care has taken on new meaning. It's no longer enough to capture charges or
produce a correct bill. "Those who care" need real-time access to information
that takes them beyond the confines of the hospital and across the care
continuum into physician offices, outpatient clinics and even private homes.
Only then can caregivers make decisions that control costs and improve the
quality of the care they deliver.
That's why 1996 will find HBOC continuing to build clinical strength and
flexibility into its product offerings. Multidisciplinary and point-of-care
applications, critical pathways, physician computing, clinical
workstations and home health
4
<PAGE>
are just some of the areas where we've invested heavily and will continue to
devote resources. We'll also continue to refine key infrastructure pieces
such as Pathways Health Network Server, HBOC's clinical data repository,
which serves as the foundation for merging clinical data from disparate
sources.
While caregivers are the most visible of "those who care," behind the scenes
enterprise managers and other financial and executive personnel need
information to operate efficiently and to support their new roles as managers
of risk. HBOC is ready with a wide range of solutions, including financial,
decision support, contract management and managed care applications, as well
as networking technologies and services to facilitate information sharing
across all the settings of an enterprise or integrated delivery network.
As a company that today encompasses multiple product lines, technologies and
employee groups, HBOC understands the challenges facing healthcare customers
as they attempt to merge disparate organizations and information systems.
Those are our challenges as well. With most of the strategic enterprise
pieces assembled, HBOC is executing an integration plan that calls for
facilitated data exchange, a common "look and feel" across applications, and
clear migration paths for existing transaction systems into the enterprise.
In doing so, we're helping to ensure that organizations have the flexibility
to choose their own pathway to the future and to grow according to their own
priorities, not an HBOC agenda.
That means continuing to invest in existing HIS solutions to ensure that they
continue to address the business needs of hospitals. That also means
listening to customer input as we seek to balance investment in those systems
with the need for new "horizontal" applications that span multiple care
settings in the enterprise. Finally, that means continually seeking new ways
to re-engineer service and support processes to improve customer satisfaction
and provide the best value possible.
[PHOTO]
HBOC'S ASSAF MORAG, M.D.,
WITH PATHWAYS SMART MEDICAL RECORD
Much of the territory in this "brave new world" of healthcare is still
uncharted, but one thing is certain -- just as diagnostic technology has
radically improved disease intervention and survival rates, information
technology has the potential to do the same for personal health and
well-being. That's why at HBOC we've made it our business to lead the
industry in providing information for those who care.
/s/ Charlie McCall
Charles W. McCall
President & CEO
January 31, 1996
5
<PAGE>
INFORMATION
PATIENT --
EVERY SECOND COUNTS IN THE E.R. WHEN YOUR CHILD IS SICK OR INJURED, YOU
DON'T WANT TO WASTE TIME FILLING OUT FORMS OR ANSWERING THE SAME QUESTIONS
YOU ANSWERED LAST WEEK IN THE PEDIATRICIAN'S OFFICE. ALL YOU CAN THINK ABOUT
IS FINDING HELP -- RIGHT NOW.
"THE EASIER WE MAKE IT TO ACCESS SERVICE, THE MORE PATIENTS WE'LL ATTRACT
INTO OUR SYSTEM AND THE MORE SATISFIED THEY WILL BE."
JOHN P. MCDANIEL,
CHIEF INFORMATION OFFICER,
MCLAREN HEALTH CARE
CORPORATION, FLINT, MICH.
Unfortunately, most clinics or emergency rooms today probably won't know that
your child was treated for an allergic reaction to a bee sting last week,
that his physician is Dr. Jones or that your health plan co-payment is $25.
The result -- redundant paperwork, endless delays and tremendous frustration.
HBOC is striving to take the pain out of healthcare with solutions that
enable information to follow a patient or healthcare consumer, wherever that
person arrives for care. Our access management strategy is built on the
premise that every patient is a customer who expects personal, reliable and
efficient service from caregivers. To be competitive, health enterprises
and integrated delivery networks must achieve high levels of customer
satisfaction while streamlining operational activities and closely managing
access to services.
HBOC has worked side-by-side with its customer partners to develop the new
service models and solutions needed to successfully address these challenges.
To help reduce service fragmentation and facilitate care, our "customer
notebook" provides a means to identify persons anywhere in a health system,
even across disparate information systems. As a result, enterprises can
capture and share relevant baseline clinical, demographic, benefits and
eligibility information across various care settings. When a patient arrives
for care, his or her information is readily available.
On another front, enterprisewide scheduling allows caregivers to arrange
tests or procedures anywhere in the health system and deliver a coordinated
itinerary to the patient, eliminating long waits and improving the use of
system resources.
To support individual healthcare encounters, HBOC is developing a solution
that will allow enterprises to positively identify the healthcare consumer,
acknowledge the care delivered and incorporate each specific event into a
lifetime computer-based record.
6
<PAGE>
[PHOTO]
ACCESS
INFORMATION - PATIENT
7
<PAGE>
INFORMATION
CAREGIVER --
BEN ADAMS, 75, HAD A MILD HEART ATTACK LAST MONTH. NOTHING TOO SERIOUS, BUT
AFTER TIME SPENT IN CARDIAC REHABILITATION, A CARE COORDINATOR NOW VISITS HIM
AT HOME TWICE A WEEK -- JUST TO BE SURE HE'S STABLE AND STILL FOLLOWING THE
DOCTOR'S ORDERS.
"TO IMPROVE OUTCOMES, PHYSICIANS NEED TO BE ABLE TO LOOK AT ALL INFORMATION
ON A SINGLE PATIENT AT ONE TIME, IN THE RIGHT FORMAT AND IN A PLACE WHERE
THEY CAN REACT TO IT MEANINGFULLY."
ROBERT WEARS, M.D.,
FACEP, CLINICAL DIRECTOR OF
INFORMATION SYSTEMS,
UNIVERSITY OF FLORIDA
COLLEGE OF MEDICINE
JACKSONVILLE
To provide Ben Adams with the best care possible, his caregivers -- from the
cardiologist who treated him in the I.C.U. to the homecare nurse who now
monitors his progress -- need easy access to patient information that will
enable them to make the right decisions at the point of care, no matter where
that may be.
Today, much of that information is likely to be found piecemeal, captured
using diverse technologies throughout a health system. The challenge is to
bring that data together into a common technology, integrate it and present
it in a way that's logical to those who provide care.
But what's logical to a nurse in the I.C.U. is different from a nurse who
works in labor and delivery, even though the type of information collected
and displayed may be much the same. Portability and outcomes documentation
are important to both acute-care nurses and home health professionals, but
those who work in the home need information that can travel with them even to
remote locations. And physicians seeking productivity enhancements want
systems that think the way they do.
Building on the capabilities of its hospital information systems, HBOC is
leveraging its clinical expertise to provide solutions that meet the needs of
caregivers across the care spectrum.
For example, our point-of-care solutions allow nurses and other caregivers to
capture or access information at the bedside, whether at home or in the
hospital, while HBOC's staff physicians draw from "real-life" medical
practice to build the clinical documentation tools that can be used in a
physician's office. And clinical professionals are applying their expertise
to enable all providers to implement coordinated care plans, measure patient
outcomes and document care on a real-time basis.
8
<PAGE>
[PHOTO]
CARE
INFORMATION - CAREGIVER
9
<PAGE>
INFORMATION
ENTERPRISE --
IT'S NO LONGER ENOUGH TO SIMPLY PROVIDE CARE FOR THOSE WHO ARE ILL. AS
MANAGED CARE AND CAPITATION BECOME MORE COMMON, THE SUCCESS OF HEALTH
ENTERPRISES WILL BE TIED TO HOW THEY MANAGE THE WELLNESS OF A POPULATION.
"IN A MANAGED CARE ENVIRONMENT, INFORMATION TECHNOLOGY BECOMES A CORE
BUSINESS COMPETENCY THAT'S NECESSARY TO ACQUIRE BUSINESS, SELL PRODUCTS,
SUPPORT DELIVERY AND DOCUMENT HOW WELL ALL THAT IS DONE."
RICK SKINNER,
CHIEF INFORMATION OFFICER,
PROVIDENCE HEALTH SYSTEM,
PORTLAND, ORE.
The healthcare industry is moving toward tightly managed, primary-care based
networks where the goal is to keep people out of the hospital, not keep them
in. To do that, healthcare organizations must acquire the technological
infrastructure to pull together disparate systems and facilitate the flow of
data throughout the enterprise. They must also re-engineer business
processes to reflect a new model of healthcare delivery -- one that
emphasizes health over healthcare. And to support that model, they need
solutions that enable them to manage risk like an insurance company and to
measure and document quality, outcomes and member satisfaction.
HBOC has both the expertise and the solution sets to help health-care
organizations move from where they are to where they want to be. For those
that need improved infrastructure, we offer a full range of networking
technologies, Value Added Network services and electronic data interchange
capabilities. HBOC's interface manager allows enterprises to manage
transactions among disparate applications, while our enterprise repository
brings together patient data into a meaningful, integrated longitudinal
record of care.
For organizations that are committed to business process re-engineering, HBOC
offers solutions that allow them to extend functions such as registration,
scheduling, order entry and budgeting horizontally across multiple sites in
the enterprise. Those searching for decision support, contract management or
full managed care applications will find that HBOC solutions are among the
best in the industry.
Most importantly, HBOC is mapping its priorities to mirror those of its
customers -- preserving investment in current systems, maintaining a
commitment to open, scalable architecture, developing new solutions where
they're most needed and focusing its expertise on the integration of the
delivery network itself. That's how we'll fulfill our mission and enable
enterprises to provide information that will make a difference for those who
care.
10
<PAGE>
[PHOTO]
MANAGEMENT
INFORMATION - ENTERPRISE
11
<PAGE>
FINANCIAL REPORT
<TABLE>
<S> <C>
FIVE-YEAR SELECTED FINANCIAL INFORMATION 13
FINANCIAL REVIEW 14
REVENUE 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
</TABLE>
<PAGE>
FIVE-YEAR SELECTED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31 1995 1994 1993 1992 1991
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
(000 Omitted Except for %s, Per Share Data, Ratios, Stockholders and Employees)
OPERATIONS (EXCLUDING NONRECURRING CHARGES)
Revenue $495,595 $357,436 $267,147 $228,988 $184,859
Operating Income $ 95,722 $ 53,042 $ 31,883 $ 22,600 $ 6,560
Income Before Income Taxes $ 94,423 $ 52,592 $ 31,495 $ 22,165 $ 5,129
Net Income $ 56,654 $ 31,555 $ 18,897 $ 14,629 $ 3,949
- -----------------------------------------------------------------------------------------------------------
AS A PERCENT OF REVENUE (EXCLUDING NONRECURRING CHARGES)
Operating Income 19% 15% 12% 10% 4%
Income Before Income Taxes 19% 15% 12% 10% 3%
Net Income 11% 9% 7% 6% 2%
- -----------------------------------------------------------------------------------------------------------
PERCENT CHANGE FROM PRIOR YEAR (EXCLUDING NONRECURRING CHARGES)
Revenue 39% 34% 17% 24% --
Operating Income 80% 66% 41% 245% (34%)
Income Before Income Taxes 80% 67% 42% 332% (46%)
Net Income 80% 67% 29% 270% (20%)
- -----------------------------------------------------------------------------------------------------------
SHARE INFORMATION (EXCLUDING NONRECURRING CHARGES)
Weighted Average Shares Outstanding (Fully Diluted) 39,511 36,667 36,010 34,952 32,074
Stockholders of Record 1,686 1,746 1,662 1,827 1,810
Fully Diluted Earnings Per Share $ 1.43 $ .86 $ .52 $ .42 $ .12
Cash Dividends Per Share $ .16 $ .16 $ .15 $ .15 $ .15
Book Value at Year-End Per Share $ 7.94 $ 3.55 $ 2.44 $ 1.80 $ .82
Closing Stock Price Per Share - High $ 85.75 $ 36.13 $ 23.00 $ 12.88 $ 5.81
- Low $ 33.50 $ 20.75 $ 8.44 $ 4.88 $ 2.50
- -----------------------------------------------------------------------------------------------------------
CAPITALIZED SOFTWARE
Research and Development Expenditures $ 57,510 $ 42,589 $ 33,628 $ 28,374 $ 26,677
Capitalized Software Expenditures $ 14,546 $ 10,459 $ 7,799 $ 6,298 $ 5,775
Research and Development Capitalization Rate 25% 25% 23% 22% 22%
Amortization of Capitalized Software $ 5,791 $ 6,184 $ 3,801 $ 2,979 $ 2,749
- -----------------------------------------------------------------------------------------------------------
FINANCIAL RATIOS (EXCLUDING NONRECURRING CHARGES)
Return on Average Stockholders' Equity 25% 31% 29% 35% 16%
Current Ratio 1.2:1 1.1:1 1.5:1 1.4:1 1.3:1
Long-Term Debt to Stockholders' Equity -- -- -- -- .8:1
- -----------------------------------------------------------------------------------------------------------
FINANCIAL POSITION AT YEAR-END
Cash and Cash Equivalents $ 65,263 $ 14,951 $ 41,150 $ 12,348 $ 4,279
Working Capital $ 47,250 $ 11,160 $ 34,627 $ 23,969 $ 18,369
Total Assets $535,134 $264,132 $156,182 $125,689 $114,490
Long-Term Debt $ 582 $ 252 $ -- $ -- $ 20,752
Stockholders' Equity $318,730 $124,777 $ 83,182 $ 61,608 $ 25,706
- -----------------------------------------------------------------------------------------------------------
OTHER FINANCIAL INFORMATION
Employees at Year-End 3,363 2,542 2,153 1,946 1,765
Revenue Per Average Number of Employees $ 166 $ 145 $ 130 $ 123 $ 101
- -----------------------------------------------------------------------------------------------------------
</TABLE>
NOTES
1995 Income Statement related items exclude the Nonrecurring Charge of $136,481.
The Net Loss is ($25,235) and Fully Diluted Loss Per Share is ($.67)
including the Nonrecurring Charge.
1992 is presented before CliniCom's Cumulative Effect of an Accounting Change.
1991 is presented before Discontinued Operations. Income Statement related items
exclude the Nonrecurring Charge of $10,883. The Net Loss is ($4,442) and
Fully Diluted Loss Per Share is ($.14) including the Nonrecurring Charge.
All prior period amounts have been restated to reflect the 1995 acquisition of
CliniCom Incorporated in a pooling transaction.
13
<PAGE>
- -- FINANCIAL REVIEW
GENERAL
After a record year in 1994, HBO & Company accepted the challenge of
continuing to expand rapidly in 1995 with confidence that the Company's
people, products and strategic acquisitions would lead to another record
year. The result -- a 66% increase in earnings per share to $1.43 in 1995
(excluding nonrecurring charges), from $.86 in 1994 -- is proof of the
Company's success in meeting that challenge. HBOC generated revenue of $496
million in 1995, a 39% increase over 1994, and increased operating income as
a percent of revenue to 19% in 1995, excluding nonrecurring charges, compared
to 15% in 1994 and 12% in 1993.
In 1995, the Company recorded nonrecurring charges related to acquisitions
totaling $137 million. Inclusive of the nonrecurring charges, HBOC had a
loss per share for the year of ($.67). The loss per share is not adjusted
for the effect of stock options outstanding since the effect was
anti-dilutive. Fully diluted earnings per share information excluding the
nonrecurring charges is presented above to aid in financial analysis.
The Company's revenue growth resulted from its success in selling HBOC's
enterprisewide information system solutions that address the complex needs of
today's healthcare marketplace. HBOC believes that the best way to meet
these needs is by offering strong transaction-based systems that populate
enterprisewide financial and clinical data repositories, which in turn can be
accessed by a number of specialized, client/server-based applications.
The Company enters 1996 with its strongest backlog in history. At December
31, 1995, future contracted outsourcing service fees totaled $115 million.
Contracted software license and hardware fees not yet delivered and installed
totaled $31 million. Future payments from systems sold under monthly service
fee agreements totaled $7 million. HBOC's position is further strengthened
by the fact that the Company's revenue mix has shifted toward recurring
revenue. In 1995, 42% of the Company's revenue was recurring in nature,
compared to 35% in 1994. The Company also derives a large portion of its
revenue from automatically renewable maintenance and support agreements. In
addition, the Company derives significant recurring revenue from its
multiyear remote processing contracts.
For 1995, operating expense excluding the nonrecurring charges grew at a
slower rate than revenue due to the Company's successful cost control
programs and productivity enhancements. The Company experienced improvement
in the productivity of its implementation personnel partially as the result
of the introduction of service tracks methodology, which encourages customers
to take a more active role in the implementation process. Revenue per
average number of employees increased to a record $166,000 in 1995 compared
to $145,000 in 1994 and $130,000 in 1993.
<TABLE>
<CAPTION>
REVENUE PER AVERAGE
NUMBER OF EMPLOYEES
(000 Omitted)
1993 1994 1995
<S> <C> <C>
$166
$145
$130
- ----------------
</TABLE>
Cash flow from operations reached a record $91.4 million for 1995. HBOC
utilized $37.6 million in investing activities and $3.5 million in net
financing activities. As a result of this activity, the Company's cash
balance increased by $50.3 million to $65.3 million at December 31. HBOC has
been able to finance its acquisitions either through equity or with cash from
operations. The Company had no bank debt as of year-end.
Strategic acquisitions played a vital role in HBOC's success during 1995.
These acquisitions, detailed on page 2, increased the Company's customer base
and rounded out its product portfolio. The CliniCom acquisition was
accounted for as a pooling of interests and thus all prior period financial
information has been restated. Unless otherwise noted, management's
discussion of financial results is based on restated figures.
RESULTS OF OPERATIONS
The following table presents as a percent of revenue certain categories
included in the Company's consolidated statements of income for 1993 through
1995:
<TABLE>
<CAPTION>
1995 1994 1993
- -------------------------------------------------
<S> <C> <C> <C>
Revenue 100% 100% 100%
Operating Expense:
Cost of Operations 47% 52% 53%
Marketing 14% 13% 14%
Research and Development 9% 9% 10%
General and Administrative 11% 11% 11%
- -------------------------------------------------
Operating Income 19%* 15% 12%
- -------------------------------------------------
Net Income 11%* 9% 7%
- -------------------------------------------------
</TABLE>
* Including the nonrecurring charges, operating income was (8%) of revenue
and net income was (5%) of revenue for 1995.
Revenue increased to $496 million in 1995, a 39% increase over 1994. This
growth was primarily the result of dramatic increases in revenue from
maintenance contracts and software license fees, as well as the addition of
remote processing revenue from the aquisition of First Data Health Systems
Corporation (now known as the Charlotte Product Group or CPG).
14
<PAGE>
- -- FINANCIAL REVIEW
Software license fee revenue increased 35% in 1995 compared to 1994 and
represented 25% of the Company's revenue for the year. The driving force
behind software license fee growth was the success of the Company's Pathways
2000 family of enterprise solutions, applications which are crucial to
hospitals operating in an environment of increasing consolidation, capitated
rates and managed care. Software license fees for the Company's STAR
products continued to provide a strong base of revenue. The Company's
TRENDSTAR decision support products also had another year of success as
hospitals continued to invest in applications designed to make better use of
the increasing amounts of information available. The addition of CPG's
software products contributed to overall growth, as did software from
Advanced Laboratory Systems, Inc. (ALG) and the Serving Software Group's
(SSG) enterprise scheduling product.
Hardware revenue increased 10% in 1995 compared to 1994. Although the price
of hardware continues to decline even as performance and processing power
increase, HBOC has successfully maintained hardware margins and continues to
pursue an open systems approach by designing products to run on a variety of
platforms.
Revenue from implementation services increased 23% in 1995 over 1994 and
represented 18% of total revenue for the year. Pathways 2000, CPG and Series
contributed the highest revenue growth, but almost all business units had
increases as customers turned to HBOC not only for initial implementation
services but also for a variety of customized services designed to enhance
the value of their system investments.
A dramatic increase in the customer base over the past two years has resulted
in tremendous growth in recurring revenue from maintenance and support
contracts. Up 61% in 1995 over 1994, maintenance and support revenue
represented 29% of the Company's total revenue in 1995. STAR increased due
to new product offerings and an increase in the number of installed
customers, while CPG, Series and ALG were responsible for acquisition-related
growth. In addition, revenue from CPG's remote processing contracts
contributed a significant new source of revenue in 1995.
Revenue in 1994 increased 34% over 1993 due to both internal growth and
acquisitions. Strong revenue from software license fees was the result of
the successful introduction of the Pathways 2000 family of products and solid
revenue from STAR applications. Revenue from maintenance and support
contracts also increased dramatically as the customer base expanded due to
acquisitions and internal growth. Services revenue increased as the
Company's implementation teams tackled a strong backlog of business, and
outsourcing services increased primarily due to the success of the
outsourcing business in the United Kingdom.
Cost of operations as a percent of revenue decreased to 47% in 1995 from 52%
in 1994, which in turn increased the gross margin to 53% in 1995 from 48% in
1994. The primary reason for the improvement in the gross margin was the 43%
increase in combined maintenance, support and implementation revenue while
the cost of operations salaries which support these revenue sources increased
only 12%. In addition, the shift in the revenue mix away from lower margin
hardware revenue had a favorable impact on the gross margin. Cost of
operations expense increased over 1994 primarily as a result of higher
salaries, increased software and hardware maintenance expense related to
acquisitions, costs of the remote processing data center, higher hardware
cost related to improved hardware sales, increased amortization expense
related to acquired customer lists, higher facilities expense and increased
software royalty fees.
For 1994, cost of operations as a percent of revenue dropped to 52% from 53%
in 1993. Personnel-related expense increased as HBOC expanded its
implementation and support staff to service a growing customer base.
Amortization expense increased as a result of higher amortization of
capitalized software and amortization of the customer lists acquired from
IBAX Healthcare Systems. In addition, software royalty expense increased due
to higher sales of third-party software products, and hardware and software
maintenance expense increased primarily for the support of customer's
third-party business partner products.
Marketing expense as a percent of revenue increased slightly to 14% in 1995
compared to 13% in 1994 and 14% in 1993. Higher commission expense due to
increased sales volume and increased salaries and travel expense related to
the increase in the size of the sales force were the primary reasons for the
increase in total marketing expense in both 1995 and 1994.
Research and development (R&D) expense as a percent of revenue remained
constant at 9% in both 1995 and 1994, down from 10% in 1993. In both 1995
and 1994, total R&D expense increased mainly due to higher salaries related
to acquisitions. This increase was partially offset by a higher R&D
capitalization rate of 25% for both 1995 and 1994, up from 23% in 1993. This
rate increase was primarily due to heavy development efforts related to the
Pathways 2000 family of products.
15
<PAGE>
- -- FINANCIAL REVIEW
General and administrative expense as a percent of revenue remained constant
at 11% for 1995, 1994 and 1993. In 1995, general and administrative expense
increased primarily due to higher expense for incentive programs, increased
facilities expense, higher salaries and increased depreciation expense
resulting from a larger fixed asset base. In 1994, general and
administrative expense increased due to higher depreciation related to
acquisitions, increased facilities expense and higher employee benefit costs
related to the growth in the number of employees.
HBOC recorded two nonrecurring charges during 1995. In the second quarter,
the Company recorded a $126 million purchased R&D charge related to the CPG
acquisition, and in the third quarter, an $11 million nonrecurring charge
related to the CliniCom acquisition. As a result, the Company experienced an
operating loss of $41 million for 1995 compared to operating income of $53
million in 1994. Excluding the nonrecurring charges, operating income as a
percent of revenue was 19% for the year compared to 15% in 1994 and 12% in
1993.
The effective tax rate remained stable at 40% in 1995, 1994 and 1993. The
Company adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes," in the first quarter of 1993.
Weighted average shares outstanding increased in 1995 due to the issuance of
4 million shares of HBOC common stock in connection with the CPG acquisition
and shares issued under employee stock option and purchase programs. In
1994, fully diluted weighted average shares outstanding increased 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. Standard 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.
The Company has reviewed Statements of Financial Accounting Standards issued by
the Financial Accounting Standards Board in 1995 and believes that the adoption
of these standards will not have a material effect on the Company's financial
statements taken as a whole.
LIQUIDITY AND CAPITAL RESOURCES
HBO & Company generated a record $91.4 million in cash flow from operations
in 1995, 2.5 times the $36.5 million generated in 1994. As a result, the
Company had $65.3 million in cash and no bank debt on its balance sheet at
the end of 1995.
<TABLE>
<CAPTION>
CASH FLOW FROM
OPERATIONS (in millions)
1993 1994 1995
<S> <C> <C>
$91.4
$47.8
$36.5
- --------------------
</TABLE>
During 1995, the Company used $37.6 million in cash for investing activities,
including $14.6 million for capitalized software development, $12.6 million
for acquisitions, net of cash acquired, and $11.2 million for capital
expenditures. The Company used an additional $3.5 million for net financing
activities.
The strength of HBOC's cash flow has improved the Company's liquidity
position. The current ratio increased to 1.2:1 at the end of 1995 compared
to 1.1:1 at the end of 1994. Cash increased to 26% of current assets
compared to 10% at the end of 1994, with a corresponding drop in receivables
as a percent of current assets. In addition, the Company is maintaining a
low delinquency rate on receivables with approximately 4% of trade
receivables over 90 days past due at year-end. Management continues to focus
on receivables growth as the Company expands and believes that the rapid
integration of newly acquired companies ensures proper focus on this area.
The stability of HBOC's liquidity has been enhanced as the revenue mix has
shifted toward recurring revenue. This provides a stable, growing source of
cash for operating, investing and financing needs.
The Company has access to several financing sources, including $25 million
available at December 31 under a revolving credit agreement, $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 strong cash flow from
operations due to its strong base of recurring revenue, successful expense
control programs and improved productivity resulting from the synergies
created as acquired companies are integrated with HBOC. Management believes
that with its access to financing sources, strong cash position and lack of
debt, the Company has the flexibility necessary to make strategic investments
to enhance quality, increase efficiency and promote growth.
16
<PAGE>
- -- REVENUE BY BUSINESS UNIT
<TABLE>
<CAPTION>
1995
- -----------------------------------------------------------------------------------------------------------------------
(000 OMITTED EXCEPT %S)
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 $ 123,239 $ 2,949 $ 11,366 $ 4,557 $ 577 $ 142,688 29%
Outsourcing Services -- 28,299 -- 9,113 -- 37,412 8%
Remote Processing 25,762 -- -- 39 -- 25,801 5%
- -----------------------------------------------------------------------------------------------------------------------
Recurring Revenue 149,001 31,248 11,366 13,709 577 205,901 42%
- -----------------------------------------------------------------------------------------------------------------------
ONE-TIME SALES REVENUE
Software License Fees 103,675 -- 18,754 2,897 -- 125,326 25%
Implementation Fees 68,869 913 4,741 3,100 12,125 89,748 18%
Hardware Sales 53,974 -- 5,965 2,387 12,294 74,620 15%
- -----------------------------------------------------------------------------------------------------------------------
One-Time Sales Revenue 226,518 913 29,460 8,384 24,419 289,694 58%
- -----------------------------------------------------------------------------------------------------------------------
TOTAL REVENUE $ 375,519 $ 32,161 $ 40,826 $ 22,093 $ 24,996 $ 495,595 100%
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
1994
- -----------------------------------------------------------------------------------------------------------------------
(000 OMITTED EXCEPT %S)
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 $ 74,392 $ 1,777 $ 9,690 $ 2,656 $ 340 $ 88,855 25%
Outsourcing Services -- 27,712 -- 6,861 -- 34,573 10%
Remote Processing -- -- -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------
Recurring Revenue 74,392 29,489 9,690 9,517 340 123,428 35%
- -----------------------------------------------------------------------------------------------------------------------
ONE-TIME SALES REVENUE
Software License Fees 77,638 -- 13,033 2,190 -- 92,861 26%
Implementation Fees 56,573 530 3,929 1,900 10,305 73,237 20%
Hardware Sales 48,968 -- 5,633 2,678 10,631 67,910 19%
- -----------------------------------------------------------------------------------------------------------------------
One-Time Sales Revenue 183,179 530 22,595 6,768 20,936 234,008 65%
- -----------------------------------------------------------------------------------------------------------------------
TOTAL REVENUE $ 257,571 $ 30,019 $ 32,285 $ 16,285 $ 21,276 $ 357,436 100%
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
* Includes the following groups in both the U.S. and Canada: STAR, Pathways
2000, Series, Mainframe Products Group, Charlotte Product Group,
Advanced Laboratory Group and Serving Software Group.
All prior period amounts have been restated to reflect the 1995 acquisition of
CliniCom Incorporated in a pooling transaction.
17
<PAGE>
- -- CONDENSED CONSOLIDATED QUARTERLY STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
1995
- ----------------------------------------------------------------------------------------------
(000 OMITTED EXCEPT FOR PER SHARE DATA)
QUARTER
--------------------------------------------
1ST 2ND 3RD 4TH TOTAL
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
REVENUE $ 99,183 $ 109,916 $ 137,907 $ 148,589 $ 495,595
Operating Expense 81,098 88,379 111,091 119,305 399,873
Nonrecurring Charge -- 125,520 10,961 -- 135,481
- ----------------------------------------------------------------------------------------------
OPERATING INCOME (LOSS) 18,085 (103,983) 15,855 29,284 (40,759)
Other Expense, Net 242 543 399 115 1,299
- ----------------------------------------------------------------------------------------------
Income (Loss) Before Provision
(Credit) for Income Taxes 17,843 (104,526) 15,456 29,169 (42,058)
Provision (Credit) for Income
Taxes 7,137 (41,810) 6,183 11,667 (16,823)
- ----------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ 10,706 $ (62,716) $ 9,273 $ 17,502 $ (25,235)
- ----------------------------------------------------------------------------------------------
EARNINGS (LOSS) PER SHARE:
Primary $ .29 $ (1.72) $ .22 $ .42 $ (.67)
Fully Diluted $ .29 $ (1.72) $ .22 $ .42 $ (.67)
- ----------------------------------------------------------------------------------------------
WEIGHTED AVERAGE SHARES
OUTSTANDING:
Primary 36,993 36,360 41,503 41,637 37,822
Fully Diluted 37,099 36,360 41,596 41,657 37,822
- ----------------------------------------------------------------------------------------------
CASH DIVIDENDS DECLARED PER
SHARE $ .04 $ .04 $ .04 $ .04 $ .16
- ----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
1994
- ----------------------------------------------------------------------------------------------
(000 OMITTED EXCEPT FOR PER SHARE DATA)
QUARTER
--------------------------------------------
1ST 2ND 3RD 4TH TOTAL
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
REVENUE $ 72,803 $ 84,741 $ 91,565 $ 108,327 $ 357,436
Operating Expense 64,260 71,502 78,696 89,936 304,394
- ----------------------------------------------------------------------------------------------
OPERATING INCOME 8,543 13,239 12,869 18,391 53,042
Other Expense (Income), Net (283) (105) 326 512 450
- ----------------------------------------------------------------------------------------------
Income Before Provision for
Income Taxes 8,826 13,344 12,543 17,879 52,592
Provision for Income Taxes 3,530 5,338 5,017 7,152 21,037
- ----------------------------------------------------------------------------------------------
NET INCOME $ 5,296 $ 8,006 $ 7,526 $ 10,727 $ 31,555
- ----------------------------------------------------------------------------------------------
EARNINGS PER SHARE:
Primary $ .15 $ .22 $ .20 $ .29 $ .86
Fully Diluted $ .15 $ .22 $ .20 $ .29 $ .86
- ----------------------------------------------------------------------------------------------
WEIGHTED AVERAGE SHARES
OUTSTANDING:
Primary 36,349 36,585 36,757 36,847 36,533
Fully Diluted 36,389 36,585 36,834 36,884 36,667
- ----------------------------------------------------------------------------------------------
CASH DIVIDENDS DECLARED PER
SHARE $ .04 $ .04 $ .04 $ .04 $ .16
- ----------------------------------------------------------------------------------------------
</TABLE>
All prior period amounts have been restated to reflect the 1995 acquisition of
CliniCom Incorporated in a pooling transaction.
18
<PAGE>
- -- CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
- ------------------------------------------------------------------------------------------------
(000 Omitted Except for Per Share Data)
1995 1994 1993
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUE:
Recurring $ 205,901 $123,428 $ 90,203
One-Time Sales 289,694 234,008 176,944
- ------------------------------------------------------------------------------------------------
Total Revenue 495,595 357,436 267,147
OPERATING EXPENSE:
Cost of Operations 232,095 186,140 142,524
Marketing 70,591 47,815 37,404
Research and Development 42,964 32,130 25,829
General and Administrative 54,223 38,309 29,507
Nonrecurring Charge 136,481 -- --
- ------------------------------------------------------------------------------------------------
Total Operating Expense 536,354 304,394 235,264
- ------------------------------------------------------------------------------------------------
OPERATING INCOME (Loss) (40,759) 53,042 31,883
Other Expense, Net 1,299 450 388
- ------------------------------------------------------------------------------------------------
Income (Loss) Before Provision (Credit) for Income Taxes (42,058) 52,592 31,495
Provision (Credit) for Income Taxes (16,823) 21,037 12,598
- ------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $(25,235) $ 31,555 $ 18,897
- ------------------------------------------------------------------------------------------------
EARNINGS (LOSS) PER SHARE:
Primary $ (.67) $ .86 $ .53
Fully Diluted $ (.67) $ .86 $ .52
- ------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE SHARES OUTSTANDING:
Primary 37,822 36,533 35,649
Fully Diluted 37,822 36,667 36,010
- ------------------------------------------------------------------------------------------------
</TABLE>
All prior period amounts have been restated to reflect the 1995 acquisition of
CliniCom Incorporated in a pooling transaction.
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,
1995 1994
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
CURRENT ASSETS:
Cash and Cash Equivalents $ 65,263 $ 14,951
Receivables, Net of Allowance For Doubtful
Accounts of $8,330 and $2,475 in 1995 and 1994 156,210 115,845
Current Deferred Income Taxes 17,794 5,133
Inventories 6,757 3,526
Prepaids and Other Current Assets 6,346 7,917
- ------------------------------------------------------------------------------------------------
Total Current Assets 252,370 147,372
- ------------------------------------------------------------------------------------------------
INTANGIBLES
Net of Accumulated Amortization of $13,801 and $3,567
in 1995 and 1994 184,051 57,595
- ------------------------------------------------------------------------------------------------
CAPITALIZED SOFTWARE
Net of Accumulated Amortization of $22,054 and $16,878
in 1995 and 1994 34,098 27,916
- ------------------------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT
Net of Accumulated Depreciation of $71,263 and $63,758
in 1995 and 1994 33,609 29,103
- ------------------------------------------------------------------------------------------------
DEFERRED INCOME TAXES 25,098 --
- ------------------------------------------------------------------------------------------------
OTHER NONCURRENT ASSETS, NET 5,908 2,146
- ------------------------------------------------------------------------------------------------
$535,134 $264,132
- ------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------------------------------------------------------------------
(000 Omitted)
CURRENT LIABILITIES:
Deferred Revenue $ 71,684 $ 52,855
Other Current Liabilities 133,436 83,357
- ------------------------------------------------------------------------------------------------
Total Current Liabilities 205,120 136,212
- ------------------------------------------------------------------------------------------------
DEFERRED INCOME TAXES -- 1,746
- ------------------------------------------------------------------------------------------------
LONG-TERM DEBT 582 252
- ------------------------------------------------------------------------------------------------
OTHER LONG-TERM LIABILITIES 10,702 1,145
- ------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES
- ------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY:
Preferred Stock, 1,000 Shares Authorized
and No Shares Issued in Both 1995 and 1994 -- --
Common Stock, $.05 Par Value, 60,000 Shares Authorized
and 56,597 and 52,525 Shares Issued in 1995 and 1994 2,830 2,626
Additional Paid-In Capital 315,906 95,063
Retained Earnings 80,255 111,497
- ------------------------------------------------------------------------------------------------
398,991 209,186
Treasury Stock, as Cost (16,478 and 17,328 Shares in 1995 and 1994) (80,261) (84,409)
Total Stockholders' Equity 318,730 124,777
- ------------------------------------------------------------------------------------------------
$535,134 $264,132
- ------------------------------------------------------------------------------------------------
</TABLE>
All prior period amounts have been restated to reflect the 1995 acquisition of
CliniCom Incorporated in a pooling transaction.
The accompanying Notes to Consolidated Financial Statements are an integral part
of these consolidated financial statements.
20
<PAGE>
- -- CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
- -----------------------------------------------------------------------------------------------------------------------------------
(000 Omitted)
COMMON STOCK SHARES ADDITIONAL TOTAL
------------------------------ 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, 1992 27,867 8,754 19,113 $1,393 $ 69,986 $ 70,337 $(80,108) $ 61,608
Common Stock Issued-*
Public Offering 460 -- 460 23 10,817 -- -- 10,840
Stock Options Exercised 43 (336) 379 2 3,314 -- 3,234 6,550
Employee Stock Purchase Plan -- (63) 63 -- 116 -- 586 702
Treasury Stock Purchased -- 700 (700) -- -- -- (11,938) (11,938)
Other 70 (6) 76 4 961 (74) 57 948
Cash Dividends Declared
($.15 Per Share) -- -- -- -- -- (4,425) -- (4,425)
Effect of Two-For-One Stock Split 23,811 9,049 14,762 1,190 (1,190) -- -- --
Net Income for the Year -- -- -- -- -- 18,897 -- 18,897
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1993 52,251 18,098 34,153 2,612 84,004 84,735 (88,169) 83,182
Common Stock Issued-*
Stock Options Exercised 264 (578) 842 14 10,029 -- 3,061 13,104
Employee Stock Purchase Plan 10 (144) 154 -- 870 -- 699 1,569
Other -- (48) 48 -- 160 147 -- 307
Cash Dividends Declared
($.16 Per Share) -- -- -- -- -- (4,940) -- (4,940)
Net Income for the Year -- -- -- -- -- 31,555 -- 31,555
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1994 52,525 17,328 35,197 2,626 95,063 111,497 (84,409) 124,777
Common Stock Issued-*
Business Combination 4,000 -- 4,000 200 199,800 -- -- 200,000
Stock Options Exercised 65 (765) 830 4 19,795 -- 3,770 23,569
Employee Stock Purchase Plan 7 (78) 85 -- 1,240 -- 378 1,618
Other -- (7) 7 -- 8 (223) -- (215)
Cash Dividends Declared
($.16 Per Share) -- -- -- -- -- (5,784) -- (5,784)
Net Loss for the Year -- -- -- -- -- (25,235) -- (25,235)
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1995 56,597 16,478 40,119 $2,830 $315,906 $ 80,255 $(80,261) $318,730
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Includes a non-cash income tax benefit reflected in additional paid-in capital
of $12,314, $7,208 and $3,067 in 1995, 1994 and 1993 related to the exercise of
stock options, the disqualifying disposition of stock options and the employee
stock purchase plan.
All prior period amounts have been restated to reflect the 1995 acquisition of
CliniCom Incorporated in a pooling transaction.
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 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------
(000 Omitted)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) for the Year $ (25,235) $ 31,555 $ 18,897
- ---------------------------------------------------------------------------------------------------------------
Adjustments to Reconcile Net Income (Loss) to
Net Cash Provided by Operating Activities:
Nonrecurring Charge 136,481 -- --
Depreciation and Amortization 30,253 18,729 10,781
Provision (Credit) for Noncurrent Deferred Income Taxes (2,644) 1,474 1,572
Changes in Assets and Liabilities, Net of Acquisitions:
Receivables (16,845) (52,288) 10,355
Current Deferred Income Taxes (12,643) 1,147 1,252
Inventories (5,231) (189) 745
Prepaids and Other Current Assets 2,453 (129) (1,191)
Deferred Income Taxes (25,098) -- --
Other Noncurrent Assets (148) 829 296
Deferred Revenue 15,573 13,322 2,515
Other Current Liabilities (5,350) 22,580 2,371
Other, Net (190) (506) 165
- ---------------------------------------------------------------------------------------------------------------
Total Adjustments 116,611 4,969 28,861
- ---------------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 91,376 36,524 47,758
- ---------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale of Property and Equipment 814 99 1,385
Purchase of Facility -- (2,698) --
Capital Expenditures (11,231) (7,319) (9,664)
Purchases of Businesses, Net of Cash Acquired (12,594) (45,085) (7,020)
Capitalized Software (14,546) (10,459) (7,799)
Other -- -- 1,694
- ---------------------------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities (37,557) (65,462) (21,404)
- ---------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED (USED) BEFORE FINANCING ACTIVITIES 53,819 (28,938) 26,354
- ---------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Issuance of Common Stock 12,874 7,179 19,091
Proceeds from Long-Term Debt 70,500 63,000 --
Payment of Dividends (5,451) (4,776) (4,447)
Repayment of Short-Term Debt (10,000) -- (258)
Repayment of Long-Term Debt (71,430) (62,664) --
Purchase of Treasury Stock -- -- (11,938)
- ---------------------------------------------------------------------------------------------------------------
Net Cash Provided by (Used in) Financing Activities (3,507) 2,739 2,448
- ---------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 50,312 (26,199) 28,802
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 14,951 41,150 12,348
- ---------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 65,263 $ 14,951 $ 41,150
- ---------------------------------------------------------------------------------------------------------------
CASH PAID DURING THE YEAR FOR:
Interest $ 3,306 $ 2,727 $ 1,413
Income Taxes $ 15,436 $ 8,369 $ 4,838
</TABLE>
All prior period amounts have been restated to reflect the 1995 acquisition of
CliniCom Incorporated in a pooling transaction.
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.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
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, Ireland, Canada, Puerto Rico, Saudi Arabia, Australia and New
Zealand.
SOFTWARE AND HARDWARE PRODUCTS -- Information systems are marketed under
equipment purchase and software license agreements, as well as service
agreements. Software and hardware are recognized at the time of delivery.
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 and remote processing
services are either recognized monthly as the work is performed or on a
percentage-of-completion basis.
NONRECURRING CHARGE
During the second quarter of 1995, the Company recorded a $126 million
nonrecurring charge primarily related to $115 million of research and
development purchased as part of the Charlotte Product Group (CPG) acquisition
that had not reached the stage of technological feasibility. The charge also
included severance and other acquisition-related costs of $8 million and a
mainframe capitalized research and development net book value adjustment of $3
million. During the third quarter of 1995, the Company recorded a nonrecurring
charge of $11 million related to the acquisition of CliniCom. The nonrecurring
charge consisted primarily of severance pay and acquisition costs.
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. Loss per share is based only upon
the weighted average number of shares outstanding, since the effect of stock
options is anti-dilutive.
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 either
by the specific identification or first-in, first-out valuation methods.
CAPITALIZED SOFTWARE
The Company capitalizes costs to develop software products once the project has
reached the point of technological feasibility. Management monitors the net
realizable value of all software development investments to ensure that the
investment will be recovered through future sales. Completed projects are
amortized after reaching the point of general availability using the
straight-line method based on an estimated useful life of three years.
HBOC capitalized software development costs of $14.5 million, $10.5 million and
$7.8 million in 1995, 1994 and 1993. In addition, acquisitions resulted in a
$2.3 million increase in capitalized software in 1995, a $2.4 million increase
in 1994 and a $.7 million increase in 1993. The Company's 1995 nonrecurring
charge included $4.7 million related to net realizable value adjustments for
capitalized software. Amortization of capitalized software costs totaled
$5.8 million, $6.2 million and $3.8 million in 1995, 1994 and 1993.
Royalty fees in the amount of $11.3 million, $7.3 million and $2.4 million
were expensed in 1995, 1994 and 1993 for third-party business partners and
customers that assisted in the Company's development efforts.
23
<PAGE>
- -- NOTES TO CONSOLIDATED FINANCIAL STATEM[caad 214]ENTS
INTANGIBLES
Intangibles consists of certain items related to the Company's acquisitions as
follows:
<TABLE>
<CAPTION>
December 31,
(000 Omitted) 1995 1994
GROSS NET GROSS NET
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Series Customer Lists $ 53,815 $ 48,105 $ 51,849 $ 49,833
CPG Customer Lists 103,927 100,232 -- --
Goodwill 37,536 34,238 6,680 5,811
Other 2,574 1,476 2,633 1,951
---------------------------------------------------------------------
Total $197,852 $184,051 $ 61,162 $ 57,595
</TABLE>
The Series and CPG customer lists are being amortized over 15 years beginning in
June 1994 and June 1995. Goodwill relates to seven acquisitions and is being
amortized over periods ranging from seven 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 using the straight-line method.
Office furniture and equipment are depreciated over useful lives of two to 10
years using the straight-line method. Real property is depreciated using the
straight-line method over various lives of up to 39 years. 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 $6.6 million in 1995, $4.7 million in 1994 and $3.5 million
in 1993.
OTHER NONCURRENT ASSETS
Other noncurrent assets consist primarily of the long-term portion of notes
receivable.
2. INDEBTEDNESS AND COMMITMENTS:
The Company entered into a long-term revolving credit agreement in June 1994
which replaced a similar agreement with another bank. In February 1995 the
amount available under the agreement was increased from $20 million to $25
million. Interest is payable at the Company's option of prime or LIBOR plus a
margin determined by certain of the Company's financial ratios (6-3/4% as of
December 31, 1995). The commitment fee on the revolving credit agreement is
3/8% payable quarterly on the unused portion of the commitment. The agreement,
which expires on June 30, 1997, contains certain net worth, income, cash flow
and financial ratio covenants. The Company is in compliance with these
covenants at December 31, 1995.
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 1-3/4%. The Company elected to
repay the majority of the principal in 1994, leaving a short-term payable of
$.4 million at December 31, 1994, which was paid in January 1995.
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 at prime less 1/2%. No facility fees
or compensating balances are associated with either line.
During the second quarter of 1994, the Company entered into an agreement with
a financial institution whereby the Company can sell on an ongoing basis,
with partial recourse, an undivided interest in a pool of customer
receivables. During the first quarter of 1995, the Company increased the
amount available to be sold and the amount sold from $20 million to $30
million. Interest is payable at the Company's option of prime or LIBOR plus
a margin determined by certain of the Company's financial ratios (6-3/4% as of
December 31, 1995). 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 1994 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, 1995, were as follows:
<TABLE>
<CAPTION>
(000 Omitted)
<S> <C>
1996 $ 18,622
1997 16,563
1998 13,017
1999 8,078
2000 and thereafter 7,312
-----------------------------------
TOTAL $ 63,592
</TABLE>
24
<PAGE>
- -- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 1995, 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
exercisable, 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.
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, 1995, there
were 716,215 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, 1992 3,119,050 $ 2.85 - $13.33
- -----------------------------------------------------------------
Granted 603,171 $ 8.59 - $36.25
Exercised 715,049 $ 2.85 - $10.00
Forfeited 110,047 $ 2.85 - $12.89
- -----------------------------------------------------------------
BALANCE - DECEMBER 31, 1993 2,897,125 $ 2.85 - $36.25
- -----------------------------------------------------------------
Granted 737,699 $12.89 - $49.38
Exercised 841,811 $ 2.85 - $36.25
Forfeited 92,419 $ 4.57 - $49.38
- -----------------------------------------------------------------
BALANCE - DECEMBER 31, 1994 2,700,594 $ 3.00 - $49.38
- -----------------------------------------------------------------
Granted 1,039,084 $32.81 - $75.00
Exercised 830,134 $ 3.00 - $49.38
Forfeited 366,252 $ 8.44 - $49.38
- -----------------------------------------------------------------
BALANCE - DECEMBER 31, 1995 2,543,292 $ 3.00 - $75.00
- -----------------------------------------------------------------
EXERCISABLE AT DECEMBER 31, 1995 983,019 $ 3.00 - $49.38
- -----------------------------------------------------------------
RESERVED FOR FUTURE OPTIONS 290,032
- -----------------------------------------------------------------
</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 1995, 1994 and 1993). 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 $3.1 million in 1995, $2.6 million in 1994 and $1.9
million in 1993.
25
<PAGE>
- -- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 determined that there was 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 asset are as follows:
<TABLE>
<CAPTION>
December 31,
(000 Omitted) 1995 1994
--------------------------------------------------------------------------
<S> <C> <C>
DEFERRED TAX LIABILITIES:
Capitalized Software $ (12,492) $ (9,916)
Tax vs. Book Depreciation -- (641)
Other -- (248)
--------------------------------------------------------------------------
Total Deferred Tax Liabilities (12,492) (10,805)
--------------------------------------------------------------------------
DEFERRED TAX ASSETS:
Intangibles 31,608 --
Accruals 7,148 4,469
Net Operating Loss Carryforward 3,600 4,971
Inventory 2,507 852
Other 10,521 3,900
--------------------------------------------------------------------------
Total Deferred Tax Assets 55,384 14,192
--------------------------------------------------------------------------
NET DEFERRED TAX ASSET $ 42,892 $ 3,387
--------------------------------------------------------------------------
</TABLE>
The provision (credit) for income taxes consists of the following components:
<TABLE>
<CAPTION>
(000 Omitted) 1995 1994 1993
-----------------------------------------------------------------------
<S> <C> <C> <C>
Current Portion -
Federal $ 21,915 $ 16,748 $ 8,531
State 1,812 1,690 1,261
-----------------------------------------------------------------------
23,727 18,438 9,792
-----------------------------------------------------------------------
Deferred Portion -
Federal (35,407) 2,295 2,482
State (5,143) 304 324
-----------------------------------------------------------------------
(40,550) 2,599 2,806
-----------------------------------------------------------------------
Total Provision (Credit) for
Income Taxes $(16,823) $ 21,037 $12,598
-----------------------------------------------------------------------
</TABLE>
A reconciliation from the federal statutory rate to the total provision (credit)
for income taxes is as follows:
<TABLE>
<CAPTION>
(000 Omitted) 1995 1994 1993
-----------------------------------------------------------------------
<S> <C> <C> <C>
Tax at Statutory Rate $(14,720) $18,407 $11,023
State Income Taxes, Net of
Federal Taxes (2,103) 2,629 1,501
Tax Reserve Adjustment -- (424) --
Other, Net -- 425 74
-----------------------------------------------------------------------
$(16,823) $21,037 $12,598
-----------------------------------------------------------------------
</TABLE>
6. OTHER CURRENT LIABILITIES:
The following significant items are included in other current liabilities at
year-end:
<TABLE>
<CAPTION>
(000 Omitted) 1995 1994
-----------------------------------------------------------------------
<S> <C> <C>
Accounts Payable $ 29,380 $21,391
Accrued Commissions and Bonuses 20,710 11,184
Customer Deposits 20,221 10,230
Accrued Royalties 6,404 2,814
Notes Payable -- 10,000
Other 56,721 27,738
-----------------------------------------------------------------------
$133,436 $83,357
-----------------------------------------------------------------------
</TABLE>
7. ACQUISITIONS:
In February 1995 the Company completed the acquisition of Advanced Laboratory
Systems, Inc. now known as the Advanced Laboratory Group (ALG), for
approximately $7 million, net of cash acquired. The transaction was
accounted for as a purchase.
In June 1995 the Company completed the acquisition of First Data Health
Systems Corporation, now known as the Charlotte Product Group (CPG), a wholly
owned subsidiary of First Data Corporation, in exchange for 4 million shares
of common stock of HBOC valued at approximately $200 million.
The transaction was accounted for as a purchase. The cost of the acquisition
has been allocated on the basis of an outside appraisal of the tangible
assets of $58 million acquired and the liabilities assumed of $83 million.
HBOC recorded approximately $115 million of intangibles after adjusting for
the nonrecurring purchased research and development charge (note 1), which
are being amortized on a straight-line basis over periods ranging from seven
to 15 years.
The results of operations of CPG 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 and excludes the effect of the 1995 nonrecurring
charge:
<TABLE>
<CAPTION>
(000 Omitted Except for Per Share Data) 1995 1994
---------------------------------------------------------------
<S> <C> <C>
Revenue $563,790 $510,781
Net Income $ 60,589 $ 38,949
Earnings Per Share $ 1.47 $ .96
</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.
26
<PAGE>
- -- NOTES TO CONSOLIDATED FINANCIAL STATEM[caad 214]ENTS
In July 1995 the Company completed the acquisition of Pegasus Medical Ltd.
for approximately $8 million of cash and contingent payments, based on
certain deliverables, of up to $7 million. Contingent payments of $3 million
were made in 1995. The transaction was accounted for as a purchase.
In September 1995 the Company completed the acquisition of CliniCom Incorporated
in a transaction accounted for as a pooling of interests. All of CliniCom's
outstanding shares were exchanged for approximately 3.5 million shares of HBOC
common stock. All prior period financial information has been restated and
intercompany transactions have been eliminated. Acquisition-related costs were
expensed as incurred.
Summarized results of operations of the separate companies for the nine-month
period ended September 30, 1995, are as follows:
<TABLE>
<CAPTION>
(000 Omitted) Nine Months Ended September 30, 1995
HBOC CLINICOM ADJUSTMENTS TOTAL
- --------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue $318,778 $35,508 $(7,280) $347,006
Net Income (Loss) $(46,471) $ 5,777 $(2,043) $(42,737)
- --------------------------------------------------------------------
</TABLE>
A reconciliation between revenue and net income as previously reported and as
restated follows:
<TABLE>
<CAPTION>
(000 Omitted) 1994 1993
--------------------------------------------------------
<S> <C> <C>
REVENUE:
As Previously Reported $327,201 $250,791
CliniCom 35,416 20,146
Adjustments (5,181) (3,790)
--------------------------------------------------------
As Restated $357,436 $267,147
--------------------------------------------------------
NET INCOME:
As Previously Reported $ 28,159 $ 18,819
CliniCom 5,488 3,343
Adjustments (2,092) (3,265)
--------------------------------------------------------
As Restated $ 31,555 $ 18,897
--------------------------------------------------------
</TABLE>
8. LEGAL PROCEEDINGS:
On September 6, 1995, the Eleventh Circuit Court of Appeals affirmed the
decision of the Federal District Court for the Northern District of Georgia
dismissing a class action lawsuit against the Company filed in 1986. The
time for any further appeals by the Plaintiff has now expired with the result
that the Company has prevailed on all counts and the litigation has been
conclusively terminated.
The Company is subject to other legal proceedings and claims which 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.
9. SUBSEQUENT EVENT (UNAUDITED):
On February 13, 1996, the Board of Directors of HBOC approved an amendment to
the Company's Certificate of Incorporation that would increase the number of
shares of authorized common stock from 60 million to 250 million. The
amendment is subject to stockholder approval at the Company's Annual Meeting
of Stockholders to be held on May 14, 1996. In addition, the Board announced
its intention to declare a two-for-one stock split to be effected in the form
of a stock dividend, contingent upon stockholder approval of the increase in
authorized shares. Financial information contained in this report has not
been adjusted to reflect the impact of this proposed stock split. However,
if the proposed split occurs and excluding the 1995 nonrecurring charge,
restated fully diluted weighted average shares outstanding would be 79,022
for 1995, 73,334 for 1994 and 72,020 for 1993 and restated earnings per share
would be $.72 for 1995, $.43 for 1994 and $.26 for 1993. Including the
nonrecurring charge for 1995, restated fully diluted weighted average shares
outstanding would be 75,644 and loss per share would be ($.33).
- -- 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 1,686 holders of record of the
Company's common stock as of December 31, 1995.
<TABLE>
<CAPTION>
1995
- ----------------------------------------------------
DIVIDENDS
DECLARED
QUARTER HIGH LOW PER SHARE
- ----------------------------------------------------
<S> <C> <C> <C>
First $ 43.75 $ 33.50 $ .04
Second $ 54.50 $ 40.50 $ .04
Third $ 64.00 $ 52.81 $ .04
Fourth $ 85.75 $ 62.25 $ .04
---------
TOTAL $ .16
---------
</TABLE>
<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>
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, 1995 and 1994,
and the related consolidated statements of income, stockholders' equity and
cash flows for each of the three years in the period ended December 31, 1995.
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, 1995 and 1994, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 1995, in
conformity with generally accepted accounting principles.
Atlanta, Georgia Arthur Andersen LLP
February 6, 1996
- -- STOCKHOLDER INFORMATION
CORPORATE HEADQUARTERS
HBO & Company
301 Perimeter Center North
Atlanta, Georgia 30346
(770) 393-6000
FAX: (770) 393-6092
http://www.hboc.com
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 14,
1996, at 9:00 a.m. Eastern time at its Corporate Headquarters. You are
cordially invited to attend.
TRANSFER AGENT AND REGISTRAR
SunTrust Bank, Atlanta
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 SunTrust Bank, Atlanta at the above address.
INVESTOR INFORMATION
The Company routinely sends its annual reports, interim quarterly reports and
press releases to interested investors. To receive information, please write
the Company or call
(800) HBOC-411
[(800) 426-2411]
INVESTOR RELATIONS
Security analysts and other investor inquiries should be directed to:
Anne G. Davenport
Investor Relations
HBO & Company
(800) HBOC-411
[(800) 426-2411]
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 (800) HBOC-411 [(800) 426-2411]
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
<TABLE>
<CAPTION>
<S> <C>
HOLCOMBE T. GREEN, JR. -- CHAIRMAN GERALD E. MAYO
Chairman and Chief Executive Officer Chairman and President
WestPoint Stevens Inc. Midland Financial Services, Inc.
CHARLES W. MCCALL JAMES V. NAPIER
President and Chief Executive Officer Chairman
HBO & Company Scientific-Atlanta, Inc.
ALFRED C. ECKERT III CHARLES E. THOELE
President Consultant
Greenwich Street Capital Partners, Inc. Sisters of Mercy Health System
PHILIP A. INCARNATI DONALD C. WEGMILLER
President and Chief Executive Officer President and Chief Executive Officer
McLaren Health Care Corporation Management Compensation Group/HealthCare
Compensation
ALTON F. IRBY III
Principal and Deputy Chairman
J O Hambro Magan & Co.
</TABLE>
CORPORATE OFFICERS
<TABLE>
<CAPTION>
<S> <C>
CHARLES W. MCCALL* RALPH C. CAPASSO
President and Chief Executive Officer Senior Vice President -- Pathways 2000 Services
ALBERT J. BERGONZI* TIMOTHY S. HEYERDAHL
Executive Vice President -- Sales, Vice President -- Controller,
Pathways 2000 Accounting Officer
JAMES A. GILBERT* MICHAEL L. KAPPEL
Senior Vice President -- Senior Vice President -- Strategic Product
Charlotte Product Group, Planning and Marketing
Mainframe Products Group,
Series Product Group, GLENN N. ROSENKOETTER
General Counsel and Secretary Senior Vice President -- Advanced Laboratory
Group, Amherst Product Group, Serving Software
JAY P. GILBERTSON* Group, STAR Product Group, HBOC (UK) Limited
Senior Vice President -- Finance,
Chief Financial Officer, Principal E. CHRISTINE RUMSEY
Accounting Officer, Treasurer Senior Vice President -- Human Resources
and Assistant Secretary
DAVID A. SCHENK
RUSSELL G. OVERTON* Senior Vice President --
Senior Vice President -- Connect Technology Group,
Business Development Outsourcing Services Group
* Executive Officer
</TABLE>
<PAGE>
HBO & COMPANY
OFFICES
<TABLE>
<CAPTION>
<S> <C> <C>
CORPORATE Los Angeles, CA PUERTO RICO
(310) 540-4589 Hato Rey
301 Perimeter Center North (809) 766-1097
Atlanta, GA 30346 Minneapolis, MN
(770) 393-6000 (612) 623-4038
UNITED KINGDOM
Mission Viejo, CA Berkshire
UNITED STATES (714) 581-7125 011-44-1734-796679
Amherst, MA
(413) 549-7100 Mt. Laurel, NJ Buckinghamshire
(609) 234-4041 011-44-1628-470800
Boston, MA
(617) 973-5151 Norcross, GA Nottingham
(770) 441-7793 011-44-115-9683200
Boulder, CO
(303) 443-1726 Pittsburgh, PA Romford
(412) 787-7780 011-44-1708-371821
Charlotte, NC
(704) 549-7000 Salt Lake City, UT Edinburgh
(801) 262-0322 011-44-131-6575521
Chicago, IL
(847) 956-2000 San Francisco, CA
(415) 572-1920 IRELAND
Dallas, TX Dublin
(214) 219-4200 Tampa, FL 011-353-1-8405355
(813) 931-0158
Eugene, OR
(541) 485-2338 ISRAEL
CANADA Jerusalem
Hauppauge, NY London, Ontario 011-972-2-433999
(516) 435-2300 (519) 432-4764
Lexington, MA Hamilton, Ontario AUSTRALIA
(617) 863-0600 (905) 385-4997 Lane Cove NSW
011-44-612-408-6622
Longwood, FL
(407) 831-8444
</TABLE>
Designed by Crawford/Mikus Design, Inc., Atlanta, Ga.
Photography by David Guggenheim, Atlanta, Ga.
Printed by Color Graphics, Inc., Atlanta, Ga.
<PAGE>
EXHIBIT 21
HBO & COMPANY AND SUBSIDIARIES
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
Data-Med Computer Services Limited 100% owned by HBO & Company (UK) United Kingdom
Limited
Pegasus Medical Ltd. 100% owned by HBO & Company of Israel
Georgia
First Data Health Systems Corporation 100% owned by HBO & Company of Delaware, USA
Georgia until merged with HBO
& Company of Georgia in
December 1995
First Data Health Systems (Australia), Pty. Ltd. 100% owned by HBO & Company of Australia
Georgia
First Data Health Systems (U.K.), Ltd. 100% owned by HBO & Company of United Kingdom
Georgia
First Data Health Systems (Ireland), Ltd. 100% owned by HBO & Company of Ireland
Georgia
First Data Health Systems Training Services Ltd. 100% owned by HBO & Company of Ireland
Georgia
</TABLE>
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our reports 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 7, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from HBO &
Company Consolidated Statements of Income for the Twelve Months Ended 12/31/95
and HBO & Company Condensed Balance Sheets at 12/31/95 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 65,263
<SECURITIES> 0
<RECEIVABLES> 164,540
<ALLOWANCES> 8,330
<INVENTORY> 6,757
<CURRENT-ASSETS> 252,370
<PP&E> 104,872
<DEPRECIATION> 71,263
<TOTAL-ASSETS> 535,134
<CURRENT-LIABILITIES> 205,120
<BONDS> 0
2,830
0
<COMMON> 0
<OTHER-SE> 315,900
<TOTAL-LIABILITY-AND-EQUITY> 535,134
<SALES> 199,946
<TOTAL-REVENUES> 495,595
<CGS> 74,122
<TOTAL-COSTS> 232,095
<OTHER-EXPENSES> 304,259
<LOSS-PROVISION> 644
<INTEREST-EXPENSE> 3,444
<INCOME-PRETAX> (42,058)
<INCOME-TAX> (16,823)
<INCOME-CONTINUING> (25,235)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (25,235)
<EPS-PRIMARY> (0.67)
<EPS-DILUTED> (0.67)
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from HBO &
Company Consolidated Statements of Income for the Twelve Months Ended 12/31/94
and HBO & Company Condensed Balance Sheets at 12/31/94 and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<CASH> 14,951
<SECURITIES> 0
<RECEIVABLES> 118,320
<ALLOWANCES> 2,475
<INVENTORY> 3,526
<CURRENT-ASSETS> 147,372
<PP&E> 92,861
<DEPRECIATION> 63,758
<TOTAL-ASSETS> 264,132
<CURRENT-LIABILITIES> 136,212
<BONDS> 0
2,626
0
<COMMON> 0
<OTHER-SE> 122,151
<TOTAL-LIABILITY-AND-EQUITY> 264,132
<SALES> 160,771
<TOTAL-REVENUES> 357,436
<CGS> 61,828
<TOTAL-COSTS> 186,140
<OTHER-EXPENSES> 118,254
<LOSS-PROVISION> 849
<INTEREST-EXPENSE> 2,909
<INCOME-PRETAX> 52,592
<INCOME-TAX> 21,037
<INCOME-CONTINUING> 31,555
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 31,555
<EPS-PRIMARY> 0.86
<EPS-DILUTED> 0.86
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from HBO &
Company Consolidated Statements of Income for the Three Months Ended 3/31/95
and HBO & Company Condensed Balance Sheets at 3/31/95 and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> 14,466
<SECURITIES> 0
<RECEIVABLES> 116,733
<ALLOWANCES> 2,632
<INVENTORY> 4,822
<CURRENT-ASSETS> 147,137
<PP&E> 94,868
<DEPRECIATION> 66,569
<TOTAL-ASSETS> 274,256
<CURRENT-LIABILITIES> 123,792
<BONDS> 0
2,628
0
<COMMON> 0
<OTHER-SE> 136,546
<TOTAL-LIABILITY-AND-EQUITY> 274,256
<SALES> 40,576
<TOTAL-REVENUES> 99,183
<CGS> 16,184
<TOTAL-COSTS> 48,482
<OTHER-EXPENSES> 32,616
<LOSS-PROVISION> 75
<INTEREST-EXPENSE> 674
<INCOME-PRETAX> 17,843
<INCOME-TAX> 7,137
<INCOME-CONTINUING> 10,706
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,706
<EPS-PRIMARY> 0.29
<EPS-DILUTED> 0.29
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from HBO &
Company Consolidated Statements of Income for the Six Months Ended 6/30/95
and HBO & Company Condensed Balance Sheets at 6/30/95 and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 15,735
<SECURITIES> 0
<RECEIVABLES> 147,967
<ALLOWANCES> 3,465
<INVENTORY> 5,268
<CURRENT-ASSETS> 185,105
<PP&E> 100,721
<DEPRECIATION> 66,091
<TOTAL-ASSETS> 475,656
<CURRENT-LIABILITIES> 173,326
<BONDS> 0
2,828
0
<COMMON> 0
<OTHER-SE> 275,186
<TOTAL-LIABILITY-AND-EQUITY> 475,656
<SALES> 86,046
<TOTAL-REVENUES> 209,099
<CGS> 32,146
<TOTAL-COSTS> 98,570
<OTHER-EXPENSES> 196,427
<LOSS-PROVISION> 599
<INTEREST-EXPENSE> 1,647
<INCOME-PRETAX> (86,683)
<INCOME-TAX> (34,673)
<INCOME-CONTINUING> (52,010)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (52,010)
<EPS-PRIMARY> (1.45)
<EPS-DILUTED> (1.45)
</TABLE>
