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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM
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COMMISSION FILE NUMBER 0-9900
HBO & COMPANY
(Exact name of registrant as specified in its charter)
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<S> <C>
DELAWARE 37-0986839
(State or other jurisdiction (I.R.S. Employer
of incorporation or Identification
organization) 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
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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)
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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. /X/
Aggregate market value of the voting stock held by nonaffiliates of the
registrant, computed using the closing price as reported by The Nasdaq Stock
Market's National Market for the Company's common stock on February 28, 1997:
$5,175,940,715.
Indicate the number of shares outstanding of the registrant's common stock
as of the latest practicable date:
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OUTSTANDING AT
FEBRUARY 28,
CLASS 1997
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<S> <C>
Common Stock, $.05 par value 90,940,957
</TABLE>
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Stockholders for the year ended December
31, 1996, 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 12, 1997, are incorporated by reference into Part
III of this Form 10-K.
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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, managed care 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. In addition, the Company offers a wide range of electronic
commerce services, including electronic medical claims and remittance advice
services as well as statement processing.
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. HBOC also sells its
products and services internationally through subsidiaries and/or distribution
agreements in the United Kingdom, Canada, Ireland, Saudi Arabia, Kuwait,
Australia, Puerto Rico and New Zealand.
As of December 31, 1996, HBOC had 4,404 employees worldwide.
INDUSTRY. The healthcare industry continues to undergo significant and
rapid change. Healthcare delivery costs have increased dramatically in recent
years compared to the overall rate of inflation, while 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, long-term care facilities and
payer entities. 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 acute-care hospital market has been the largest segment
of healthcare information services. According to industry analysts, the
healthcare industry spent approximately $12 billion in 1996 for products and
services to support automated information systems. Information systems
expenditures in healthcare are expected to grow to $18 billion by the year 2000
as hospitals and other providers spend a larger percentage of their operating
budgets on systems that will enable them to provide caregivers and managers with
access to the information needed to quantify and control costs, a key mandate of
managed care.
In the 1996 Annual HIMSS/HP Leadership Survey, an industry survey conducted
by Hewlett-Packard at the Healthcare Information and Management Systems Society
conference, 63 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. In addition, 32 percent of the respondents noted that their most
important information system priority was upgrading information technology
infrastructure.
With the increasing prevalence of managed care and capitation, healthcare
information systems are evolving to meet new and more complex information
requirements. Initially, these systems were financially
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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 needed to better manage risk by controlling costs,
demonstrating quality, measuring outcomes and influencing utilization. Because
this requires 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 thereby enabling customers to add incremental capabilities to
existing information systems without making prior capital investments obsolete.
The key elements of this strategy are as follows:
LEVERAGE THE EXISTING CUSTOMER BASE. With one or more of its products
installed in approximately 51 percent of the community hospitals (over 100 beds)
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-Registered Trademark-
enterprise 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-Registered Trademark- family of enterprisewide
information systems, HBOC facilitates the more efficient integration of delivery
networks. HBOC's Pathways 2000-Registered Trademark- 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-Registered Trademark- 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 enables them to 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 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
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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 strive 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
goal 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 the majority of these acquisitions:
<TABLE>
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DATE ACQUIRED COMPANY PRIMARY SIGNIFICANCE
- ------------------ ------------------------------- -------------------------------------------------------
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June 1993 Biven Software, Inc. Managed care applications
December 1993 Data-Med Computer Installed base of 100 hospitals in the United Kingdom
Services Limited
May 1994 IBAX Healthcare Systems Presence in the IBM AS/400 market, installed base of
475 hospitals
September 1994 Serving Software, Inc. Enterprisewide patient and resource scheduling software
December 1994 Care 2000, Inc. Case management methodologies
February 1995 Advanced Laboratory Laboratory software for the healthcare and commercial
Systems, Inc. marketplaces
June 1995 First Data Health Installed base of 500 hospitals
Systems Corporation
July 1995 Pegasus Medical Ltd. Electronic patient record built by physicians for
physicians
September 1995 CliniCom Incorporated Multidisciplinary point-of-care clinical information
systems
August 1996 CyCare Systems, Inc. Physician group practice management solutions and
electronic data interchange services
September 1996 Management Software, Inc. Homecare information solutions
December 1996 GMIS Inc. Data quality tools and decision support for payers
December 1996 Gemini Ltd. Remote processing services in the United Kingdom
</TABLE>
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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" or "member"), in whatever setting of care.
Today, the health services delivery network through which these participants
relate can include acute-care hospitals, outpatient clinics, 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, which impacts capital spending by healthcare
enterprises.
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 product portfolio is
organized into six components: acute-care or HIS (hospital information system),
infrastructure, clinical management, practice management, access management and
enterprise management. In addition, HBOC offers a suite of services that allows
healthcare organizations the flexibility to select the level of resources that
most effectively serves their needs.
HIS -- HIS applications automate the operation of individual departments and
their respective functions within the inpatient environment. 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.
HBOC's HIS 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 provide the key elements for integrating and uniting
providers across the continuum of care. Components include local, wide area and
value-added 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 patient information for access throughout the enterprise.
In bringing the enterprise together, these solutions establish the physical
basis for a lifelong patient record.
CLINICAL MANAGEMENT -- Clinical applications facilitate and improve the
actual practice of medicine in a variety of care settings, whether hospital,
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. HBOC's point-of-care applications allow physicians and
other clinicians to document patient information, establish and manage
guidelines or standards of care, enter and manage orders, and view all results
and clinical information. These clinical solutions support the need for
collaboration among multiple disciplines and for integration with other
information systems in the health delivery network.
PRACTICE MANAGEMENT -- Practice management applications provide a
comprehensive solution for medical groups and physician enterprises, whether
they are independent or part of an integrated health network. With business
office management as its cornerstone, HBOC's practice management solution gives
physician groups or enterprises the flexibility to manage their business under
many different organizational and reimbursement models. Also included are risk
management and managed care capabilities, clinical systems for managing patient
care, and scheduling that can handle multiple providers, facilities, and
equipment within the enterprise. Additional capabilities to help accelerate cash
flow, reduce costs, and increase productivity include decision support, data
quality analysis and EDI.
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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 wherever they go for care. Scheduling
systems instantly register and schedule patients 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 alleviate patient
frustration with having to provide duplicate information from one setting of
care to another thereby enhancing "customer satisfaction."
ENTERPRISE MANAGEMENT -- Enterprise management applications facilitate and
improve the management and operation of all aspects of the health enterprise --
for payers 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 management and
accounts receivable management, as well as managed care contracting and member
management applications.
The following table outlines the principal products in each area:
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PRODUCT DESCRIPTION
- ------------------------------------------------------ ------------------------------------------------------
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HIS:
STAR 2000, Precision 2000, Paragon RISC-based patient care, clinical and financial
systems
HealthQuest-Registered Trademark- 2000, Plus 2000 IBM mainframe-based patient care, clinical and
financial systems
Series 2000, OR Series IBM AS/400-based patient care, clinical, financial,
scheduling and management systems
Surgi-Server 2000, Omni-Server 2000, DME 2000 PC-based scheduling, management and equipment tracking
systems
Host 2000 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 Electronic imaging and storage solution
Networking technologies Local and wide area networks and wireless technologies
Value Added Network EDI capabilities that support the movement of
information among various sources
</TABLE>
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PRODUCT DESCRIPTION
- ------------------------------------------------------ ------------------------------------------------------
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CLINICAL MANAGEMENT:
Pathways Coordinated Care Enterprisewide solution for longitudinal health record
spanning all settings, includes results and profile
viewing, orders, guidelines, and alerts and
reminders
Pathways Smart Medical Record-Registered Trademark- Clinical information system for physician offices
Pathways Care Manager Multidisciplinary point-of-care system for hospitals
and affiliated clinics
Pathways Homecare Clinical, administrative and human resource management
for home health
Homecare Integration Architecture Full-featured homecare system for stand-alone home
health agencies
AdVantage Laboratory Information System Laboratory system that includes commercial, reference
and hybrid laboratory capabilities
PRACTICE MANAGEMENT:
Practice 2000 Application suite for physician practices that
includes Pathways Smart Medical
Record-Registered Trademark-, Pathways Practice
Manager, and Pathways Practice Director
Pathways Practice Manager Physician practice system with master patient index,
billing and registration capabilities
Pathways Practice Risk Manager Risk management tool for the physician enterprise
Pathways Practice Director Full-featured practice management system for smaller
physician practices
Pathways Practice Schedule Manager Scheduling tool for the physician enterprise
ACCESS MANAGEMENT:
Pathways Health Network Management Enterprisewide system for managing information about
an enrolled population
Pathways Healthcare Scheduling Enterprisewide patient and resource scheduling system
Pathways Encounter Management Enterprisewide system for managing information about
patients' episodes of care
</TABLE>
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<TABLE>
<CAPTION>
PRODUCT DESCRIPTION
- ------------------------------------------------------ ------------------------------------------------------
<S> <C>
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-Registered Trademark- Decision support system, including cost accounting,
budgeting and forecasting
QUANTUM-Registered Trademark- Enterprise information system
Pathways Decision Support Enterprisewide decision support system
Autocoder-Registered Trademark-, Data quality tools for the payer market
ClaimCheck-Registered Trademark- and ClaimCheck
Dental
Insight Comprehensive clinical and financial decision support
systems for payers
EC2000 Electronic commerce solutions, including claims
processing, eligibility, remittances and laser
statement printing
</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-Registered Trademark- and HIS 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 Limited
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 by HBOC or
through its 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. Those services include UNIX processing support, disaster recovery,
remote system monitoring 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-Registered Trademark-
products.
CONNECT TECHNOLOGY GROUP. To support the connectivity needs of healthcare
organizations, medical group practices and their affiliates, the Connect
Technology Group (CTG) provides total network
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installation and support. In addition, CTG offers a comprehensive Value Added
Network, a suite of information services that extend local 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
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.
ELECTRONIC COMMERCE GROUP. With the 1996 acquisition of CyCare Systems,
Inc., and its CyData subsidiary, HBOC acquired significant capabilities in EDI
services, including claims processing, eligibility verification, remittance
advice as well as statement printing. HBOC's Electronic Commerce Group operates
the nation's 12th largest electronic clearinghouse and serves approximately 35
percent of the medical group practices in the United States.
SOURCES OF REVENUE
Information regarding sources of revenue is included in the table "Revenue
by Business Region" on page 10 of the Company's Annual Report to Stockholders
for the year ended December 31, 1996 (the Annual Report), and under the caption
"Revenue Recognition" in Note 1 of "Notes to Consolidated Financial Statements"
on pages 16 and 17 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, 1996, is included in the
"Financial Review" section under the caption "General" on page 6 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 (R&D) is important to the long-term success of
the business.
Investment in software development, including both R&D 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 $90 million (11% of revenue) for R&D activities during 1996, as
compared to $79 million (13% of revenue) and $62 million (14% of revenue) during
1995 and 1994, respectively. The Company capitalized 29%, 31% and 31% of its R&D
expenditures in 1996, 1995 and 1994, respectively.
Information regarding R&D is included in the schedule "Five-Year Selected
Financial Information" on page 5 of the Annual Report and under the caption
"Capitalized Software" and under the caption "Nonrecurring Charges" in Note 1 of
"Notes to Consolidated Financial Statements" on pages 16 and 17 of the Annual
Report, a copy of which is included as an exhibit to this Form 10-K and is
incorporated herein by reference.
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The substantial majority of 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," "WIN," "CHARISMA," "CYCARE
SYSTEMS," "CYCARE," "SPECTRAMED," "CYDATA," "DOCUMENTATION PLUS," "CLAIMCHECK,"
"PROVIDER INSIGHT," "AUTOCODER," and the triangular design that forms the
Company logo, but such registration provides limited protection as to the
trademark or service mark. "First Inform" is used under license from First Data
Corporation. "SMR" and "Smart Medical Record" are used under license from HBOC
Medical, Ltd.
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, if any, competitors offer a comparable
range of healthcare information systems and services that compare favorably with
respect to all of the competitive criteria, mainly price and service.
FACTORS AFFECTING FORWARD-LOOKING STATEMENTS
This report, and other reports, proxy statements and other communications to
stockholders, as well as oral statements made by representatives of the Company,
may contain forward-looking statements with respect to, among other things, the
Company's future revenues, operating income and earnings per share, as well as
plans and objectives of management. The following are some, but not necessarily
all, of the factors that may cause the Company's actual results to vary
materially from those which are the subject of any such forward-looking
statements.
An important element of HBOC's business strategy has been and will continue
to be expansion through acquisitions, both to extend its customer base and to
acquire strategic technology. The Company's ability to expand successfully
through acquisitions depends on many factors including the identification of
appropriate acquisition opportunities, negotiation of suitable terms and
management's ability to effectively integrate and operate the acquired
businesses. The Company competes for acquisitions with other companies, certain
of which have significantly greater financial and management resources. HBOC's
financial performance will be subject to the risks of the performance of the
acquired businesses as well as the financial effects associated with integration
of such businesses.
The healthcare industry is subject to changing political, economic and
regulatory influences, many of which relate to control of healthcare costs. Such
changes may affect operational aspects of the healthcare industry, including
procurement practices and the availability and/or allocation of capital funds,
which could result in greater selectivity, thus adversely impacting HBOC's
ability to sell its products. HBOC cannot predict with any certainty what
impact, if any, future regulation or healthcare reform might have on its results
of operations, financial condition or business.
While HBOC maintains insurance protecting against certain asserted claims,
there can be no assurance that its insurance coverage would adequately cover any
such claims asserted against HBOC.
Competition in the Company's industry is subject to continual change in not
only the products and services offered but also in the manner in which vendors
are selected by customers. Accordingly, HBOC's
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continued success will be dependent on its ability to develop new products and
services on a timely basis and at competitive prices.
The Company must anticipate and adapt to evolving industry standards and new
technological developments. The market for the Company's products is
characterized by continued and rapid technological advances. HBOC's future
success will depend in part on its ability to be responsive to these
technological developments and challenges, which could also lower the cost of
products and services or otherwise result in competitive pricing pressures.
HBOC relies on a combination of trade secret, copyright and trademark laws,
together with nondisclosure, other contractual provisions and technical measures
to protect its proprietary rights in its products. There can be no assurance
that these protections will be adequate or that HBOC competitors will not
independently develop technologies that are equivalent or superior to HBOC's
technology. Although the Company believes that its products and other
proprietary rights do not infringe upon the proprietary rights of third parties,
there can be no assurance that third parties will not assert infringement claims
against the Company in the future.
The stock market has, from time to time, experienced extreme price and
volume fluctuations, particularly in the high technology sector, which have
often been unrelated to the operating performance of particular companies. HBOC
experiences fluctuations in its stock price related to these general market
swings as well as announcements of technological innovations, new product
introductions by HBOC or its competitors, market conditions in the computer
software or hardware industries and healthcare reform measures. These
fluctuations may adversely effect the Company's ability to make acquisitions
utilizing its stock.
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 that expires in 1999.
The rental expense for these offices totaled approximately $3.9 million for
1996.
The Company also owns two buildings and leases space in approximately 45
buildings throughout the United States, Canada, the United Kingdom and Israel.
Information regarding the Company's leases is included in Note 2 of "Notes to
Consolidated Financial Statements" on page 18 of the Annual Report, a copy of
which is included as an exhibit to this Form 10-K and is incorporated herein by
reference.
Information regarding the Company's principal offices is included on the
back cover of the Annual Report, a copy of which is included as an exhibit to
this Form 10-K and is incorporated herein by reference.
ITEM 3: LEGAL PROCEEDINGS
Information regarding Legal Proceedings is included in Note 9 of "Notes to
Consolidated Financial Statements" on page 21 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, 1996, there were no matters submitted
to a vote of security holders.
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<PAGE>
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 22 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 following is the Company's Five-Year Selected Financial Data:
<TABLE>
<CAPTION>
(000 OMITTED EXCEPT PER SHARE DATA) 1996 1995 1994 1993 1992
- ------------------------------------------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Revenue.................................... $ 796,578 $ 607,242 $ 453,979 $ 364,697 $ 324,349
Net Income (Loss).......................... $ 73,954 $ (17,569) $ 36,469 $ 17,682 $ 20,232
Earnings (Loss) Per Share.................. $ .79 $ (.21) $ .44 $ .22 $ .26
Total Assets............................... $ 848,947 $ 649,417 $ 380,410 $ 266,394 $ 218,869
Long-Term Debt............................. $ 192 $ 3,642 $ 4,715 $ 6,133 $ 7,200
Dividends Declared Per Share............... $ .08 $ .08 $ .08 $ .075 $ .075
</TABLE>
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information included in the "Financial Review" section on pages 6
through 9 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 11 through 21 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.
11
<PAGE>
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, 1997. 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 May 12, 1997, under the
captions "Election of Directors" and "Section 16(a) Beneficial Ownership
Reporting Compliance," which is incorporated herein by reference.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- ---------------------------- --- ----------------------------------------------------
<S> <C> <C>
Charles W. McCall 52 Director, President and Chief Executive Officer
Albert J. Bergonzi 47 President, Enterprise Solutions
Jay P. Gilbertson 36 Executive Vice President, Chief Financial Officer,
Treasurer, Principal Accounting Officer and
Secretary
Jay M. Lapine 45 Vice President, General Counsel and Assistant
Secretary
Russell G. Overton 49 Senior Vice President-Business Development
</TABLE>
Charles W. McCall has served as a Director, President and Chief Executive
Officer of the Company since 1991. Mr. McCall is also a Director of EIS
International, Inc., Physician Support Systems, Inc., and WestPoint Stevens Inc.
Albert J. Bergonzi has served as President, Enterprise Solutions since 1996.
He served as Executive Vice President-Sales of HBOC from 1995 to 1996. From 1985
through 1995 he served as the Vice President and General Manager of HBOC's
Amherst Product Group.
Jay P. Gilbertson has served as Executive Vice President and Secretary since
1996 and Senior Vice President since 1995. Since 1993 he has served as Vice
President-Finance, Chief Financial Officer, Treasurer and Assistant Secretary.
In 1992, he served as Vice President-Controller and Chief Accounting Officer.
Mr. Gilbertson is also a Director of Anacomp, Inc.
Jay M. Lapine has served as Vice President, General Counsel and Assistant
Secretary since 1996. From 1994 to 1996, he served as Associate General Counsel.
From 1992 to 1994, prior to joining the Company, Mr. Lapine was Executive Vice
President and General Counsel of Premier Anesthesia, a publicly held contract
management firm providing physician services to hospitals. From 1991 to 1992, he
was Chief Executive Officer of Greater El Monte Community Hospital.
Russell G. Overton has served as Senior Vice President-Business Development
since 1992.
12
<PAGE>
ITEM 11: EXECUTIVE COMPENSATION
The Company's definitive Proxy Statement for the Annual Meeting of
Stockholders to be held on May 12, 1997, contains under the captions
"Compensation of Directors" and "Executive Compensation," information relating
to director and executive compensation for the year ended December 31, 1996,
which is 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 12, 1997, contains under the captions "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 12, 1997, under the caption
"Certain Relationships and Related Transactions" is incorporated herein by
reference.
13
<PAGE>
PART IV
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
The following documents are filed as part of this report:
(a)1. Financial Statements
The Annual Report contains the following information on pages 11 through 21:
"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 22 of the Annual Report. These financial
statements and the report of Arthur Andersen LLP are incorporated herein by
reference.
(a)2. Financial Statement Schedules
- Report of Independent Public Accountants as to Schedules
Supporting Financial Statements
- Schedules Supporting Financial Statements
<TABLE>
<CAPTION>
SCHEDULE
NUMBER
---------
<S> <C>
Valuation and Qualifying Accounts for the Three Years Ended
II December 31, 1996.
</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
- --------- --------------------------------------------------------------------------------------------------------
<S> <C>
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 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 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:
10(c) --Standard Form of HealthQuest Ltd. Software License and Maintenance Agreement.
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- --------------------------------------------------------------------------------------------------------
<S> <C>
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 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 MARCH 23, 1994, AS PART OF ITS FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1993:
10(e) -- Co-ownership agreement between HTG Corp. and the Company of Falcon 20 airplane, dated July 15, 1993.
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:
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(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.
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.
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- --------------------------------------------------------------------------------------------------------
<S> <C>
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.
ON MAY 21, 1996, AS PART OF ITS FORM 8-K DATED MAY 21, 1996:
3(i) --HBO & Company Certificate of Incorporation, as amended.
ON JUNE 11, 1996, AS PART OF ITS FORM S-4 REGISTRATION STATEMENT DATED JUNE 11, 1996, AS AMENDED BY
AMENDMENT NO. 1 TO FORM S-4 DATED JULY 18, 1996, AND FILED WITH THE COMMISSION ON JULY 18, 1996:
2 -- Agreement of Merger dated May 18, 1996, by and among HBO & Company, HBO & Company of Georgia and
CyCare Systems, Inc.
ON AUGUST 22, 1996, AS PART OF ITS FORM S-8 (REGISTRATION NUMBER 333-10603):
*4 -- CyCare Systems, Inc. 1995 Long-term Incentive Plan (Including the predecessor CyCare Systems, Inc.
Stock Option Plan).
ON OCTOBER 18, 1996, AS PART OF ITS FORM S-4 REGISTRATION STATEMENT DATED OCTOBER 18, 1996, AS AMENDED
BY AMENDMENT NO. 1 TO FORM S-4 DATED NOVEMBER 6, 1996, AND FILED WITH THE COMMISSION ON NOVEMBER 6,
1996:
2 -- Agreement of Merger dated September 23, 1996, as amended, by and among HBO & Company, HBO & Company
of Georgia and GMIS Inc.
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- --------------------------------------------------------------------------------------------------------
<S> <C>
ON DECEMBER 10, 1996, AS PART OF ITS FORM S-8 (REGISTRATION NUMBER 333-17583):
*4(a) -- GMIS Inc. Non-Qualified Stock Option Agreement Between GMIS Inc. and Josephine Kaple.
*4(b) -- GMIS Inc. Non-Qualified Stock Option Agreement Between GMIS Inc. and Lawrence Koenig.
ON DECEMBER 10, 1996, AS PART OF ITS FORM S-8 (REGISTRATION NUMBER 333-17551):
*4 --GMIS Inc. 1991 Stock Option Plan.
ON DECEMBER 10, 1996, AS PART OF ITS FORM S-8 (REGISTRATION NUMBER 333-17579):
*4 --Gabrieli Medical Information Systems, Inc. 1984 Stock Option Plan.
ON DECEMBER 10, 1996, AS PART OF ITS FORM S-8 (REGISTRATION NUMBER 333-17555):
*4 --GMIS Inc. 1995 Stock Option Plan.
ON DECEMBER 10, 1996, AS PART OF ITS FORM S-8 (REGISTRATION NUMBER 333-10479):
*4 -- Gabreili Medical Information Systems, Inc. 1985 Non-Qualified Common Stock Option Plan.
THE FOLLOWING EXHIBITS ARE INCLUDED IN THIS FORM 10-K:
11 -- Computation of Earnings (Loss) Per Share of Common Stock for the Years Ended December 31, 1996, 1995
and 1994.
13 --Annual Report to Stockholders for the year ended December 31, 1996.
21 --Subsidiaries of Registrant.
23 --Consent of Arthur Andersen LLP.
27a --Financial Data Schedule.
27b --Financial Data Schedule restated for September 30, 1996.
27c --Financial Data Schedule restated for June 30, 1996.
27d --Financial Data Schedule restated for March 31, 1996.
27e --Financial Data Schedule restated for December 31, 1995.
27f --Financial Data Schedule restated for September 30, 1995.
27g --Financial Data Schedule restated for June 30, 1995.
27h --Financial Data Schedule restated for March 31, 1995.
27i --Financial Data Schedule restated for December 31, 1994.
</TABLE>
(b) Reports on Form 8-K during the quarter ended December 31, 1996, or
subsequent to that date but prior to the filing date of this Form 10-K:
FORM 8-K DATED DECEMBER 31, 1996:
Reporting under Item 5 that on December 9, 1996, HBO & Company of Georgia, a
wholly owned subsidiary of HBO & Company (HBOC), completed the acquisition, by
merger, of GMIS Inc. (GMIS), a leading provider of clinical information systems
for the managed care industry. GMIS stockholders voted to approve the merger at
a special meeting of stockholders held on December 9, 1996. GMIS stockholders
received 0.42 of a share of HBOC common stock for each share of GMIS common
stock. At closing, approximately 3.7 million HBOC shares were issued for the
approximately 8.8 million outstanding GMIS shares. The transaction will be
accounted for as a pooling of interests.
FORM 8-K DATED FEBRUARY 11, 1997:
Reporting under Item 5 that on February 11, 1997, the Board of Directors of
HBO & Company (the "Company" or "HBOC") declared a quarterly cash dividend of
$.02 per share payable on April 22, 1997 to stockholders of record on March 31,
1997.
17
<PAGE>
Reporting under Item 5 of the unaudited combined operations for the first
full month subsequent to the December 9, 1996, pooling acquisition of GMIS Inc.,
as follows: revenue and net income for January 1997 was $50.7 million and $4.9
million, respectively; revenue and net income for January 1996 was $47.6 million
and $2.8 million, respectively.
Reporting under Item 5 that on February 11, 1997, the Company announced it
had signed a definitive agreement to acquire AMISYS Managed Care Systems, Inc.
(Nasdaq:AMCS), a leading provider of information systems for managed care
entities and other parties that assume financial risk for healthcare
populations. The acquisition, which is subject to regulatory and AMISYS
stockholder approval, will be accounted for as a pooling of interests and is
scheduled to close during the second quarter of 1997. Terms of the acquisition
call for AMISYS stockholders to receive 0.35 of a share of HBOC Common Stock for
each share of AMISYS Common Stock.
18
<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, 1997. 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, 1997
19
<PAGE>
SCHEDULE II
HBO & COMPANY AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(000 OMITTED)
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO BALANCE AT
BEGINNING OF COSTS AND DEDUCTIONS USE END OF
PERIOD EXPENSES OF RESERVE ADJUSTMENTS PERIOD
------------- ----------- --------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1994:
Allowance for Doubtful Accounts............... $ 2,693 $ 1,959 $ 837 $ 68 $ 3,883
Inventory Reserves............................ $ 618 $ 252 $ -- $ -- $ 870
YEAR ENDED DECEMBER 31, 1995:
Allowance for Doubtful Accounts............... $ 3,883 $ 1,683 $ 1,191 $ 5,246* $ 9,621
Inventory Reserves............................ $ 870 $ 2,075 $ 233 $ -- $ 2,712
YEAR ENDED DECEMBER 31, 1996:
Allowance for Doubtful Accounts............... $ 9,621 $ 1,363 $ 1,468 $ -- $ 9,516
Inventory Reserves............................ $ 2,712 $ -- $ 2,217 $ -- $ 495
</TABLE>
- ------------------------
* Adjustment primarily associated with the purchase of First Data Health
Systems Corporation.
20
<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.
<TABLE>
<S> <C> <C>
HBO & COMPANY
By: /s/ CHARLES W. MCCALL
-----------------------------------------
Charles W. McCall
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Date: February 28, 1997
</TABLE>
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 28, 1997
(Charles W. McCall) Chief Executive Officer
Executive Vice President,
/s/ JAY P. GILBERTSON Chief Financial Officer,
- ------------------------------ Treasurer, Principal February 28, 1997
(Jay P. Gilbertson) Accounting Officer and
Secretary
/s/ HOLCOMBE T. GREEN, JR.
- ------------------------------ Chairman of the Board of February 28, 1997
(Holcombe T. Green, Jr.) Directors
/s/ ALFRED C. ECKERT III
- ------------------------------ Director February 28, 1997
(Alfred C. Eckert III)
/s/ PHILIP A. INCARNATI
- ------------------------------ Director February 28, 1997
(Philip A. Incarnati)
/s/ ALTON F. IRBY III
- ------------------------------ Director February 28, 1997
(Alton F. Irby III)
/s/ GERALD E. MAYO
- ------------------------------ Director February 28, 1997
(Gerald E. Mayo)
/s/ JAMES V. NAPIER
- ------------------------------ Director February 28, 1997
(James V. Napier)
/s/ CHARLES E. THOELE
- ------------------------------ Director February 28, 1997
(Charles E. Thoele)
/s/ DONALD C. WEGMILLER
- ------------------------------ Director February 28, 1997
(Donald C. Wegmiller)
</TABLE>
21
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------------- -------------------------------------------------------------------------------------------------
<S> <C> <C>
11 --Computation of Earnings (Loss) Per Share of Common Stock for years ended December 31, 1996,
1995 and 1994..................................................................................
13 --Annual Report to Stockholders for the year ended December 31, 1996.............................
21 --Subsidiaries of Registrant.....................................................................
23 --Consent of Arthur Andersen LLP.................................................................
</TABLE>
<PAGE>
EXHIBIT 11
HBO & COMPANY AND SUBSIDIARIES
COMPUTATION OF EARNINGS (LOSS) PER SHARE OF COMMON STOCK
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(000 OMITTED EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
1996 1995 1994
--------- ---------- ---------
<S> <C> <C> <C>
Weighted Average Number of Common Shares Outstanding............................ 89,696 84,224 78,093
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 *.......................................................... 3,359 -- 3,634
--------- ---------- ---------
Number of Common and Common Equivalent Shares Outstanding....................... 93,055 84,224 81,727
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 *............................................ 107 -- 337
--------- ---------- ---------
Number of Common and Common Equivalent Shares Outstanding Assuming Full
Dilution...................................................................... 93,162 84,224 82,064
--------- ---------- ---------
--------- ---------- ---------
Net Earnings (Loss) for Primary and Fully Diluted Earnings (Loss)
Per Share..................................................................... $ 73,954 $ (17,569) $ 36,469
--------- ---------- ---------
--------- ---------- ---------
Earnings (Loss) Per Share:
Primary....................................................................... $ .79 $ (.21) $ .45
--------- ---------- ---------
--------- ---------- ---------
Fully Diluted................................................................. $ .79 $ (.21) $ .44
--------- ---------- ---------
--------- ---------- ---------
</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 1996 acquisitions of
CyCare Systems, Inc., Management Software, Inc., and GMIS Inc. in pooling
transactions.
<PAGE>
At HBOC, 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.
FROM THE HBOC MISSION STATEMENT
[PHOTO]
TABLE OF CONTENTS
- -----------------
Financial Highlights 2
Letter to Stockholders 3
Five-Year Selected Financial Information 5
Financial Review 6
Revenue by Business Region 10
Condensed Consolidated Quarterly Statements of Income 11
Consolidated Financial Statements 12
Notes to Consolidated Financial Statements 16
Common Stock Data 22
Report of Independent Public Accountants 22
Stockholder Information 23
Board of Directors and Corporate Officers 24
HBOC Offices Back
<PAGE>
COMPANY PROFILE
With more than 4,400 employees worldwide, HBOC serves the information systems
needs of the health enterprise--integrated health systems, managed care
organizations, physician practices and enterprises, payers, home health agencies
and hospitals. HBOC develops, implements and supports patient care, financial,
clinical, homecare, managed care and strategic management software that
facilitates the integration of data throughout the enterprise. HBOC also
provides a full complement of networking technologies and electronic commerce
services as well as outsourcing services for managing business offices and
information system operations.
HBOC's sole focus is the healthcare market, and the Company is an industry
leader in revenue and market share with products and services that are sold
throughout the world.
ORGANIZATIONAL HIGHLIGHTS
- -- Introduced CarePoint 2000-Trademark-, HBOC's fourth generation of wireless
computing solutions. CarePoint 2000 products -- a pen-enabled, hand-held PC
and a cart-based, laptop PC -- are designed to facilitate point-of-care
functionality.
- -- Introduced Paragon-Trademark-, a Windows NT-Trademark- hospital information
system for small, stand-alone acute-care hospitals. Paragon represents the
next generation of HBOC's SAINT-Copyright- Express product.
- -- Announced the general availability of the HBOC DeskTop, providing users
with single sign-on and the ability to move easily among applications.
- -- Acquired CyCare Systems, Inc., a supplier of physician group practice
management software and electronic data interchange services.
- -- Acquired Management Software, Inc., the No. 1 market share leader in
clinical, financial and administrative homecare information solutions.
- -- Acquired GMIS Inc., a leading provider of data quality tools and decision
support software for the payer market.
- -- Rolled out and implemented SAGE (Support Automation in a Global
Environment), a companywide support automation system designed to enable
HBOC employees to deliver seamless, proactive customer service and support.
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(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 $ 796,578 $ 607,242 $ 453,979 $ 364,697 $ 324,349
Operating Income $ 179,664 $ 104,024 $ 57,103 $ 29,995 $ 29,858
Net Income $ 110,805 $ 64,320 $ 36,469 $ 17,682 $ 20,232
Fully Diluted Earnings Per Share $ 1.19 $ .73 $ .44 $ .22 $ .26
Total Assets $ 848,947 $ 649,417 $ 380,410 $ 266,394 $ 218,869
Long-Term Debt $ 192 $ 3,642 $ 4,715 $ 6,133 $ 7,200
Stockholders' Equity $ 525,343 $ 408,190 $ 203,515 $ 164,836 $ 125,882
Employees at Year-End 4,404 4,257 3,421 2,871 3,214
Revenue Per Average
Number of Employees $ 184 $ 156 $ 144 $ 120 $ 104
</TABLE>
All prior period amounts have been restated to reflect the 1996 acquisitions of
CyCare Systems, Inc., Management Software, Inc., and GMIS Inc. in pooling
transactions.
1992 amounts are shown before CliniCom Incorporated's Cumulative Effect of an
Accounting Change.
REVENUE
[GRAPH]
FULLY DILUTED EARNINGS PER SHARE
[GRAPH]
STOCK HIGH AND LOW CLOSING PRICES
[GRAPH]
All prior period amounts have been restated to reflect the 1996 acquisitions of
CyCare Systems, Inc., Management Software, Inc., and GMIS Inc. in pooling
transactions.
-2-
<PAGE>
LETTER TO STOCKHOLDERS
- --------------------------------------------------------------------------------
BUILDING ON THE MOMENTUM OF THE PAST FEW YEARS, HBOC REACHED A NEW LEVEL OF
INDUSTRY LEADERSHIP IN 1996 -- NOT ONLY IN FINANCIAL PERFORMANCE BUT IN CUSTOMER
GROWTH AND LEADING-EDGE SOFTWARE SOLUTIONS TO ADDRESS THE BROAD CONTINUUM OF
HEALTHCARE DELIVERY.
Revenue grew by 31 percent last year to $797 million, and earnings per share
increased 63 percent to $1.19 excluding acquisition-related nonrecurring
charges. HBOC more than doubled its customer base through expansion into
three new markets -- physicians, homecare and payers. We added 150 new
Pathways 2000 -Registered Service Mark- enterprise solution customers. We
signed five new outsourcing contracts and extended three existing
engagements. We introduced Paragon -Registered Service Mark- a Windows NT
- -Registered Trademark- product for the small-hospital market, and we rolled
out CarePoint 2000 -Registered Service Mark-, HBOC's fourth-generation
wireless technology product line. The HBOC DeskTop gave product users single
sign-on and easy access to applications. And a 14-chapter HL7 standards
document set the bar for internal product integration, a vital step in making
integration Job No. 1 at HBOC.
Those are just a few of our accomplishments last year, and we expect 1997 to be
even better as the demand grows for new software solutions to address changing
information requirements. Healthcare restructuring shows no signs of slowing
down, and the movement from fee-for-service to managed care is driving
consolidations, affiliations and alliances within and across market segments.
[PHOTOGRAPH]
CHARLES W. MCCALL
PRESIDENT AND CHIEF
EXECUTIVE OFFICER
Care delivery is rapidly moving beyond the bounds of hospitals and physicians'
offices to settings such as community clinics and patients' homes. The
traditional lines among payers, providers and physician practices have become
increasingly blurred as integrated deliver networks evolve to manage the health
of populations. And the ability to capture clinical information at the point of
care has taken center stage as organizations of all kinds -- hospitals, health
enterprises, physician practices, home health agencies and payers -- seek to
manage outcomes and lower costs.
There has never been a more exciting time in healthcare or a greater
opportunity for HBOC. Building on our presence in the hospital information
systems market, we've systematically extended our reach into the health
enterprise at large with strategic solution sets and "best-of-class" clinical
practice software tools for hospital, physician office and homecare settings.
Along the way, though internal growth and acquisitions, HBOC has assembled more
than 225
-3-
<PAGE>
LETTER TO STOCKHOLDERS
employee clinicians (including more than 40 physicians), more than 1,500
clinical customers and some 4,000 voting members in its clinical user groups.
Working together with customers, HBOC employees are drawing from firsthand
experience to develop new solutions that can help health enterprises make a
dramatic impact on cost and quality as they arrange for care, provide care and
account for care across the enterprise. HBOC's access management solutions
enable organizations to re-engineer the way members access healthcare, providing
them with consistent, coordinated access to services through streamlined
registration and a universal identifier. Our clinical practice tools are
specially designed for use at the point of care, increasing both the efficiency
of caregivers and the accuracy of the information they use to make decisions.
And HBOC's enterprise management solutions--from decision support to full-blown
managed care--enable enterprise managers to account for resources, determine how
effectively those resources have been used and set a course for the future.
HBOC further strengthened its product portfolio in 1996 by expanding its
presence in three market segments that offer great potential and that are
relatively new to us--physicians, homecare and payers. The acquisition of
CyCare Systems, Inc., places HBOC squarely in the physician market with a proven
solution, while Management Software, Inc., gives HBOC market share leadership in
homecare. The addition of GMIS Inc. provides HBOC with 280 payer customers--
including some of the largest and best-known insurance companies in the United
States--and greater resources to address not only the needs of payers but also
providers that are assuming risk for a population.
Each of these additions represents a twofold opportunity for HBOC--the addition
of new customers and new revenue streams, and the ability to offer new solutions
to existing customers. With the increasing prevalence of managed care, a great
majority of our customers are ripe for enterprisewide solutions and look to HBOC
for not only broad range and rich functionality but full integration as well.
In that respect, HBOC has stepped up to a challenge that few others have the
ability or resources to tackle. Integration continues to be Job No. 1 at HBOC--
not only among our products but among our people and processes as well. We made
steady progress last year, publishing standards that all R&D groups follow to
ensure HBOC products share data at the level required for full integration.
Phase II of the HBOC DeskTop is now operational at development sites, and our
sales, development, service and support groups moved from a product-line,
business-unit organizational structure to one focused on providing integrated
solutions for the health enterprise as a whole.
HBOC faces many challenges in 1997--among them rapid change, competitive
pressures and the continued challenge of assimilating new products and employee
groups. But we've set the bar high for ourselves and we intend to "take the
lead" as never before--with a solid customer base, talented employees, a healthy
balance sheet and the broadest range of products and services in the industry.
/s/Charlie McCall
Charles W. McCall
President & CEO
February 6, 1997
-4-
<PAGE>
FIVE-YEAR SELECTED
FINANCIAL INFORMATION
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
---------------------------------------------------------------
1996(1) 1995(2) 1994 1993 1992(3)
-------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
(000 OMITTED EXCEPT FOR %S, PER SHARE DATA, RATIOS, STOCKHOLDERS AND EMPLOYEES)
Operations (Excluding Nonrecurring Charges)
Revenue .............................................. $796,578 $607,242 $453,979 $364,697 $324,349
Operating Income ..................................... $179,664 $104,024 $ 57,103 $ 29,995 $ 29,858
Income Before Income Taxes ........................... $183,766 $104,564 $ 58,257 $ 34,298 $ 30,098
Net Income ........................................... $110,805 $ 64,320 $ 36,469 $ 17,682 $ 20,232
As a Percent of Revenue
(Excluding Nonrecurring Charges)
Operating Income ..................................... 23% 17% 13% 8% 9%
Income Before Income Taxes ........................... 23% 17% 13% 9% 9%
Net Income ........................................... 14% 11% 8% 5% 6%
Percent Change From Prior Year
(Excluding Nonrecurring Charges)
Revenue .............................................. 31% 34% 24% 12% 19%
Operating Income ..................................... 73% 82% 90% 0% 147%
Income Before Income Taxes ........................... 76% 79% 70% 14% 185%
Net Income ........................................... 72% 76% 106% (13)% 211%
Share Information(4) (Excluding Nonrecurring Charges)
Stockholders of Record ............................... 2,528 2,568 2,874 2,920 5,805
Weighted Average Shares Outstanding (Fully Diluted) .. 93,162 87,982 82,064 80,940 78,477
Fully Diluted Earnings Per Share ..................... $ 1.19 $ .73 $ .44 $ .22 $ .26
Cash Dividends Per Share ............................. $ .08 $ .08 $ .08 $ .075 $ .075
Book Value at Year-End Per Share ..................... $ 5.80 $ 4.59 $ 2.58 $ 2.14 $ 1.48
Closing Stock Price Per Share--High .................. $ 71.88 $ 42.88 $ 18.07 $ 11.50 $ 6.44
--Low ................... $ 32.75 $ 16.75 $ 10.38 $ 4.22 $ 2.44
Capitalized Software
Research and Development Expenditures ................ $90,053 $78,539 $62,346 $54,192 $44,357
Capitalized Software Expenditures .................... $25,957 $24,692 $19,427 $17,581 $13,665
Research and Development Capitalization Rate ......... 29% 31% 31% 32% 31%
Financial Ratios (Excluding Nonrecurring Charges)
Return on Average Stockholders' Equity ............... 24% 20% 20% 12% 16%
Current Ratio ........................................ 1.6:1 1.4:1 1.2:1 2.0:1 1.5:1
Long-Term Debt to Stockholders' Equity ............... -- .01:1 .02:1 .04:1 .06:1
Financial Position at Year-End
Cash and Short-Term Investments ...................... $183,613 $ 91,771 $ 48,753 $ 86,208 $ 26,034
Working Capital ...................................... $203,405 $ 83,626 $ 39,905 $ 83,193 $ 43,842
Total Assets ......................................... $848,947 $649,417 $380,410 $266,394 $218,869
Long-Term Debt ....................................... $ 192 $ 3,642 $ 4,715 $ 6,133 $ 7,200
Stockholders' Equity ................................. $525,343 $408,190 $203,515 $164,836 $125,882
Other Financial Information
Employees at Year-End ................................ 4,404 4,257 3,421 2,871 3,214
Revenue Per Average Number of Employees .............. $ 184 $ 156 $ 144 $ 120 $ 104
</TABLE>
All prior period amounts have been restated to reflect the 1996 acquisitions
of CyCare Systems, Inc., Management Software, Inc., and GMIS Inc. in pooling
transactions. Periods prior to June 1995 do not include the purchase
acquisition of First Data Health Systems Corporation. Periods prior to May
1994 do not include the purchase acquisition of IBAX Healthcare Systems.
(1) 1996 Income Statement related items exclude nonrecurring charges of
$61,414. The Net Income is $73,954 and Fully Diluted Earnings Per Share
is $.79 including the nonrecurring charges.
(2) 1995 Income Statement related items exclude nonrecurring charges of
$136,481. The Net Loss is ($17,569) and Fully Diluted Loss Per Share is
($.21) including the nonrecurring charges.
(3) 1992 is presented before CliniCom Incorporated's Cumulative Effect of
Accounting Change.
(4) All share and per share amounts have been restated to reflect the 1996
stock split effected in the form of a stock dividend.
-5-
<PAGE>
FINANCIAL REVIEW
GENERAL
Unless stated otherwise, all expense, income and per share amounts exclude
the following nonrecurring charges and include the dilutive effect of stock
options: $61.4 million related primarily to the acquisitions of CyCare
Systems, Inc., Management Software, Inc., and GMIS Inc., in 1996; $136.5
million related primarily to the 1995 acquisitions of First Data Health
Systems Corporation (now known as the Charlotte Product Group or CPG) and
CliniCom Incorporated. Each of the above 1996 acquisitions and the 1995
acquisition of CliniCom Incorporated was accounted for as a pooling of
interests; therefore, all prior period financial information has been
restated. Unless otherwise noted, management's discussion of financial
results is based on restated figures.
Once again in 1996, HBO & Company ("the Company" or "HBOC") achieved record
revenue and earnings. For 1996, the Company posted earnings per share of
$1.19, a 63% increase over earnings per share of $.73 for 1995. The
significant increase in earnings per share resulted from strong revenue
growth, $796.6 million in 1996 up from $607.2 million in 1995, an increase of
31%, and an increase in operating income as a percent of revenue to 23% in
1996 compared to 17% in 1995. Including the nonrecurring charges and
excluding the dilutive effect of stock options (for 1995), earnings per share
for 1996 was $.79, compared to a loss per share of ($.21) in 1995 and
earnings per share of $.44 in 1994.
The Company's operating expense continued to grow at a slower rate than
revenue due to increased software sales, successful cost-control programs and
productivity enhancements. The Company continues to make progress in the
area of employee productivity, with 1996 revenue per average number of
employees of $184,000, an increase from $156,000 for 1995 and $144,000 for
1994.
As the healthcare industry moves from a fee-for-service environment to
managed care, HBOC has evolved the focus of its products beyond hospital and
acute-care settings to encompass the full spectrum of care, including
physician practices, homecare and payer entities. The Company's strategic
solutions sets are aimed at supporting the re-engineering of various
healthcare-related activities to improve efficiencies, reduce costs and
improve the quality of patient care. Because HBOC realizes that most health
enterprises and integrated delivery networks must integrate diverse
technologies from disparate systems, the Company continues to focus on data
and product integration. The Company's revenue growth is the result of its
ability to develop, implement and support patient care, clinical, financial,
homecare, managed care, payer and strategic management software that
facilitates the integration of data throughout the enterprise and across the
continuum of care.
In 1996, the Company completed the acquisitions of CyCare Systems, Inc.
(CyCare), Management Software, Inc. (MSI), and GMIS Inc. (GMIS). These
strategic acquisitions have expanded the Company's product and customer base
into markets that had previously been largely untapped by the Company.
Revenue and operating income for all three of the acquired business groups
increased significantly in 1996 compared to 1995, demonstrating HBOC's
ability to leverage its strong sales and distribution network and quickly
introduce new products into its broad portfolio of product and service
offerings.
The Company ended 1996 with a strong backlog. At December 31, 1996, there
were 172 units of system sales not yet delivered and installed totaling $57.9
million in revenue along with $42.7 million of future recurring software
revenue. Future contracted outsourcing fees totaled $120.6 million, and
future payments under monthly service fee agreements totaled $3.3 million.
In addition, the Company derives significant revenue from maintenance and
support contracts that are automatically renewable unless canceled, as well
as recurring revenue from multiyear remote and electronic processing
contracts.
The Company continues to maintain a strong liquidity position. Cash and
short-term investments grew to $183.6 million at December 31, 1996, from
$91.8 million at December 31, 1995. Cash flow from operations was $136.9
million for 1996, $73.8 million of cash was utilized in investing activities
and $10.7 million of cash was provided by net financing activities. HBOC
financed all 1996 acquisitions through equity or with cash from operations
and had no bank debt as of year-end.
RESULTS OF OPERATIONS
The following table presents, as a percent of revenue, certain categories
included in the consolidated statements of income for 1994 through 1996.
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Revenue ............................... 100% 100% 100%
Operating Expense:*
Cost of Operations ................. 44% 47% 50%
Marketing .......................... 14% 15% 14%
Research and Development ........... 8% 9% 9%
General and Administrative ......... 11% 12% 14%
---- ---- ----
Operating Income* ..................... 23% 17% 13%
---- ---- ----
Net Income* ........................... 14% 11% 8%
---- ---- ----
</TABLE>
*Excluding nonrecurring charges for 1996 and 1995.
-6-
<PAGE>
YEARS ENDED DECEMBER 31, 1996 AND 1995
Revenue increased 31% to $796.6 million in 1996 from $607.2 million in 1995.
This growth was mainly due to significant increases in sales of enterprise
client/server systems, HIS (hospital information systems), hardware and
services.
One-time software license fee revenue grew 51% to $204.8 million in 1996,
compared to $135.3 million in 1995. One-time software revenue as a percent
of total revenue increased to 26% in 1996 compared to 22% in 1995. These
increases were primarily due to the continuing strong demand for the Pathways
2000-Registered Trademark- line of enterprise solutions. In addition, the
Company recognized strong sales of STAR 2000 and decision support products.
GMIS recurring software revenue increased due to strong sales of data quality
products to the payer market.
Hardware revenue increased 46% to $126.0 million for 1996 compared to $86.2
million for 1995. As a percent of total revenue, hardware revenue increased
to 15% in 1996 compared to 14% in 1995. These increases were primarily from
the strong sales of RISC-based processors sold in conjunction with
software, sales of network equipment through the Connect Technology Group,
demand for the Company's CarePoint 2000-SM- wireless solution and a continuing
effort to increase add-on hardware sales to existing customers through an
expanded sales center. The Company continues to support an open systems
approach with the ability to support multiple networking options as well as
the leading hardware platforms.
Implementation and other services revenue increased 24% in 1996 over 1995 and
represented 15% of total revenue in 1996 compared to 16% in 1995. The
revenue increase primarily reflects the increase in implementations resulting
from strong system sales and the full-year results of CPG, which was acquired
by purchase in June of 1995. The Company continues to invest in programs
designed to streamline the implementation process by giving customer
organizations more control over their implementations and the extent of HBOC
involvement. As a result, the productivity of the Company's implementation
personnel has continued to improve.
Maintenance and support revenue increased 19% in 1996 over 1995 and
represented 23% of total revenue in 1996 compared to 25% in 1995. The
increase for 1996 was primarily due to growth in existing product lines,
expansion of the customer base and the inclusion of CPG maintenance for a
full year in 1996. To manage this growth, the Company introduced a
companywide support system, SAGE, in the second quarter of 1996 and is in the
process of implementing it for the entire employee and customer base.
Remote and electronic processing revenue increased 31% in 1996 compared to
1995 due to the full-year impact of CPG. In addition, outsourcing services
revenue increased 16% in 1996, due to the addition of new outsourcing sites.
Cost of operations as a percent of revenue decreased to 44% in 1996 from 47%
in 1995. This percentage decrease was mostly in the area of personnel
expense resulting from employee productivity enhancements. Total hardware
cost as a percent of revenue increased to 12% in 1996 from 11% in 1995. In
conjunction with decreases in cost of operations as a percent of revenue, the
gross margin for 1996 grew to 56% from 53% in 1995. Cost of operations
expense increased 23% in 1996 primarily due to increased hardware costs
associated with the growth in hardware sales, increased software royalties
expense due to increases in software sales and increased personnel expense
due to the overall growth of the Company. In addition, cost of operations
expense increased due to 1995 acquisitions, including costs associated with
the CPG remote processing data center, software and hardware maintenance
expense and amortization of intangibles.
Marketing expense as a percent of revenue decreased slightly to 14% for 1996
from 15% for 1995. Marketing expense increased 27% in 1996 over 1995,
primarily due to higher personnel and commission expense directly related to
the growth in size and revenue of the Company.
Research and development (R&D) expense as a percent of revenue decreased
slightly to 8% in 1996 compared to 9% in 1995. The R&D capitalization rate
decreased to 29% in 1996 from 31% in 1995. The R&D capitalization rate
decreased due to a reduction in the use of consultants and efforts to
capitalize projects acquired with CyCare, MSI, and GMIS under more
conservative HBOC policies. Actual R&D expense increased 19%, mainly due to
R&D related to 1995 acquisitions and additional personnel for new product
development.
General and administrative (G&A) expense as a percent of revenue decreased to
11% for 1996 compared to 12% for 1995, as the Company continued to leverage
its fixed costs against its growing revenue. Actual G&A expense increased in
1996 primarily due to increased facilities costs and increased personnel
expense due to acquisitions and growth of the Company.
-7-
<PAGE>
Total operating income as a percent of revenue increased significantly to 23%
in 1996 from 17% in 1995. This is the result of increased sales of
high-margin software and services, and a continuing effort to increase the
efficiency of operations and personnel.
YEARS ENDED DECEMBER 31, 1995 AND 1994
Revenue in 1995 increased 34% over 1994 due to increases in revenue from
maintenance contracts, software license fees and the addition of remote
processing revenue from the purchase of CPG. For 1995, cost of operations
expense as a percent of revenue decreased to 47% from 50% in 1994. This
decrease was mainly due to the shift in revenue mix from lower-margin
hardware revenue to higher-margin software and services revenue. Total cost
of operations expense increased over 1994 primarily due to higher personnel
expense, higher hardware costs and software royalty fees, and increased
facilities expense. Cost of operations expense also increased due to costs
associated with acquisitions such as increased amortization and the costs of
the CPG remote data processing center.
Marketing expense as a percent of revenue increased to 15% for 1995 from 14%
for 1994. Marketing expense increased in 1995 over 1994, primarily due to
higher personnel and commission expense directly related to the growth in
size and revenue of the Company.
R&D expense as a percent of revenue remained constant at 9% for 1995 and
1994. The R&D capitalization rate remained stable at 31% for 1995 and 1994.
Actual R&D expense increased in 1995 mainly due to higher personnel expense
related to acquisitions.
G&A expense as a percent of revenue decreased to 12% for 1995 compared to 14%
for 1994, as the Company continued to realize synergies from acquisitions.
Actual G&A expense increased in 1995 primarily due to increased facilities
costs and increased personnel expense due to acquisitions and growth of the
Company.
Total operating income as a percent of revenue increased significantly to 17%
in 1995 from 13% in 1994. This is the result of increased sales of
high-margin software and a continuing effort to increase efficiency of
operations and personnel.
NONRECURRING CHARGES
HBOC recorded nonrecurring charges of $61.4 million in 1996 related to the
pooling acquisitions of CyCare, MSI and GMIS, and the purchase acquisition of
Gemini Ltd., in the United Kingdom. In the third quarter, a $26.2 million
charge was taken for CyCare and MSI, and in the fourth quarter, a $34.4
million charge was taken for GMIS. These charges consisted mainly of the
write-down of long-lived assets of $30.0 million, transaction costs of $11.4
million, severance and employee-related costs of $6.3 million and other
product-related costs of $12.9 million.
In 1995, the Company recorded nonrecurring charges totaling $136.5 million
primarily related to the purchase acquisition of CPG and the pooling
acquisition of CliniCom Incorporated. These charges consisted mainly of
purchased research and development costs related to the purchase of CPG,
severance and other acquisition costs.
TAXES
Including the nonrecurring charges, the effective tax rate for 1996 was 40%
compared to 45% for 1995 and 37% for 1994. A comparison of the 1995 and 1994
effective rates is affected by the pooling acquisition of MSI, which was a
Subchapter S corporation and therefore did not provide for corporate taxes on
a historical basis.
SHARES
Fully diluted weighted average shares outstanding increased in 1996 from
1995 due to shares issued under employee stock option and purchase programs
and the dilutive effect of stock options. Weighted average shares
outstanding increased in 1995 from 1994 due to the issuance of shares in
connection with the purchase of CPG and shares issued under employee stock
option and purchase programs.
INFLATION
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 increasing 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.
LIQUIDITY AND CAPITAL RESOURCES
The Company continues to improve the strength and quality of its balance
sheet. At December 31, 1996, HBOC had $183.6 million in cash and short-term
investments compared to $91.8 million at December 31, 1995. With strong cash
and liquid assets, no bank debt and an improving current ratio, the Company
remains well-positioned for continued growth.
-8-
<PAGE>
During 1996, the Company generated $136.9 million in cash flow from
operations, used $73.8 million in investing activities and provided $10.7
million from net financing activities. As a result of this cash activity,
the Company's cash balance increased 85% to $160.4 million at December 31,
1996, from $86.6 million at December 31, 1995. During 1996, the Company paid
off all pre-acquisition, long-term debt of CyCare and MSI.
The Company's current ratio increased to 1.64:1 at December 31, 1996, from
1.37:1 at December 31, 1995. Current assets increased $209.3 million, mainly
reflecting increases in receivables and cash. The Company's management
places a high priority on the area of receivables, and the Company continues
to maintain a low delinquency rate. Current liabilities increased $89.5
million due to an increase in customer deposits, deferred revenue, income
taxes payable and acquisition accruals related to the nonrecurring charges.
The Company has access to several financing sources, including a $5 million
line of credit and a $30 million revolving credit agreement. As of December
31, 1996, there were no outstanding balances on either. Management believes
that the Company's cash flow from operations and amounts available under
existing credit arrangements are sufficient to meet ongoing operational and
capital expenditure requirements, as well as to fund costs associated with
future equity acquisitions and small acquisitions for cash.
-9-
<PAGE>
REVENUE BY BUSINESS REGION
<TABLE>
<CAPTION>
1996
---------------------------------------------------------------
NORTH AMERICA INTERNATIONAL TOTAL REVENUE PERCENT
------------- ------------- ------------- --------
(000 OMITTED EXCEPT %S)
<S> <C> <C> <C> <C>
Systems Revenue
One-Time Software .................... $199,996 $ 4,785 $204,781 26%
Recurring Software ................... 38,595 -- 38,595 5%
-------- ------- -------- ---
Total Software ................... 238,591 4,785 243,376 31%
Hardware ............................. 124,016 1,943 125,959 15%
-------- ------- -------- ---
Total Systems Revenue ........ 362,607 6,728 369,335 46%
Services Revenue
One-Time Services .................... 115,008 3,735 118,743 15%
Recurring Services ................... 295,083 13,417 308,500 39%
-------- ------- -------- ---
Total Services Revenue ....... 410,091 17,152 427,243 54%
-------- ------- -------- ---
Total Revenue ........................... $772,698 $23,880 $796,578 100%
-------- ------- -------- ---
-------- ------- -------- ---
</TABLE>
All prior period amounts have been restated to reflect the 1996 acquisitions
of CyCare Systems, Inc., Management Software, Inc., and GMIS Inc. in pooling
transactions.
<TABLE>
<CAPTION>
1995
---------------------------------------------------------------
NORTH AMERICA INTERNATIONAL TOTAL REVENUE PERCENT
------------- ------------- ------------- --------
(000 OMITTED EXCEPT %S)
<S> <C> <C> <C> <C>
Systems Revenue
One-Time Software .................... $132,476 $ 2,846 $135,322 22%
Recurring Software ................... 33,551 -- 33,551 6%
-------- ------- -------- ---
Total Software .................... 166,027 2,846 168,873 28%
Hardware ............................. 83,840 2,386 86,226 14%
-------- ------- -------- ---
Total Systems Revenue .......... 249,867 5,232 255,099 42%
Services Revenue
One-Time Services .................... 93,439 2,350 95,789 16%
Recurring Services ................... 242,554 13,800 256,354 42%
-------- ------- -------- ---
Total Services Revenue ......... 335,993 16,150 352,143 58%
-------- ------- -------- ---
Total Revenue ........................... $585,860 $21,382 $607,242 100%
-------- ------- -------- ---
-------- ------- -------- ---
</TABLE>
All prior period amounts have been restated to reflect the 1996 acquisitions
of CyCare Systems, Inc., Management Software, Inc., and GMIS Inc. in pooling
transactions.
-10-
<PAGE>
CONDENSED CONSOLIDATED QUARTERLY STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
1996 QUARTER
--------------------------------------------------------
1ST 2ND 3RD 4TH TOTAL
-------- -------- -------- -------- ---------
(000 OMITTED EXCEPT FOR PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenue ............................................. $172,515 $193,279 $206,443 $224,341 $796,578
Operating Expense ................................... 137,487 151,453 157,536 170,438 616,914
Nonrecurring Charge ................................. -- -- 26,214 35,200 61,414
-------- -------- -------- -------- ---------
Operating Income .................................... 35,028 41,826 22,693 18,703 118,250
Other Income, Net ................................... 918 865 895 1,424 4,102
-------- -------- -------- -------- ---------
Income Before Income Taxes .......................... 35,946 42,691 23,588 20,127 122,352
Provision for Income Taxes .......................... 14,079 16,831 9,437 8,051 48,398
-------- -------- -------- -------- ---------
Net Income .......................................... $ 21,867 $ 25,860 $ 14,151 $ 12,076 $ 73,954
-------- -------- -------- -------- ---------
-------- -------- -------- -------- ---------
Earnings Per Share:(1)
Primary .......................................... $ .24 $ .28 $ .15 $ .13 $ .79
Fully Diluted .................................... $ .24 $ .28 $ .15 $ .13 $ .79
Weighted Average Shares Outstanding:
Primary .......................................... 92,573 93,406 93,331 93,851 93,055
Fully Diluted .................................... 92,678 93,596 93,638 93,877 93,162
Cash Dividends Declared Per Share ................... $ .02 $ .02 $ .02 $ .02 $ .08
</TABLE>
<TABLE>
<CAPTION>
1995 QUARTER
--------------------------------------------------------
1ST 2ND 3RD 4TH TOTAL
-------- -------- -------- -------- ---------
(000 OMITTED EXCEPT FOR PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenue ............................................. $126,261 $136,519 $166,320 $178,142 $607,242
Operating Expense ................................... 104,535 113,528 135,983 149,172 503,218
Nonrecurring Charge ................................. -- 125,520 10,961 -- 136,481
-------- -------- -------- -------- ---------
Operating Income (Loss) ............................. 21,726 (102,529) 19,376 28,970 (32,457)
Other Income (Expense), Net ......................... 194 (104) 135 315 540
-------- -------- -------- -------- ---------
Income (Loss) Before Income Taxes ................... 21,920 (102,633) 19,511 29,285 (31,917)
Provision (Credit) for Income Taxes ................. 8,551 (41,483) 7,352 11,232 (14,348)
-------- -------- -------- -------- ---------
Net Income (Loss) ................................... $ 13,369 $(61,150) $ 12,159 $ 18,053 $(17,569)
-------- -------- -------- -------- ---------
-------- -------- -------- -------- ---------
Earnings (Loss) Per Share:(1)
Primary .......................................... $ .16 $ (.76) $ .13 $ .20 $ (.21)
Fully Diluted .................................... $ .16 $ (.76) $ .13 $ .20 $ (.21)
Weighted Average Shares Outstanding:
Primary .......................................... 82,901 80,985 91,986 92,152 84,224
Fully Diluted .................................... 83,189 80,985 92,173 92,191 84,224
Cash Dividends Declared Per Share ................... $ .02 $ .02 $ .02 $ .02 $ .08
</TABLE>
All prior period amounts have been restated to reflect the 1996 acquisitions
of CyCare Systems, Inc., Management Software, Inc., and GMIS Inc. in pooling
transactions.
(1) The total of the four quarterly amounts for earnings (loss) per share for
the year may not equal the earnings (loss) per share amount for the year
in total. Differences can result from the use of a weighted average to
compute the weighted average shares outstanding for each quarter and the
year. Differences are also caused by the exclusion of common stock
equivalents from the calculation of primary and fully diluted weighted
average shares outstanding in periods in which there is a loss. In the case
of 1995, the common stock equivalents are anti-dilutive.
-11-
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
(000 Omitted Except for Per Share Data) 1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
REVENUE:
Systems $369,335 $255,099 $209,555
Services 427,243 352,143 244,424
-------- -------- --------
Total Revenue 796,578 607,242 453,979
OPERATING EXPENSE:
Cost of Operations 351,139 285,756 225,546
Marketing 115,660 90,852 64,127
Research and Development 64,096 53,847 42,919
General and Administrative 86,019 72,763 64,284
Nonrecurring Charge 61,414 136,481 --
-------- -------- --------
Total Operating Expense 678,328 639,699 396,876
-------- -------- --------
OPERATING INCOME (LOSS) 118,250 (32,457) 57,103
Other Income, Net 4,102 540 1,154
-------- -------- --------
Income (Loss) Before Income Taxes 122,352 (31,917) 58,257
Provision (Credit) for Income Taxes 48,398 (14,348) 21,788
-------- -------- --------
NET INCOME (LOSS) $ 73,954 $(17,569) $ 36,469
-------- -------- --------
EARNINGS (LOSS) PER SHARE:
Primary $ .79 $ (.21) $ .45
Fully Diluted $ .79 $ (.21) $ .44
-------- -------- --------
WEIGHTED AVERAGE SHARES OUTSTANDING:
Primary 93,055 84,224 81,727
Fully Diluted 93,162 84,224 82,064
-------- -------- --------
</TABLE>
All prior period amounts have been restated to reflect the 1996 acquisitions of
CyCare Systems, Inc. Management Software, Inc. and GMIS Inc. in pooling
transactions.
The accompanying Notes to Consolidated Financial Statements are an
integral part of these consolidated financial statements.
-12-
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995
-------- -------
(000 OMITTED)
<S> <C> <C>
ASSETS
Current Assets:
Cash and Cash Equivalents ......................................... $160,363 $ 86,612
Short-Term Investments ............................................ 23,250 5,159
Receivables, Net of Allowance For Doubtful Accounts
of $9,516 and $9,621 in 1996 and 1995 .......................... 291,351 182,484
Current Deferred Income Taxes ..................................... 25,020 17,836
Inventories ....................................................... 6,993 7,782
Prepaids and Other Current Assets ................................. 12,786 10,620
-------- --------
Total Current Assets ........................................... 519,763 310,493
Intangibles
Net of Accumulated Amortization of $31,691 and $17,882 in 1996
and 1995 ........................................................ 177,911 200,861
Capitalized Software
Net of Accumulated Amortization of $36,039 and $42,373 in 1996
and 1995 ........................................................ 58,338 59,254
Property and Equipment
Net of Accumulated Depreciation of $104,244 and $98,969 in 1996
and 1995 ........................................................ 49,419 49,049
Deferred Income Taxes ................................................. 34,998 21,682
Other Noncurrent Assets, Net .......................................... 8,518 8,078
-------- --------
Total Assets .......................................................... $848,947 $649,417
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Deferred Revenue ................................................... $ 91,978 $ 74,524
Other Current Liabilities .......................................... 224,380 152,343
-------- --------
Total Current Liabilities ................................. 316,358 226,867
-------- --------
Long-Term Debt ........................................................ 192 3,642
Other Long-Term Liabilities ........................................... 7,054 10,718
-------- --------
Total Liabilities ............................................... 323,604 241,227
-------- --------
Commitments and Contingencies..........................................
Stockholders' Equity:
Preferred Stock, 1,000 Shares Authorized and
No Shares Issued in Both 1996 and 1995 ........................... -- --
Common Stock, $.05 Par Value, 250,000 Shares Authorized
and 122,136 and 66,134 Shares Issued in 1996 and 1995 ............ 6,107 3,307
Additional Paid-in Capital ......................................... 427,324 392,701
Retained Earnings .................................................. 168,793 101,965
-------- --------
602,224 497,973
Treasury Stock, at Cost (31,535 and 33,819 Shares in 1996
and 1995) ....................................................... (76,881) (89,783)
-------- --------
Total Stockholders' Equity ...................................... 525,343 408,190
-------- --------
Total Liabilities and Stockholders' Equity ............................ $848,947 $649,417
-------- --------
-------- --------
</TABLE>
All prior period amounts have been restated to reflect the 1996 acquisitions
of CyCare Systems, Inc., Management Software, Inc., and GMIS Inc. in pooling
transactions.
The accompanying Notes to Consolidated Financial Statements are an integral
part of these consolidated financial statements.
-13-
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
---------------------------------------------------------------------------------
|
| Common Stock Shares Additional Total
Common Paid-In Retained Treasury Stockholders'
Issued Treasury Outstanding| Stock Capital Earnings Stock Equity
------ -------- ----------- ----- ------- -------- ----- ------
(000 OMITTED) |
<S> <C> <C> <C> | <C> <C> <C> <C> <C>
Balance, December 31, 1993 .................. 61,696 18,683 43,013 | $3,084 $155,573 $ 99,502 $(93,323) $164,836
Common Stock Issued: |
Stock Options Exercised--Including |
Related Tax Benefits ............... 284 (713) 997 | 15 10,875 -- 4,005 14,895
Employee Stock Purchase Plan .......... 10 (191) 201 | -- 925 -- 1,028 1,953
Purchase of Treasury Stock ............ -- 699 (699) | -- -- -- (7,576) (7,576)
Other ................................. -- (48) 48 | -- 160 142 -- 302
Net Change in Unrealized Gain/Loss on |
Investments Available-for-Sale ..... -- -- -- | -- -- (8) -- (8)
Cash Dividends Declared ($.08 Per Share).. -- -- -- | -- -- (7,356) -- (7,356)
Net Income for the Year .................. -- -- -- | -- -- 36,469 -- 36,469
-------------------------- |-------------------------------------------------
Balance, December 31, 1994 .................. 61,990 18,430 43,560 | 3,099 167,533 128,749 (95,866) 203,515
Common Stock Issued |
Business Combination .................. 4,000 (19) 4,019 | 200 199,906 -- 490 200,596
Stock Options Exercised--Including |
Related Tax Benefits ............... 122 (1,018) 1,140 | 8 23,879 (928) 6,791 29,750
Employee Stock Purchase Plan .......... 22 (114) 136 | -- 1,374 -- 727 2,101
Purchase of Treasury Stock ............ -- 69 (69) | -- -- -- (1,925) (1,925)
Other ................................. -- (7) 7 | -- 9 (252) -- (243)
Net Change in Unrealized Gain/Loss on |
Investments Available-for-Sale ..... -- -- -- | -- -- 8 -- 8
Cash Dividends Declared ($.08 Per Share).. -- -- -- | -- -- (8,043) -- (8,043)
Net (Loss) for the Year ............... -- -- -- | -- -- (17,569) -- (17,569)
-------------------------- |-------------------------------------------------
Balance, December 31, 1995 .................. 66,134 17,341 48,793 | 3,307 392,701 101,965 (89,783) 408,190
Common Stock Issued |
Stock Options Exercised--Including |
Related Tax Benefits ............... 268 (1,222) 1,490 | 13 27,394 -- 3,292 30,699
Employee Stock Purchase Plan .......... 14 (198) 212 | 1 3,251 -- 481 3,733
Purchase of Treasury Stock ............ -- 38 (38) | -- -- -- (1,026) (1,026)
Retirement of Treasury Stock .......... (885) (885) -- | (44) (10,111) -- 10,155 --
Other ................................. 8 (17) 25 | -- 251 956 -- 1,207
Net Change in Unrealized Gain/Loss on |
Investments Available-for-Sale ..... -- -- -- | -- -- 900 -- 900
Tax Adjustment for MSI Acquisition ....... -- -- -- | -- 16,668 -- -- 16,668
Cash Dividends Declared ($.08 Per Share).. -- -- -- | -- -- (8,982) -- (8,982)
Effect of Two-for-One Stock Split ........ 56,597 16,478 40,119 | 2,830 (2,830) -- -- --
Net Income for the Year .................. -- -- -- | -- -- 73,954 -- 73,954
-------------------------- |-------------------------------------------------
Balance, December 31, 1996 .................. 122,136 31,535 90,601 | $6,107 $427,324 $168,793 $(76,881) $525,343
-------------------------- |-------------------------------------------------
-------------------------- |-------------------------------------------------
</TABLE>
All prior period amounts have been restated to reflect the 1996 acquisitions
of CyCare Systems, Inc., Management Software, Inc., and GMIS Inc. in pooling
transactions.
The accompanying Notes to Consolidated Financial Statements are an integral
part of these consolidated financial statements.
-14-
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
--------------------------------------
1996 1995 1994
-------- -------- --------
(000 OMITTED)
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net Income (Loss) for the Period .............................. $ 73,954 $ (17,569) $ 36,469
Adjustments to Reconcile Net Income (Loss) to
Net Cash Provided by Operating Activities:
Nonrecurring Charges ....................................... 61,414 136,481 --
Depreciation and Amortization .............................. 49,179 41,800 28,684
Provision (Credit) for Noncurrent Deferred Income Taxes .... 4,964 (2,285) 2,103
Changes in Assets and Liabilities, Net of Acquisitions:
Receivables ............................................. (108,661) (24,548) (54,974)
Current Deferred Income Taxes ........................... (6,367) (12,643) 1,147
Inventories ............................................. 767 (5,220) (163)
Prepaids and Other Current Assets ....................... 7,688 8,186 1,259
Noncurrent Deferred Income Tax .......................... (1,612) (25,044) --
Other Noncurrent Assets ................................. (789) (148) 757
Deferred Revenue ........................................ 16,078 19,062 12,467
Other Current Liabilities ............................... 39,163 (17,600) 31,582
Other, Net ................................................. 1,102 325 (213)
------- ------- -------
Total Adjustments .................................... 62,926 118,366 22,649
------- ------- -------
Net Cash Provided by Operating Activities ............ 136,880 100,797 59,118
Cash Flows from Investing Activities:
Sale of Property and Equipment ................................ 1,262 823 254
Purchase of Facility .......................................... -- -- (2,698)
Capital Expenditures .......................................... (20,779) (15,765) (12,575)
Capitalized Software .......................................... (25,957) (25,415) (19,588)
Purchases of Businesses, Net of Cash Acquired ................. (7,970) (12,694) (63,968)
Proceeds from Sale or Maturity of Investments ................. 17,526 5,622 33,626
Purchase of Investments ....................................... (39,788) (8,890) (14,175)
Other ......................................................... 1,890 -- (1,950)
------- ------- -------
Net Cash Used in Investing Activities ................ (73,816) (56,319) (81,074)
------- ------- -------
Net Cash Provided (Used) Before
Financing Activities .............................. 63,064 44,478 (21,956)
Cash Flows from Financing Activities:
Proceeds from Long-Term Debt .................................. -- 70,500 67,100
Repayment of Long-Term Debt and Capital Leases ................ (5,181) (73,082) (68,255)
Net Repayment of Short-Term Debt .............................. -- (10,000) --
Proceeds from Issuance of Common Stock ........................ 25,668 17,344 9,143
Purchase of Treasury Stock .................................... (1,026) (1,925) (7,576)
Payment of Dividends .......................................... (8,774) (7,710) (7,193)
------- ------- -------
Net Cash Provided by (Used in)
Financing Activities .............................. 10,687 (4,873) (6,781)
------- ------- -------
Increase (Decrease) in Cash and Cash Equivalents ................. 73,751 39,605 (28,737)
Cash and Cash Equivalents at Beginning of Year ................... 86,612 47,007 75,744
------- ------- -------
Cash and Cash Equivalents at End of Year ......................... $160,363 $ 86,612 $ 47,007
------- ------- -------
------- ------- -------
Cash Paid During the Year For:
Interest ...................................................... $ 923 $ 3,793 $ 3,231
Income Taxes .................................................. $ 31,387 $ 15,320 $ 11,503
</TABLE>
All prior period amounts have been restated to reflect the 1996 acquisitions
of CyCare Systems, Inc., Management Software, Inc., and GMIS Inc. in pooling
transactions.
The accompanying Notes to Consolidated Financial Statements are an integral
part of these consolidated financial statements.
-15-
<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. Certain previously reported amounts have been
reclassified to conform to current presentation.
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 revenue and expense during the reporting period.
Actual results could differ from those estimates.
REVENUE RECOGNITION
HBO & Company delivers enterprisewide patient care, clinical, financial,
managed care, payer and strategic management software solutions, as well as
networking technologies, electronic data interchange, outsourcing and other
services to healthcare organizations throughout the world.
Systems -- Information systems are marketed under equipment purchase and
software license agreements, as well as service agreements. One-time
software and hardware revenue is generally recognized at the time of
delivery. The Company also licenses software under multiyear agreements for
which revenue is recognized on an annual basis. There are no significant
vendor obligations remaining, and collection is probable when revenue is
recognized.
Services -- Implementation fees are recognized as the work is performed or on
a percentage-of-completion basis. Maintenance and support agreements are
marketed under annual and multiyear agreements and are recognized ratably
over the period covered by the agreements. Electronic data interchange and
remote processing services are recognized monthly as the work is performed.
Outsourcing services are recognized as the work is performed or on a
percentage-of-completion basis.
The American Institute of Certified Public Accountants has issued an exposure
draft concerning revenue recognition in the software industry that seeks to
clarify certain issues under Statement of Position (SOP) 91-1. The draft SOP
is expected to become effective during 1998. The Company has reviewed the
exposure draft and, as it is currently written, does not anticipate any
change to its revenue recognition policy as a result of the adoption of the
new SOP.
NONRECURRING CHARGES
During the third quarter of 1996, the Company recorded nonrecurring charges
of $26.2 million related to the acquisitions of CyCare Systems, Inc. (CyCare)
and Management Software, Inc. (MSI). The charges consisted of transaction
costs of $5.2 million, a write-down of long-lived assets of $7.4 million,
severance and employee-related costs of $3.7 million and other
product-related costs of $9.9 million. During the fourth quarter of 1996,
the Company recorded nonrecurring charges of $35.2 million primarily related
to the acquisition of GMIS Inc. (GMIS). These charges consisted of
transaction costs of $6.2 million, a write-down of long-lived assets of $22.6
million, severance and employee-related costs of $3.4 million and other
product-related costs of $3.0 million.
During the second quarter of 1995, the Company recorded $126 million of
nonrecurring charges including $115 million of purchased research and
development related to the acquisition of First Data Health Systems
Corporation (now known as CPG), $8 million of severance and other
acquisition-related costs and a $3 million mainframe capitalized research and
development net book value adjustment. During the third quarter of 1995, the
Company recorded a nonrecurring charge of $11 million related to the
acquisition of CliniCom Incorporated, primarily consisting of severance and
acquisition costs.
OTHER INCOME, NET
Other income, net, consists primarily of interest income on cash, cash
equivalents, investments, notes receivable and financed customer receivables;
interest expense on long-term debt, short-term line of credit borrowings and
the sale of customer receivables; 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.
-16-
<PAGE>
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an
original maturity of three months or less from the date of purchase to be
cash equivalents.
INVESTMENTS
Investments at December 31, 1996, and 1995 consist of debt securities and
marketable equity securities. Pursuant to the provisions of Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments
in Debt and Equity Securities," the Company has classified its investment
portfolio as available-for-sale. Such securities are recorded at fair value,
and unrealized gains and losses, net of the related tax effect, are recorded
as a component of retained earnings until realized. Realized gains and
losses are determined on the specific identification method and are reflected
in the income statement.
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.
INTANGIBLES
Intangibles consist of certain items related to the Company's acquisitions as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------
1996 1995
---------------------- ----------------------
GROSS NET GROSS NET
-------- -------- -------- --------
<S> <C> <C> <C> <C>
(000 OMITTED)
Series Customer Lists ............................ $ 53,815 $ 44,264 $ 53,815 $ 48,105
CPG Customer Lists ............................... 101,812 91,223 103,927 100,232
Goodwill ......................................... 48,447 40,838 54,826 49,944
Other ............................................ 5,528 1,586 6,175 2,580
-------- -------- -------- --------
Total ............................................ $209,602 $177,911 $218,743 $200,861
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
The Series and CPG customer lists are being amortized over 15 years beginning
in June 1994 and June 1995, respectively. Goodwill relates to 10
acquisitions and is being amortized over periods ranging from five to 15
years from the various acquisition dates.
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 $26.0 million, $24.7 million
and $19.4 million in 1996, 1995 and 1994, respectively. Acquisitions
completed in 1996 increased capitalized software $8.8 million in 1996, $10.1
million in 1995 and $9.0 million in 1994. The Company's nonrecurring charges
include capitalized software net realizable value adjustments of $13.8
million in 1996 and $4.7 million in 1995. Amortization of capitalized
software costs totaled $13.2 million, $15.9 million and $12.3 million in
1996, 1995 and 1994, respectively.
Royalty fees of $21.5 million, $13.5 million and $9.1 million were expensed
in 1996, 1995 and 1994, respectively for third-party business partners and
customers that assisted in the Company's development efforts.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Computer equipment is depreciated
over useful lives of two to five years using the straight-line method.
Office furniture and equipment is 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 shorter of the
useful life or remaining lease term.
OTHER NONCURRENT ASSETS
Other noncurrent assets consist primarily of the long-term portion of notes
receivable, the long-term balance in a compensation trust and accumulated
amounts for long-term capital projects.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of financial instruments classified as current assets or
liabilities, including cash and cash equivalents, receivables and accounts
payable, approximate carrying value due to the short-term maturity of the
instruments. The fair value of short-term and long-term debt approximate
carrying value based on their effective interest rates compared to current
market rates.
LONG-LIVED ASSETS
The Company periodically reviews the values assigned to long-lived assets,
such as intangibles, capitalized software, and property and equipment, to
determine if any impairments are other than temporary. Management believes
long-lived assets in the accompanying balance sheets are appropriately valued.
-17-
<PAGE>
2. INDEBTEDNESS AND COMMITMENTS:
The Company entered into a long-term revolving credit agreement in June 1994.
The amount available under this agreement was increased to $30 million in
1996. As of December 31, 1996, there was no outstanding balance. Interest
is payable at the Company's option of prime or LIBOR plus a margin determined
by certain of the Company's financial ratios (6.3125% as of December 31,
1996). A variable commitment fee on the revolving credit agreement is
payable quarterly on the unused portion of the commitment (0.1875% for 1996).
The agreement, which expires June 30, 1997, contains certain financial
covenants. The Company was in compliance with these covenants at December
31, 1996.
During 1996, the Company canceled its $5 million committed, unsecured line of
credit. The Company still has a $5 million uncommitted, unsecured line of
credit available. No facility fees or compensating balances are associated
with this line.
The Company has extended until June 30, 1997, its 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. As of
December 31, 1996, the amount available to be sold was $30 million and the
amount sold was $10 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 (6.3125% as of December 31, 1996). The Company, as agent for the
purchaser, retains collection and administrative responsibilities for the
receivables sold.
The Company occupies leased facilities and leases customer and other
equipment under noncancelable leases that expire through 2011. Most of the
leases contain certain options to renew. The future minimum lease
commitments under the terms of the Company's noncancelable leases with terms
in excess of one year, as of December 31, 1996, were as follows:
<TABLE>
<CAPTION>
(000 OMITTED)
<S> <C>
1997 ............................................ $23,610
1998 ............................................ 18,863
1999 ............................................ 10,957
2000 ............................................ 6,050
2001 and thereafter ............................. 10,931
-------
Total ........................................... $70,411
-------
-------
</TABLE>
3. CAPITAL STOCK:
In May 1996, 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 that was paid on June 10, 1996, to all stockholders of record on May
27, 1996. All per share and share amounts (except for stockholders' equity)
have been restated for this stock split. In addition, stockholders approved
an increase in the number of shares of authorized common stock from 60
million to 250 million, effective May 15, 1996.
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 and 1996 stock splits, each
such outstanding share is entitled to one-fourth 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 four 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
two times 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. The weighted average
fair value of shares sold under the plan in 1996 was $16.42. At December 31,
1996, there were 1,235,056 shares of stock reserved for issuance under this
plan.
-18-
<PAGE>
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 date of grant and thus, the plans are non-compensatory. The options
expire 10 years after the dates of their respective grants.
The Company accounts for the stock purchase and stock option plans under APB
Opinion No. 25, which requires compensation costs to be recognized only when
the option price differs from the market price at the grant date. FASB
Statement No. 123 allows a company to follow APB Opinion No. 25 with the
following additional disclosure that shows what the Company's net income
(loss) and earnings (loss) per share would have been using the compensation
model under FASB Statement No. 123:
<TABLE>
<CAPTION>
1996 1995
------- --------
<S> <C> <C>
(000 OMITTED)
Net Income (Loss):
As Reported............................ $73,954 $(17,569)
Pro Forma ............................. $60,927 $(24,240)
Earnings (Loss) Per Share:
Primary As Reported.................... $ .79 $ (.21)
Pro Forma ..................... $ .65 $ (.29)
Fully Diluted As Reported ............. $ .79 $ (.21)
Pro Forma ............... $ .65 $ (.29)
</TABLE>
Because the Statement 123 method of accounting has not been applied to
options granted prior to January 1, 1995, the resulting pro forma
compensation cost may not be representative of that to be expected in future
years.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 1996 and 1995, respectively: risk-free
interest rate of 6.25% and 6.65%; expected dividend yield of 0.18% and 0.36%;
expected term of 8.8 years and 7.3 years; expected forfeiture of 4.5% and
7.8%; and volatility of 36% for both years.
A summary of the status of the Company's stock options plans at December 31,
1996, 1995 and 1994 and changes during the years then ended is presented in
the following table:
<TABLE>
<CAPTION>
WEIGHTED AVG.
OPTIONS EXERCISE PRICE
--------- --------------
<S> <C> <C>
Balance -- December 31, 1993 ............ 6,644,353 $ 5.47
Granted .............................. 1,944,705 $17.22
Exercised ............................ 1,839,246 $ 4.96
Forfeited ............................ 274,131 $ 9.83
------------------------
Balance -- December 31, 1994 ............ 6,475,681 $ 8.96
Granted .............................. 2,459,328 $25.91
Exercised ............................ 1,969,389 $ 7.42
Forfeited ............................ 837,460 $14.99
------------------------
Balance -- December 31, 1995 ............ 6,128,160 $15.43
Granted .............................. 2,564,890 $52.00
Exercised ............................ 1,489,626 $ 9.94
Forfeited ............................ 489,228 $31.71
------------------------
Balance -- December 31, 1996 ............ 6,714,196 $28.35
------------------------
Exercisable at December 31, 1996 ........ 2,457,819 $43.64
------------------------
Reserved for Future Options ............. 1,596,914
</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 1996, 1995 and 1994). 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 $4.1 million in 1996, $3.1 million in 1995 and $2.6
million in 1994.
5. INCOME TAXES:
The provision (credit) for income taxes consists of the following components:
<TABLE>
<CAPTION>
1996 1995 1994
------- -------- -------
<S> <C> <C> <C>
(000 OMITTED)
Current Portion --
Federal ............................................. $42,369 $ 24,037 $16,761
State ............................................... 6,053 2,165 2,428
------- -------- -------
48,422 26,202 19,189
------- -------- -------
Deferred Portion ....................................... (24) (40,550) 2,599
------- -------- -------
Total Provision (Credit) for Income Taxes .............. $48,398 $(14,348) $21,788
------- -------- -------
------- -------- -------
</TABLE>
-19-
<PAGE>
A reconciliation from the federal statutory rate to the total provision
(credit) for income taxes is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------- -------- -------
<S> <C> <C> <C>
(000 OMITTED)
Tax at Statutory Rate .................................. $42,824 $(11,171) $20,390
State Income Taxes,
Net of Federal Taxes ................................ 6,119 (1,595) 2,912
Non-Taxable S Corp Earnings ............................ (545) (1,582) (1,514)
------- -------- -------
Provision (Credit) for
Income Taxes ........................................ $48,398 $(14,348) $21,788
------- -------- -------
------- -------- -------
</TABLE>
NOTE: MSI qualified as an S Corporation prior to acquisition, and the tax
impact was borne by the former stockholders of MSI. Due to the taxable
nature of the acquisition, deferred tax assets of $16.7 million were recorded
reflecting the excess of acquired tax basis over book basis.
The components of the Company's net deferred tax asset are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1995
-------- --------
<S> <C> <C>
(000 OMITTED)
Deferred Tax Liabilities:
Capitalized Software ..................................... $(20,152) $(20,228)
Deferred Revenue ......................................... (3,580) (4,313)
-------- --------
Total Deferred Tax Liabilities ........................ (23,732) (24,541)
Deferred Tax Assets:
Intangibles .............................................. 46,448 32,021
Accruals ................................................. 16,271 11,840
Net Operating Loss Carryforward .......................... 2,690 10,461
Inventory ................................................ 2,007 2,961
Other .................................................... 16,334 6,776
-------- --------
Total Deferred Tax Assets ............................. 83,750 64,059
-------- --------
Net Deferred Tax Asset ...................................... $ 60,018 $ 39,518
-------- --------
-------- --------
</TABLE>
6. INVESTMENTS:
Short-term investments consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------
1996 1995
--------------------- ---------------------
COST FAIR VALUE COST FAIR VALUE
------- ---------- ------- ----------
<S> <C> <C> <C> <C>
(000 OMITTED)
Marketable Equity Securities ........................ $21,750 $23,250 $ -- $ --
Debt Securities ..................................... -- -- 5,159 5,159
------- ------- ------ ------
Total Short-Term Investments ........................ $21,750 $23,250 $5,159 $5,159
------- ------- ------ ------
------- ------- ------ ------
</TABLE>
Unrealized gain on investments available-for-sale was $900,000, net of tax,
at December 31, 1996.
7. OTHER CURRENT LIABILITIES:
The following significant items are included in other current liabilities:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1996 1995
-------- --------
<S> <C> <C>
(000 OMITTED)
Accounts Payable .......................................... $ 39,888 $ 31,978
Customer Deposits ......................................... 38,277 21,117
Accrued Commissions and Incentives ........................ 34,595 21,941
Income Taxes Payable ...................................... 16,489 2,991
Accrued Royalties ......................................... 14,546 6,510
Current Portion of Debt ................................... 309 2,040
Other ..................................................... 80,276 65,766
-------- --------
$224,380 $152,343
-------- --------
-------- --------
</TABLE>
8. ACQUISITIONS:
On August 21, 1996, the Company completed the acquisition of CyCare Systems,
Inc. (CyCare), a provider of physician practice management software systems
and electronic data interchange services for medical group practices, faculty
practice plans and medical enterprises. CyCare stockholders received 0.86 of
a share of HBOC Common Stock for each share of outstanding CyCare Common
Stock, or an aggregate of approximately 4.4 million shares. Because the
acquisition was accounted for as a pooling of interests, all prior period
amounts have been restated.
On September 19, 1996, the Company completed the acquisition of Management
Software, Inc. (MSI), a privately held provider of software solutions for the
homecare industry. MSI stockholders received approximately 895,000 shares of
HBOC Common Stock in the transaction. Because the acquisition was accounted
for as a pooling of interests, all prior period amounts have been restated.
On December 9, 1996, the Company completed the acquisition of GMIS Inc.
(GMIS), a developer of data quality and decision support software for the
payer marketplace. GMIS stockholders received 0.42 of a share of HBOC Common
Stock for each share of GMIS Common Stock, or an aggregate of approximately
3.7 million shares. Because the acquisition was accounted for as a pooling
of interests, all prior period amounts have been restated.
-20-
<PAGE>
A reconciliation between revenue and net income as previously reported and
as restated follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
-------------------------------
1995 1994
-------- --------
<S> <C> <C>
(000 OMITTED)
Revenue:
As Previously Reported .................................. $495,595 $357,436
CyCare, MSI & GMIS ...................................... 113,727 98,275
Adjustments ............................................. (2,080) (1,732)
-------- --------
As Restated ............................................. $607,242 $453,979
-------- --------
-------- --------
Net Income (Loss):
As Previously Reported .................................. $(25,235) $ 31,555
CyCare, MSI & GMIS ...................................... 7,829 4,612
Adjustments ............................................. (163) 302
-------- --------
As Restated ............................................. $(17,569) $ 36,469
-------- --------
-------- --------
</TABLE>
On December 31, 1996, the Company completed the acquisition of Gemini Ltd.,
the National Health Service (NHS) business unit of Cap Gemini UK PLC, for
approximately $3.5 million. Gemini Ltd., runs remote processing operations
in the South Thames region of the NHS organization in the United Kingdom.
The transaction was accounted for as a purchase.
In June, 1995, the Company acquired First Data Health Systems Corporation
(CPG) in exchange for 4 million shares of HBOC Common Stock valued at
approximately $200 million. The transaction was accounted for as a purchase.
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
charges.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
-------------------------------
1995 1994
-------- --------
<S> <C> <C>
(000 OMITTED)
Revenue .................................................... $675,437 $607,324
Net Income ................................................. $ 68,255 $ 43,863
Earnings per Share ......................................... $ .76 $ .51
</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.
9. LEGAL PROCEEDINGS:
The Company is subject to legal proceedings and claims that arise in the
ordinary course of business. In the opinion of management, the amount of
potential liability with respect to these actions will not materially affect
the Company's financial position or results of operations.
10. SUBSEQUENT EVENT: (UNAUDITED)
On February 11, 1997, the Company announced it had signed a definitive
agreement to acquire AMISYS Managed Care Systems, Inc. (AMISYS), a leading
provider of information systems for managed care entities and other parties
that assume financial risk for healthcare populations. The acquisition,
which is subject to regulatory and AMISYS stockholder approval, will be
accounted for as a pooling of interest and is scheduled to close during the
second quarter of 1997. Terms of the acquisition call for AMISYS
stockholders to receive 0.35 of a share of HBOC Common Stock for each of the
approximately 8.8 milion shares and rights to acquire shares of AMISYS Common
Stock.
-21-
<PAGE>
COMMON STOCK DATA (UNAUDITED)
The tables below present the quarterly high and low closing sales prices and
dividend information for the Company's Common Stock as furnished by The
Nasdaq Stock Market's National Market. There were 2,528 holders of record of
the Company's Common Stock as of December 31, 1996.
<TABLE>
<CAPTION>
1996 1995
---------------------------- ----------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Dividends Dividends
Declared Declared
Quarter High Low Per Share Quarter High Low Per Share
First ................ $50.97 $32.75 $.02 First ................ $21.88 $16.75 $.02
Second ............... $68.75 $49.38 $.02 Second ............... $27.25 $20.25 $.02
Third ................ $68.63 $50.50 $.02 Third ................ $32.00 $26.41 $.02
Fourth ............... $71.88 $52.25 $.02 Fourth ............... $42.88 $31.13 $.02
---- ----
Total ................................ $.08 Total................................. $.08
</TABLE>
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, 1996 and 1995,
and the related consolidated statements of income, stockholders' equity and
cash flows for each of the three years in the period ended December 31, 1996.
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, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
February 6, 1997
-22-
<PAGE>
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 are traded on
the Pacific Stock Exchange.
ANNUAL MEETING
HBO & Company's annual meeting will be held on Monday, May 12,
1997, 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, Georgia 30302
(800) 568-3476
(404) 588-7815
Communications regarding transfers, lost certificates, dividends or change of
address should be directed to SunTrust Bank at the above address.
INVESTOR INFORMATION
The Company routinely sends its annual and quarterly reports 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:
Monika Brown
Investor Relations
HBO & Company
(800) HBOC-411
[(800) 426-2411]
SEC 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]
<PAGE>
AUDITORS
Arthur Andersen LLP
133 Peachtree Street, N.E.
Atlanta, Georgia 30303
(404) 658-1776
CORPORATE COUNSEL
Jones, Day, Reavis & Pogue
3500 One Peachtree Center
303 Peachtree Street, N.E.
Atlanta, Georgia 30308-3242
(404) 521-3939
-23-
<PAGE>
BOARD OF DIRECTORS
HOLCOMBE T. GREEN, JR. - Chairman
Chairman and Chief Executive Officer
WestPoint Stevens Inc.
CHARLES W. MCCALL
President and Chief Executive Officer
HBO & Company
ALFRED C. ECKERT III
President
Greenwich Street Capital Partners, Inc.
PHILIP A. INCARNATI
President and Chief Executive Officer
McLaren Health Care Corporation
ALTON F. IRBY III
Deputy Chairman
NatWest Market Investment Banking
GERALD E. MAYO
Chairman
Midland Financial Services, Inc.
JAMES V. NAPIER
Chairman
Scientific-Atlanta, Inc.
CHARLES E. THOELE
Consultant
Sisters of Mercy Health System
DONALD C. WEGMILLER
President and Chief Executive Officer
Management Compensation
Group/HealthCare Compensation
CORPORATE OFFICERS
CHARLES W. MCCALL*
President and Chief Executive Officer
ALBERT J. BERGONZI*
President, Enterprise Solutions
JAY P. GILBERTSON*
Executive Vice President, Chief Financial
Officer, Treasurer, Principal Accounting
Officer and Secretary
JAY M. LAPINE*
Vice President, General Counsel
and Assistant Secretary
RUSSELL G. OVERTON*
Senior Vice President -
Business Development
RALPH C. CAPASSO
Senior Vice President -
Enterprise Services
DOMINICK A. DEROSA
Senior Vice President - Sales
TIMOTHY S. HEYERDAHL
Vice President - Controller,
Accounting Officer
MICHAEL L. KAPPEL
Senior Vice President - Strategic
Product Planning and Marketing
GLENN N. ROSENKOETTER
Senior Vice President -
Strategic Business Units
E. CHRISTINE RUMSEY
Senior Vice President -
Human Resources
DAVID A. SCHENK
Senior Vice President -
Outsourcing Services Group
* Executive Officer
-24-
<PAGE>
HBOC OFFICES
CORPORATE HEADQUARTERS
Atlanta, GA
301 Perimeter Center North
Atlanta, GA 30346
1-800-981-8601
http://www.hboc.com
SALES AND REGIONAL OFFICES
Amherst, Mass. Los Angeles
Boston Malvern, Pa.
Boulder, Colo. Minneapolis, Minn.
Charlotte, N.C. Mission Viejo, Calif.
Chicago Philadelphia
Dallas Pittsburgh, Pa.
Dubuque, Iowa Rockville, Md.
Eugene, Ore. Salt Lake City
Hauppuge, N.Y. San Francisco
Lexington, Mass. Scottsdale, Ariz.
Longwood, Fla. Springfield, Mo.
Tampla, Fla.
INTERNATIONAL LOCATIONS
Canada United Kingdom
Puerto Rico Israel
HBOC
- --------
INFORMATION FOR THOSE WHO CARE-
--------------------
301 PERIMETER CENTER NORTH
ATLANTA, GEORGIA 30346
1-800-981-8601 http://www.hboc.com
- -Copyright-1997. HBO & Company, Atlanta, GA. All rights reserved. Printed in
the U.S.A. Pathways 2000 and TRENDSTAR are registered trademarks of HBO &
Company. CarePoint 2000 and Paragon are service marks of HBO & Company.
AR2/97-Copyright-1997
Designed by Crawford/Mikus Design, Inc., Atlanta, Ga. Nelda Mays Photography,
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>
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 100% owned by HBO & Company United Kingdom
HBOC Medical, Ltd. 100% owned by HBO & Company Israel
First Data Health Systems (Australia) Pty. Ltd. 100% owned by HBO & Company of Georgia Australia
First Data Health Systems (U.K.), Ltd. 100% owned by HBO & Company of Georgia United Kingdom
First Data Health Systems (Ireland), Ltd. 100% owned by HBO & Company of Georgia Ireland
First Data Health Systems Training Services Ltd. 100% owned by HBO & Company of Georgia Ireland
HBO & Company (ST & SW), Ltd. 100% owned by HBO & Company United Kingdom
(formerly Gemini Ltd.)
</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 3, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM HBO &
COMPANY CONSOLIDATED STATEMENT OF INCOME FOR THE YEAR ENDED 12/31/96 AND HBO &
COMPANY CONSOLIDATED BALANCE SHEET AT 12/31/96 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-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 160,363
<SECURITIES> 23,250
<RECEIVABLES> 300,867
<ALLOWANCES> (9,516)
<INVENTORY> 6,993
<CURRENT-ASSETS> 519,763
<PP&E> 153,663
<DEPRECIATION> (104,244)
<TOTAL-ASSETS> 848,947
<CURRENT-LIABILITIES> 316,358
<BONDS> 192
0
0
<COMMON> 6,107
<OTHER-SE> 519,236
<TOTAL-LIABILITY-AND-EQUITY> 848,947
<SALES> 369,335
<TOTAL-REVENUES> 796,578
<CGS> 351,139
<TOTAL-COSTS> 616,914
<OTHER-EXPENSES> 57,312
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 122,352
<INCOME-TAX> 48,398
<INCOME-CONTINUING> 73,954
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 73,954
<EPS-PRIMARY> 0.79
<EPS-DILUTED> 0.79
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM HBO &
COMPANY CONSOLIDATED STATEMENT OF INCOME FOR THE NINE MONTHS ENDED 9/30/96 AND
HBO & COMPANY CONSOLIDATED BALANCE SHEET AT 9/30/96 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<RESTATED>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 111,653
<SECURITIES> 27,266
<RECEIVABLES> 239,300
<ALLOWANCES> (8,913)
<INVENTORY> 6,642
<CURRENT-ASSETS> 404,465
<PP&E> 158,886
<DEPRECIATION> (111,434)
<TOTAL-ASSETS> 744,444
<CURRENT-LIABILITIES> 234,849
<BONDS> 213
0
0
<COMMON> 6,100
<OTHER-SE> 493,326
<TOTAL-LIABILITY-AND-EQUITY> 744,444
<SALES> 256,268
<TOTAL-REVENUES> 572,237
<CGS> 253,687
<TOTAL-COSTS> 446,476
<OTHER-EXPENSES> 23,536
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 102,225
<INCOME-TAX> 40,347
<INCOME-CONTINUING> 61,878
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 61,878
<EPS-PRIMARY> 0.67
<EPS-DILUTED> 0.66
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM HBO &
COMPANY CONSOLIDATED STATEMENT OF INCOME FOR THE SIX MONTHS ENDED 6/30/96 AND
HBO & COMPANY CONSOLIDATED BALANCE SHEET AT 6/30/96 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<RESTATED>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 110,386
<SECURITIES> 5,544
<RECEIVABLES> 222,251
<ALLOWANCES> (8,846)
<INVENTORY> 5,835
<CURRENT-ASSETS> 362,739
<PP&E> 153,559
<DEPRECIATION> (106,847)
<TOTAL-ASSETS> 692,542
<CURRENT-LIABILITIES> 217,391
<BONDS> 2,708
0
0
<COMMON> 6,139
<OTHER-SE> 458,823
<TOTAL-LIABILITY-AND-EQUITY> 692,542
<SALES> 155,908
<TOTAL-REVENUES> 365,794
<CGS> 162,804
<TOTAL-COSTS> 288,940
<OTHER-EXPENSES> (1,783)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 78,637
<INCOME-TAX> 30,910
<INCOME-CONTINUING> 47,727
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 47,727
<EPS-PRIMARY> 0.51
<EPS-DILUTED> 0.51
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM HBO &
COMPANY CONSOLIDATED STATEMENT OF INCOME FOR THE THREE MONTHS ENDED 3/31/96 AND
HBO & COMPANY CONSOLIDATED BALANCE SHEET AT 3/31/96 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<RESTATED>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 87,262
<SECURITIES> 5,699
<RECEIVABLES> 201,023
<ALLOWANCES> (9,082)
<INVENTORY> 9,241
<CURRENT-ASSETS> 319,238
<PP&E> 150,331
<DEPRECIATION> (102,660)
<TOTAL-ASSETS> 659,775
<CURRENT-LIABILITIES> 214,298
<BONDS> 3,160
0
0
<COMMON> 3,308
<OTHER-SE> 431,700
<TOTAL-LIABILITY-AND-EQUITY> 659,775
<SALES> 67,575
<TOTAL-REVENUES> 172,515
<CGS> 76,773
<TOTAL-COSTS> 137,487
<OTHER-EXPENSES> (918)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 35,946
<INCOME-TAX> 14,079
<INCOME-CONTINUING> 21,867
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 21,867
<EPS-PRIMARY> 0.24
<EPS-DILUTED> 0.24
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM HBO &
COMPANY CONSOLIDATED STATEMENT OF INCOME FOR THE TWELVE MONTHS ENDED 12/31/95
AND HBO & COMPANY CONSOLIDATED BALANCE SHEET AT 12/31/95 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<RESTATED>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 86,612
<SECURITIES> 5,159
<RECEIVABLES> 192,105
<ALLOWANCES> (9,621)
<INVENTORY> 7,782
<CURRENT-ASSETS> 310,493
<PP&E> 148,018
<DEPRECIATION> (98,969)
<TOTAL-ASSETS> 649,417
<CURRENT-LIABILITIES> 226,867
<BONDS> 3,642
0
0
<COMMON> 3,307
<OTHER-SE> 404,883
<TOTAL-LIABILITY-AND-EQUITY> 649,417
<SALES> 255,099
<TOTAL-REVENUES> 607,242
<CGS> 285,756
<TOTAL-COSTS> 503,218
<OTHER-EXPENSES> 135,941
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (31,917)
<INCOME-TAX> (14,348)
<INCOME-CONTINUING> (17,569)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (17,569)
<EPS-PRIMARY> (0.21)
<EPS-DILUTED> (0.21)
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM HBO &
COMPANY CONSOLIDATED STATEMENT OF INCOME FOR THE NINE MONTHS ENDED 9/30/95 AND
HBO & COMPANY CONSOLIDATED BALANCE SHEET AT 9/30/95 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<RESTATED>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 42,727
<SECURITIES> 3,132
<RECEIVABLES> 186,771
<ALLOWANCES> (11,666)
<INVENTORY> 3,730
<CURRENT-ASSETS> 249,280
<PP&E> 144,781
<DEPRECIATION> (95,982)
<TOTAL-ASSETS> 597,999
<CURRENT-LIABILITIES> 200,130
<BONDS> 4,123
0
0
<COMMON> 3,306
<OTHER-SE> 374,805
<TOTAL-LIABILITY-AND-EQUITY> 597,999
<SALES> 178,140
<TOTAL-REVENUES> 429,100
<CGS> 202,374
<TOTAL-COSTS> 354,046
<OTHER-EXPENSES> 136,256
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (61,202)
<INCOME-TAX> (25,580)
<INCOME-CONTINUING> (35,622)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (35,622)
<EPS-PRIMARY> (0.43)
<EPS-DILUTED> (0.43)
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM HBO &
COMPANY CONSOLIDATED STATEMENT OF INCOME FOR THE SIX MONTHS ENDED 6/30/95 AND
HOB & COMPANY CONSOLIDATED BALANCE SHEET AT 6/30/95 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<RESTATED>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 39,123
<SECURITIES> 3,152
<RECEIVABLES> 168,512
<ALLOWANCES> (4,789)
<INVENTORY> 6,103
<CURRENT-ASSETS> 237,098
<PP&E> 142,479
<DEPRECIATION> (91,922)
<TOTAL-ASSETS> 584,215
<CURRENT-LIABILITIES> 192,868
<BONDS> 4,630
0
0
<COMMON> 3,303
<OTHER-SE> 359,978
<TOTAL-LIABILITY-AND-EQUITY> 584,215
<SALES> 111,206
<TOTAL-REVENUES> 262,780
<CGS> 123,412
<TOTAL-COSTS> 218,063
<OTHER-EXPENSES> 125,430
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (80,713)
<INCOME-TAX> (32,932)
<INCOME-CONTINUING> (47,781)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (47,781)
<EPS-PRIMARY> (0.60)
<EPS-DILUTED> (0.60)
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM HBO &
COMPANY CONSOLIDATED STATEMENT OF INCOME FOR THE THREE MONTHS ENDED 3/31/95 AND
HBO & COMPANY CONSOLIDATED BALANCE SHEET AT 3/31/95 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<RESTATED>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> 39,834
<SECURITIES> 2,011
<RECEIVABLES> 137,181
<ALLOWANCES> (3,897)
<INVENTORY> 5,727
<CURRENT-ASSETS> 199,031
<PP&E> 135,899
<DEPRECIATION> (91,978)
<TOTAL-ASSETS> 386,137
<CURRENT-LIABILITIES> 143,550
<BONDS> 6,031
0
0
<COMMON> 3,102
<OTHER-SE> 219,490
<TOTAL-LIABILITY-AND-EQUITY> 386,137
<SALES> 53,580
<TOTAL-REVENUES> 126,261
<CGS> 60,607
<TOTAL-COSTS> 104,535
<OTHER-EXPENSES> (194)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 21,920
<INCOME-TAX> 8,551
<INCOME-CONTINUING> 13,369
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,369
<EPS-PRIMARY> 0.16
<EPS-DILUTED> 0.16
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFOMRATION EXTRACTED FROM HBO &
COMPANY CONSOLIDATED STATEMENT OF INCOME FOR THE TWELVE MONTHS ENDED 12/31/94
AND HBO & COMPANY CONSOLIDATED BALANCE SHEET AT 12/31/94 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<RESTATED>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<CASH> 47,007
<SECURITIES> 1,746
<RECEIVABLES> 138,642
<ALLOWANCES> (3,883)
<INVENTORY> 4,286
<CURRENT-ASSETS> 205,072
<PP&E> 132,407
<DEPRECIATION> (88,305)
<TOTAL-ASSETS> 380,410
<CURRENT-LIABILITIES> 165,167
<BONDS> 4,715
0
0
<COMMON> 3,099
<OTHER-SE> 200,416
<TOTAL-LIABILITY-AND-EQUITY> 380,410
<SALES> 209,555
<TOTAL-REVENUES> 453,979
<CGS> 225,546
<TOTAL-COSTS> 396,876
<OTHER-EXPENSES> (1,154)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 58,257
<INCOME-TAX> 21,788
<INCOME-CONTINUING> 36,469
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 36,469
<EPS-PRIMARY> 0.45
<EPS-DILUTED> 0.44
</TABLE>
