<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
Amendment No. 1
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
Date of Report
(Date of earliest event reported)
December 13, 1994
(September 30, 1994)
SHARED MEDICAL SYSTEMS CORPORATION
(Exact name of registrant as specified in its charter)
Commission file number 0-7416
Delaware 23-1704148
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
51 Valley Stream Parkway
Malvern, Pennsylvania 19355
(Address of principal executive offices) (Zip Code)
(610) 219-6300
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address, and former fiscal year,
if changed since last report)
Page 1 of 21.
The exhibit index appears on sequentially numbered page 21 of 21.
<PAGE>
SHARED MEDICAL SYSTEMS CORPORATION
----------------------------------
Item 2. Acquisition or Disposition of Assets.
Item 2 of the Form 8-K of Shared Medical Systems Corporation ("The Company")
dated September 30, 1994 is hereby amended in its entirety as follows:
On September 30, 1994, the Company acquired all of the outstanding capital stock
of GTE Health Systems Incorporated, a Delaware corporation ("GTEHS"), from its
sole stockholder, GTE Directories Corporation, a Delaware corporation ("GTE
Directories"), for an aggregate consideration of approximately $17,000,000.
Immediately preceding the aforementioned transaction, GTEHS transferred the
business of its MedSeries Open and MedSeries Enterprise software product lines
and their related assets and liabilities to an affiliate of GTE Corporation.
Therefore, GTEHS' MedSeries4 software product line was the only remaining
business held by GTEHS upon its acquisition by the Company. This transaction has
been accounted for as a purchase. The total consideration as provided in the
Stock Purchase Agreement was the result of negotiations between the Company and
GTE Directories.
The funds used by the Company to complete the acquisition were provided by the
Company's working capital, supplemented by borrowings from its line of credit
with PNC Bank, N.A.
GTEHS has been a provider of hospital information systems to the healthcare
industry. Upon its acquisition by the Company, GTEHS was merged with and into
the Company and is currently operating as a division of the Company.
Item 7. Financial Statements and Exhibits.
Item 7 of the Form 8-K of Shared Medical Systems Corporation dated
September 30, 1994 is hereby amended in its entirety as follows:
(a) Financial statements of the business acquired.
The following documents are included in this report:
. MedSeries4 Operations of GTE Health Systems Incorporated Financial
Statements as of December 31, 1993 and 1992 together with Report of
Independent Public Accountants
. MedSeries4 Operations of GTE Health Systems Incorporated Statements of
Operations for the Nine Months Ended September 30, 1994 (Unaudited) and
1993 (Unaudited)
2
<PAGE>
SHARED MEDICAL SYSTEMS CORPORATION
----------------------------------
(b) Pro forma financial information.
The following pro forma financial information required by Article 11 of
Regulation S-X is included in this report:
. Shared Medical Systems Corporation Pro Forma Combined Income Statement
for the Year Ended December 31, 1993 (Unaudited)
. Shared Medical Systems Corporation Pro Forma Combined Income Statement
for the Nine Months Ended September 30, 1994 (Unaudited)
. Shared Medical Systems Corporation Consolidated Balance Sheet as of
September 30, 1994 which reflects the acquisition of GTE Health Systems
Incorporated's MedSeries4 business (filed under PART I, Item 1 to the
Company's Form 10-Q Report for the quarter ended September 30, 1994)*
. Shared Medical Systems Corporation Notes to Pro Forma Combined Financial
Statements for the Year Ended December 31, 1993 (Unaudited) and the Nine
Months Ended September 30, 1994 (Unaudited)
(c) Exhibits.
The following exhibit is included in this report:
No. Description
--- ----------------------------------------------------------------------
(2) Plan of Acquisition -
. Stock Purchase Agreement dated September 30, 1994 between Shared
Medical Systems Corporation and GTE Directories Corporation (without
schedules)(filed as Exhibit (2) to the Company's Form 8-K Report
dated September 30, 1994)*
*Previously filed as indicated and incorporated herein by reference.
3
<PAGE>
SHARED MEDICAL SYSTEMS CORPORATION
----------------------------------
SIGNATURES
----------
Pursuant to the requirements 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.
SHARED MEDICAL SYSTEMS CORPORATION
----------------------------------
Registrant
Date: December 13, 1994 /s/ Terrence W. Kyle
----------------- ----------------------------------
Terrence W. Kyle
Vice President of Finance
Principal Financial Officer and
Duly Authorized Officer
4
<PAGE>
MEDSERIES4 OPERATIONS OF
GTE HEALTH SYSTEMS INCORPORATED
FINANCIAL STATEMENTS AS OF
DECEMBER 31, 1993 AND 1992
TOGETHER WITH REPORT OF
INDEPENDENT PUBLIC ACCOUNTANTS
5
<PAGE>
[Arthur Andersen LLP logo appears here]
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To GTE Health Systems Incorporated:
We have audited the accompanying statements of assets and liabilities of the
MedSeries4 Operations of GTE Health Systems Incorporated (an operating segment
of GTE Health Systems Incorporated, a Delaware corporation) as of December 31,
1993 and 1992, and the related statements of operations for the years then
ended. 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.
As discussed in Note 1 to the financial statements, the accompanying financial
statements present the carved-out portion of GTE Health Systems Incorporated's
assets and liabilities and results of operations, referred to as the MedSeries4
Operations, and may not necessarily be indicative of the financial position or
results of operations that would have existed if the MedSeries4 Operations had
been operated as an unaffiliated company. Certain expenses are the result of
allocations of total expenses incurred by GTE Health Systems Incorporated and
its parent company, GTE Corporation.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the MedSeries4 Operations of
GTE Health Systems Incorporated as of December 31, 1993 and 1992, and the
results of its operations for the years then ended in conformity with generally
accepted accounting principles.
/s/ARTHUR ANDERSEN LLP
Salt Lake City, Utah
November 7, 1994
6
<PAGE>
Page 1 of 2
MEDSERIES4 OPERATIONS OF GTE HEALTH SYSTEMS INCORPORATED
--------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES
------------------------------------
<TABLE>
<CAPTION>
December 31,
-----------------
1993 1992
------- -------
(In thousands)
<S> <C> <C>
ASSETS
------
CURRENT ASSETS:
Cash $ 806 $ 942
Accounts receivable, net of allowance for
doubtful accounts of $231 and $1,230,
respectively 5,175 6,595
Inventories 25 855
Prepaid expenses and other 367 870
Current portion of deferred income tax asset 2,942 1,030
------- -------
Total current assets 9,315 10,292
------- -------
DEFERRED INCOME TAX ASSET, net of current portion 1,363 1,037
------- -------
PROPERTY AND EQUIPMENT:
Computer equipment 4,008 4,097
Furniture and fixtures 1,839 1,879
Leasehold improvements 309 203
------- -------
6,156 6,179
Less accumulated depreciation and amortization (3,912) (3,684)
------- -------
Net property and equipment 2,244 2,495
------- -------
OTHER ASSETS:
Computer software development costs, net of
accumulated amortization of $240 and $4,162,
respectively 106 4,093
Goodwill, net of accumulated amortization of
$9,950 in 1992 - 10,300
------- -------
Total other assets 106 14,393
------- -------
TOTAL ASSETS $13,028 $28,217
======= =======
</TABLE>
The accompanying notes to financial statements are
an integral part of these statements.
7
<PAGE>
Page 2 of 2
MEDSERIES4 OPERATIONS OF GTE HEALTH SYSTEMS INCORPORATED
--------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES
------------------------------------
<TABLE>
<CAPTION>
December 31,
-----------------
1993 1992
------- -------
(In thousands)
<S> <C> <C>
LIABILITIES
-----------
CURRENT LIABILITIES:
Accounts payable-trade $ 845 $ 101
Accounts payable-affiliate 235 318
Accrued payroll and related taxes 1,374 1,411
Accrued sales and property taxes 338 156
Other accrued liabilities 908 1,944
Deferred revenues 3,677 5,360
Restructuring reserve 778 -
------- -------
Total current liabilities 8,155 9,290
ACCRUED PENSION AND OTHER POSTRETIREMENT
BENEFIT OBLIGATIONS 4,481 3,242
------- -------
TOTAL LIABILITIES 12,636 12,532
COMMITMENTS AND CONTINGENCIES (Note 8)
ASSETS IN EXCESS OF LIABILITIES
-------------------------------
ASSETS IN EXCESS OF LIABILITIES 392 15,685
------- -------
TOTAL LIABILITIES AND ASSETS IN EXCESS
OF LIABILITIES $13,028 $28,217
======= =======
</TABLE>
The accompanying notes to financial statements are
an integral part of these statements.
8
<PAGE>
MEDSERIES4 OPERATIONS OF GTE HEALTH SYSTEMS INCORPORATED
--------------------------------------------------------
STATEMENTS OF OPERATIONS
------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------
1993 1992
-------- -------
(In thousands)
<S> <C> <C>
REVENUE $ 24,549 $17,547
COST OF SALES 20,631 10,107
-------- -------
Gross margin 3,918 7,440
-------- -------
OPERATING EXPENSES:
Sales and marketing 7,073 5,659
General and administrative 2,350 3,888
General and administrative - affiliate 1,174 924
Research and development 1,085 1,819
Write-off of goodwill 8,515 -
Restructuring costs 778 -
Other operating expenses 374 283
-------- -------
Total operating expenses 21,349 12,573
-------- -------
LOSS BEFORE INCOME TAX BENEFIT (17,431) (5,133)
INCOME TAX BENEFIT 2,638 1,070
-------- -------
NET LOSS $(14,793) $(4,063)
======== =======
</TABLE>
The accompanying notes to financial statements are
an integral part of these statements.
9
<PAGE>
MEDSERIES4 OPERATIONS OF GTE HEALTH SYSTEMS INCORPORATED
--------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
(Dollars in Thousands)
(1) DESCRIPTION OF OPERATIONS INCLUDED IN THE
-----------------------------------------
ACCOMPANYING FINANCIAL STATEMENTS
---------------------------------
On September 30, 1994, Shared Medical Systems Corporation ("SMS") acquired
certain assets and assumed certain liabilities from GTE Health Systems
Incorporated's MedSeries4 Operations. The accompanying statements of assets and
liabilities and statements of operations present the carved-out portion of the
MedSeries4 Operations of GTE Health Systems Incorporated. This carved-out
portion is herein referred to as the "Company". These assets and liabilities and
results of operations may not necessarily be indicative of the financial
position or results of operations that would have existed if the MedSeries4
Operations had been operated as an unaffiliated company. Certain expenses are
the result of allocations of total expenses incurred by GTE Health Systems
Incorporated and its parent company, GTE Corporation. The statements of assets
and liabilities do not present the assets and liabilities to be acquired or
assumed by SMS as described in the stock purchase agreement dated September 30,
1994, but rather the assets and related liabilities of the Company which were
utilized by GTE Health Systems Incorporated ("GTEHS") in its MedSeries4
Operations.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
Recognition of Revenue
- - ----------------------
The Company's products and services are provided to customers based upon
contractual agreement. Software license fee revenues are recognized primarily
over the installation period. Service revenues, which include professional
services and support fees, are recorded in the period in which the services are
performed. Hardware sales are recognized upon first productive use of the
equipment. All fees are billable according to the specific terms in each
customer contract.
Deferred revenues of $3,677 at December 31, 1993 and $5,360 at December 31,
1992, represent funds received by the Company in advance of services being
performed. At December 31, 1993 and 1992, accounts receivable included $2,086
and $2,110, respectively, of unbilled revenues recognized under certain long-
term software license, installation and hardware contracts. These unbilled
receivables arise from the consistent application of percentage of completion
revenue recognition policies described above, and will be billed in accordance
with the terms of the individual customer contracts, generally within 12 months
of revenue recognition.
Allocation of Parent Company General and Administrative
- - -------------------------------------------------------
Expenses and Total GTEHS Expenses
---------------------------------
GTE Corporation ("Parent") allocates general and administrative expenses to
GTEHS based upon GTEHS' budgeted proportionate share of revenues as a percentage
of GTE Corporation consolidated revenues.
GTEHS expenses which are not specifically identifiable to the MedSeries4
Operations have been allocated to the Company primarily based upon the
10
<PAGE>
- 2 -
MedSeries4 Operations personnel as a percentage of total GTEHS personnel.
In the opinion of management, the allocation of general and administrative
expenses from the Parent to GTEHS and from GTEHS to the Company is reasonable
based upon the nature of the allocable expenses and the operations of the
Company.
Inventories
- - -----------
Inventories, consisting principally of computer hardware and related supplies
held for resale, are stated at the lower of cost or net realizable value. Cost
is determined by specific identification.
Property and Equipment
- - ----------------------
Property and equipment are stated at cost. Major additions and improvements are
capitalized, while minor replacements, maintenance and repairs that do not
increase the useful lives of the property are expensed as incurred. Depreciation
and amortization are provided using the straight-line method over the estimated
useful lives of the related assets, which are five years for all categories of
property and equipment.
Computer Software Development Costs
- - -----------------------------------
Computer software development costs incurred subsequent to establishment of
technological feasibility are capitalized. Technological feasibility is
established upon achievement of a detailed program design free of high-risk
development issues. The establishment of technological feasibility and the
ongoing assessment of recoverability of capitalized computer software
development costs require considerable judgment by management with respect to
certain external factors, including, but not limited to, anticipated future
gross revenues, estimated product life and changes in technology.
For the years ended December 31, 1993 and 1992, the Company invested
approximately $1,292 and $2,299, respectively, in computer software development.
Amortization of capitalized computer software development costs begins when the
product is first sold and is calculated using the straight-line method over five
years, the estimated product lives. Amortization expense for the years ended
December 31, 1993 and 1992 was approximately $1,592 and $815, respectively.
In 1993, the Company determined it was appropriate to expense $4,300 in
capitalized costs associated with its MedSeries4 computer software based upon
management's assessment of the future realizability of these costs. This expense
is included in cost of sales in the 1993 statement of operations.
Goodwill
- - --------
Effective October 5, 1988, the Company acquired 100 percent of the outstanding
stock of IHC Affiliated Services, Inc. ("IHC"). In connection with this
acquisition, the Company recorded goodwill of approximately $19,890 and was
amortizing this amount on a straight-line basis over a ten-year period.
Management evaluated potential impairment based upon an estimate of the related
business segment's undiscounted net income over the remaining life of the
goodwill. As of December 31, 1993, management determined that goodwill was not
recoverable and expensed the remaining balance of $8,515.
Research and Development
- - ------------------------
The Company expenses all research and development costs, which are primarily
costs incurred to establish the technological feasibility of internally-
11
<PAGE>
- 3 -
developed computer software. These expenses primarily consist of computer costs
and salaries of personnel and amounted to $1,085 in 1993 and $1,819 in 1992.
Employee Benefit Plans
- - ----------------------
The current service costs of retirement plans and postretirement health care and
life insurance benefits are accrued as incurred. Prior service costs and credits
resulting from changes in benefits are amortized over the average remaining
service period of the employees expected to receive benefits. In years prior to
1992, the estimated costs of postretirement health care and life insurance
benefits were accounted for on a "pay-as-you-go" basis.
(3) RESTRUCTURING COSTS
-------------------
During 1993, the Company restructured its operations resulting in a one-time
pre-tax restructuring charge of approximately $778. This increased the net loss
during 1993 by approximately $513. This restructuring charge consisted of
employee separation benefits associated with work force reductions. The work
force reductions involve 35 employees and will be implemented during 1994.
(4) PENSION PLANS
-------------
The Company, together with other GTE Corporation subsidiaries, participates in
defined benefit pension plans which cover substantially all of its employees.
Benefits are generally based on years of credited service and participants'
average final earnings. The Company contributes amounts which are determined
actuarially to provide the plans with assets sufficient to meet the benefit
obligations. The assets of the plans consist primarily of corporate equities,
government securities and corporate debt securities. Plan expenses allocated to
the Company in 1993 and 1992 were approximately $424 and $487, respectively.
(5) POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
-------------------------------------------
Substantially all of the Company's employees together with employees of other
GTE Corporation subsidiaries are covered under postretirement health care and
life insurance benefit plans. The health care benefits paid under these plans
are generally based on comprehensive hospital, medical and surgical benefit
provisions, while the life insurance benefits are based on annual earnings at
the time of retirement. The Company funds amounts for postretirement benefits as
deemed appropriate from time to time. The expenses allocated to the Company
related to the plans were approximately $766 and $1,472 in 1993 and 1992,
respectively.
(6) EMPLOYEE SAVINGS PLAN
---------------------
The Company provides an employee savings plan established in accordance with
Section 401(k) of the Internal Revenue Code. The plan covers substantially all
full-time employees. Under the plan, the Company provides matching contributions
in GTE Corporation common stock based on qualified employee contributions.
Matching contributions charged to income of the Company were $185 and $165 in
1993 and 1992, respectively.
12
<PAGE>
- 4 -
(7) TRANSACTIONS WITH AFFILIATES
----------------------------
The Company is billed by affiliated companies for data processing and other
centralized services. Expenses incurred by the Company for these services were
approximately $1,174 and $924 in 1993 and 1992, respectively.
(8) COMMITMENTS AND CONTINGENCIES
-----------------------------
Leases
- - ------
The Company leases various equipment generally for periods ranging up to 60
months. In addition, the Company leases office space expiring at various dates
through 1999. The office space leases account for 94 percent and 95 percent of
the total lease payment obligations for 1993 and 1992, respectively. Minimum
future lease payments as of December 31, 1993 are as follows (in thousands):
<TABLE>
<CAPTION>
For the Year Ending
December 31,
-------------------
<S> <C>
1994 $ 842
1995 434
1996 192
1997 128
1998 36
------
$1,632
======
</TABLE>
Rental expense for these operating leases was approximately $712 and $775 in
1993 and 1992, respectively.
Litigation
- - ----------
In the normal course of business, the Company has been named as a defendant in
several matters of litigation. In the opinion of management, after consultation
with legal counsel, the ultimate outcome of these matters of litigation will not
have a material adverse effect on the accompanying financial statements.
(9) INCOME TAXES
------------
The Company's taxable income or loss is included in the consolidated federal
income tax returns of GTE Corporation. In accordance with a tax-sharing
arrangement with GTE Corporation, federal income tax expense or benefit is
allocated to the Company based on its contribution to GTE Corporation's
consolidated taxable income. The Company is allocated the full benefit for all
losses generated. The Company is paid by GTE Corporation for federal tax losses
utilized in the consolidated tax return, but the Company is not paid for
temporary differences in revenues and expenses reported for financial reporting
and income tax reporting purposes. Beginning in 1992, the Company filed state
tax returns as a separate company. No benefit for state operating loss
carryforwards of approximately $16.1 million has been recognized in the
accompanying financial statements due to uncertainty of future taxable income
against which to utilize these loss carryforwards.
13
<PAGE>
- 5 -
The components of the income tax (provision) benefit are as follows:
<TABLE>
<CAPTION>
1993 1992
-------- --------
<S> <C> <C>
Current - Federal $ (287) $ 649
Deferred - Federal 2,925 421
------- -------
Total benefit $ 2,638 $ 1,070
======= =======
</TABLE>
Deferred taxes arise from temporary differences in the recognition of expenses
for financial reporting and income tax reporting purposes. The significant
components of the deferred income tax benefit for the years ended December 31,
1993 and 1992 are as follows:
<TABLE>
<CAPTION>
1993 1992
-------- --------
<S> <C> <C>
Accruals and reserves $ 5,083 $ 666
Computer software development
costs (1,050) (367)
Other temporary differences (1,108) 122
------- -------
$ 2,925 $ 421
======= =======
</TABLE>
A reconciliation between the income tax benefit calculated at the statutory
federal income tax rate and the income tax benefit recorded in the
accompanying financial statements is as follows:
<TABLE>
<CAPTION>
1993 1992
-------- --------
<S> <C> <C>
Income tax benefit calculated at
the statutory federal income
tax rate of 34 percent $ 5,927 $ 1,745
Goodwill (2,895) (596)
Other - net (394) (79)
------- -------
Income tax benefit $ 2,638 $ 1,070
======= =======
</TABLE>
The tax effects of temporary differences that give rise to net deferred tax
assets at December 31, 1993 and 1992 are as follows:
<TABLE>
<CAPTION>
1993 1992
-------- --------
<S> <C> <C>
Accruals and reserves $ 2,854 $ 3,247
Federal net operating loss
carryforwards 2,660 2,584
Pension and other postretirement
benefit obligations 1,568 1,102
Computer software development
costs - (1,392)
Allowance for doubtful accounts 81 418
Other (198) (1,308)
------- -------
6,965 4,651
</TABLE>
14
<PAGE>
- 6 -
<TABLE>
<S> <C> <C>
Less valuation allowance (2,660) (2,584)
------- -------
Net deferred tax assets $ 4,305 $ 2,067
======= =======
</TABLE>
As of December 31, 1993, the Company had federal net operating loss
carryforwards of approximately $7.6 million. These net operating loss
carryforwards were generated by IHC Affiliated Services, Inc. which was acquired
by the Company on October 5, 1988. Based upon provisions within the Internal
Revenue Code, significant portions, if not all, of the predecessor net operating
loss carryforwards may not be available. Accordingly, no benefit for the
predecessor net operating loss carryforwards has been provided in the
accompanying financial statements.
(10) SIGNIFICANT CUSTOMERS
---------------------
The Company sells its products and services almost exclusively to hospitals
located within the United States. For the year ended December 31, 1992, the
Company generated sales from Bermuda Hospital of approximately $2,803 or 11
percent of total sales. No other single customer accounted for more than 10
percent of the Company's total sales during 1993 or 1992.
15
<PAGE>
MedSeries4 Operations of
GTE Health Systems Incorporated
Statements of Operations
------------------------
<TABLE>
<CAPTION>
Nine Months Ended
September 30
---------------------------
1994 1993
------------ ------------
(unaudited)
<S> <C> <C>
Revenues:
Service and system fees...................... $14,913,000 $15,543,000
Hardware sales............................... 2,438,000 4,216,000
----------- -----------
17,351,000 19,759,000
Cost of Hardware Sales........................ 1,914,000 3,768,000
----------- -----------
Revenues less Cost of Hardware Sales.......... 15,437,000 15,991,000
----------- -----------
Expenses:
Operating and development.................... 6,868,000 6,705,000
Marketing and installation................... 7,802,000 8,593,000
General and administrative................... 4,355,000 2,443,000
Interest..................................... 13,000 -
----------- -----------
19,038,000 17,741,000
----------- -----------
Loss Before Income Tax Benefit................ (3,601,000) (1,750,000)
Income Tax Benefit............................ (1,231,000) (192,000)
----------- -----------
Net Loss...................................... $(2,370,000) $(1,558,000)
=========== ===========
</TABLE>
16
<PAGE>
SHARED MEDICAL SYSTEMS CORPORATION
----------------------------------
Pro Forma Combined Financial Statements
On September 30, 1994 the Company acquired all of the outstanding capital stock
of GTE Health Systems Incorporated ("MedSeries4 Operations") in a transaction
accounted for as a purchase.
The Pro Forma Combined Income Statements for the Year Ended December 31, 1993,
and for the Nine Months Ended September 30, 1994, and the Consolidated Balance
Sheet of Shared Medical Systems Corporation as of September 30, 1994 (filed
under PART I, Item 1 to the Company's Form 10-Q Report for the quarter ended
September 30, 1994)*, give effect to the acquisition of the MedSeries4
Operations of GTE Health Systems Incorporated which was completed on
September 30, 1994. The adjustments related to the pro forma combined income
statements assume the transaction was consummated at January 1, 1993. The
Consolidated Balance Sheet of Shared Medical Systems Corporation as of
September 30, 1994 reflects the acquisition of MedSeries4 Operations.
The pro forma financial information is not necessarily indicative of the results
of operations which would have been attained had the acquisition been
consummated on the date indicated or that which may be attained in the future.
The pro forma financial information should be read in conjunction with the
historical consolidated financial statements of Shared Medical Systems
Corporation and the MedSeries4 Operations of GTE Health Systems Incorporated.
*Previously filed as indicated and incorporated herein by reference.
17
<PAGE>
SHARED MEDICAL SYSTEMS CORPORATION
PRO FORMA COMBINED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1993 (Unaudited)
------------------------------------------------
<TABLE>
<CAPTION>
Actual
----------------------------------- Pro Forma Pro Forma
SMS MedSeries4 Adjustments Combined
------------ -------------- ------------------- -----------------
<S> <C> <C> <C> <C>
Revenues:
Service and system fees..... $452,797,000 $ 20,154,000 $ - $472,951,000
Hardware sales.............. 48,486,000 4,538,000 - 53,024,000
------------ ------------ ------------- ------------
501,283,000 24,692,000 - 525,975,000
Cost of Hardware Sales....... 38,571,000 4,038,000 - 42,609,000
------------ ------------ ------------- ------------
Revenues less Cost
of Hardware Sales........... 462,712,000 20,654,000 - 483,366,000
------------ ------------ ------------- ------------
Expenses:
Operating and development... 210,248,000 22,831,000 (778,000) (1) 218,297,000
(424,000) (2)
827,000 (3)
(1,592,000) (4)
(4,300,000) (4)
(8,515,000) (7)
Marketing and installation... 155,330,000 11,753,000 - 167,083,000
General and administrative... 44,107,000 3,501,000 (766,000) (5) 46,842,000
Interest..................... 1,349,000 - 1,190,000 (6) 2,539,000
------------ ------------ ------------- ------------
411,034,000 38,085,000 (14,358,000) 434,761,000
------------ ------------ ------------- ------------
Income (Loss) Before
Income Taxes................ 51,678,000 (17,431,000) 14,358,000 48,605,000
Provision (Benefit)
for Income Taxes............ 20,665,000 (2,638,000) 1,410,000 (8) 19,437,000
------------ ------------ ------------- ------------
Net Income (Loss)............ $ 31,013,000 $(14,793,000) $ 12,948,000 $ 29,168,000
============ ============ ============= ============
Net Income Per Common
Share....................... $1.35 $1.27
============ ============
Number of shares
used to compute per
share amounts............... 23,046,000 23,046,000
============ ============
</TABLE>
The accompanying notes are an integral part of this statement.
18
<PAGE>
SHARED MEDICAL SYSTEMS CORPORATION
PRO FORMA COMBINED INCOME STATEMENT
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994 (Unaudited)
--------------------------------------------------------
<TABLE>
<CAPTION>
Actual
----------------------------------- Pro Forma Pro Forma
SMS MedSeries4 Adjustments Combined
-------------- ---------------- ------------------- -----------------
<S> <C> <C> <C> <C>
Revenues:
Service and system fees..... $365,402,000 $ 14,913,000 $ - $380,315,000
Hardware sales.............. 31,209,000 2,438,000 - 33,647,000
------------ ------------ ------------- ------------
396,611,000 17,351,000 - 413,962,000
Cost of Hardware Sales....... 25,435,000 1,914,000 - 27,349,000
------------ ------------ ------------- ------------
Revenues less Cost
of Hardware Sales........... 371,176,000 15,437,000 - 386,613,000
------------ ------------ ------------- ------------
Expenses:
Operating and development... 170,800,000 6,868,000 (408,000) (1) 177,592,000
(247,000) (2)
620,000 (3)
(41,000) (4)
Marketing and installation.. 122,331,000 7,802,000 - 130,133,000
General and administrative.. 34,426,000 4,355,000 (101,000) (5) 38,680,000
Interest.................... 937,000 13,000 893,000 (6) 1,843,000
------------ ------------ ------------- ------------
328,494,000 19,038,000 716,000 348,248,000
------------ ------------ ------------- ------------
Income (Loss) Before
Income Taxes................ 42,682,000 (3,601,000) (716,000) 38,365,000
Provision (Benefit)
for Income Taxes............ 16,646,000 (1,231,000) (457,000) (8) 14,958,000
------------ ------------ ------------- ------------
Net Income (Loss)............ $ 26,036,000 $(2,370,000) $(259,000) $ 23,407,000
============ ============ ============= ============
Net Income Per Common
Share....................... $1.12 $1.01
============ ============
Number of shares
used to compute per
share amounts............... 23,237,000 23,237,000
============ ============
</TABLE>
The accompanying notes are an integral part of this statement.
19
<PAGE>
Shared Medical Systems Corporation
Notes to Pro Forma Combined Financial Statements
for the Year Ended December 31, 1993 (Unaudited) and
the Nine Months Ended September 30, 1994 (Unaudited)
-----------------------------------------------------
Note 1 - In 1993 and during the nine months ended September 30, 1994, MedSeries4
- - ------
Operations restructured its operations, which resulted in nonrecurring
provisions for employee separation benefits associated with workforce reductions
of $778,000 and $408,000, respectively.
Note 2 - In 1993 and during the nine months ended September 30, 1994, MedSeries4
- - ------
Operations provided $424,000 and $247,000 for its participation in its parent's
defined benefit pension plan. Such a plan is not provided by the Company.
Note 3 - The Company has recorded approximately $16,500,000 of goodwill
- - ------
associated with the acquisition of MedSeries4 Operations. This goodwill will be
amortized over 20 years. This adjustment assumes that this purchase was
consummated January 1, 1993.
Note 4 - In 1993 and during the nine months ended September 30, 1994, MedSeries4
- - ------
Operations recorded amortization expense for capitalized software development
costs of $1,592,000 and $41,000, respectively. In 1993 MedSeries4 Operations
also wrote off $4,300,000 of capitalized software development costs based upon
management's assessment of the future realizablity of these costs. None of the
Company's purchase price for MedSeries4 Operations has been allocated to
software, and, accordingly these items have been eliminated.
Note 5 - In 1993 and during the nine ended months September 30, 1994, MedSeries4
- - ------
Operations provided $766,000 and $101,000 for its participation in its parent's
postretirement health care and life insurance benefit plans. Such plans are not
provided by the Company.
Note 6 - Interest expense has been adjusted to reflect the Company's additional
- - ------
borrowings of approximately $17,000,000 associated with the purchase of
MedSeries4 Operations at an effective rate of 7%.
Note 7 - In 1993, MedSeries4 Operations recorded a goodwill write-off of
- - ------
$8,515,000 based on management's determination that such goodwill was not
recoverable.
Note 8 - The combined income tax provision has been adjusted to give effect to
- - ------
the adjustments above.
20
<PAGE>
SHARED MEDICAL SYSTEMS CORPORATION
----------------------------------
Exhibit Index
No. Description
- - --- ---------------------------------------------------------------------------
(2) Plan of Acquisition -
. Stock Purchase Agreement dated September 30, 1994 between Shared Medical
Systems Corporation and GTE Directories Corporation (without schedules)
(filed as Exhibit (2) to the Company's Form 8-K Report dated
September 30, 1994)*
*Previously filed as indicated and incorporated herein by reference.
21
